Are you trying to break into the recreational marijuana industry, but also do not want to invest too much capital? Marijuana/cannabis penny stocks (or “pot stock”) may be the answer.
What are penny stocks?
Pot penny stocks, also known as micro-market cap stocks, stocks under $5, etc, are stock-traded common shares of small public companies. They also initially trade at low prices per share.
However, trading penny stocks is unlike trading normal stocks. They are typically not listed on a major stock market. Instead, they are often traded on Over the Counter (OTC) exchanges.
What is the risk of investing in penny stocks?
Generally, trading and investing in penny stocks is risky. Many of these marijuana companies do not have a reputation to protect, and therefore lack transparency. Additionally, many penny stocks actually end up going under or file bankruptcy to wipe out the huge debt they carry.
Since the marijuana industry is so fresh, the excitement can lead people to enter in way over their heads, thus causing illogical business decisions.
Before investing and trading penny stocks, you should know that they are extremely risky. However, they are still seen as a high-risk/high-reward investment.
What are the potential benefits of investing in penny stocks?
Penny stocks have several attractive features. For instance, you are able to buy a relatively large number of shares due to the low stock price. Additionally, if a penny stock can survive years of financial instability, then the return can be huge.
Some of these “pot” companies have the potential to reap huge rewards, but will likely take years until the “legalize marijuana” movement occurs at the United States federal level.
What to look for in a penny stock
There are a few characteristics that will help you distinguish between a good penny stock and a shaky one.
- The company needs to make money. No matter how low the share price is, it’s always a bad idea to invest in a cannabis company that consistently loses money.
- The company needs substantial assets/cash.
- The company must have a strategy implemented. Their goals should include building a long-term business and paying back investors.
Look for marijuana penny stocks that are either at support or in uptrends. Below are three of them to be on the lookout for this week.
Hill Street Beverage Company Inc (BEER) (Cannabis in Canada)
Hill Street Beverage Company (TSE:BEER) produces and sells alcohol-free beer and wine. It plans to craft alcohol-free beverages that are infused with cannabis as soon as cannabis edibles are legal in Canada. Alcohol-free, cannabis-infused beverages can potentially capture a large share of the traditional alcoholic beverage market.
Exactus (OTCMKTS:EXDI) produces and sells hemp-derived cannabidiol (CBD) products under its brand name and also to third-party resellers. It also is invested in hemp farms in Oregon. Exactus recently announced that it will exceed its initial production estimates of 20,000 lbs of top flower. Additionally, they also announced that compliance testing on all of its fields conducted by the Oregon Department of Agriculture resulted in a 100% pass rate.
48North Cannabis (NRTH)
48North Cannabis (TSE:NRTH) focuses on growing cannabis on farms, as opposed to in greenhouses or indoor growing facilities. Farming is significantly cheaper than the other methods. In addition, some cannabis connoisseurs believe that the quality of the product is better when it is grown under natural sunlight in soil. They also recently announced that they are receiving 1,000,000,000 mg of high-quality active CBD oil from Iverson Family Farms in Oregon.
Check back here at Yahoo Finance each week to see the new stocks and analysis of the cannabis industry.
(Disclaimer: The author of this article is not a financial advisory or broker and is not advising or promoting the investment in any particular stock.)