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It is still early days apropos of legalization, but cannabis is a multi-billion dollar industry. Within the US, 10 states and Washington DC have now legalized cannabis for adults over the age of 21 for recreational use. Moreover, an additional 33 states have legalized cannabis for medical use. Although there is often a discrepancy between the legalization of cannabis at the state and federal level, investors are recognizing the tremendous potential of the industry. In this article, experts provide valuable insight about the best cannabis stocks for your IRA and ways to navigate federal regulation.
The ETF MJ
“The ETF MJ – because it's an ETF and they are the better investments for an IRA- and many of the stocks listed below are in this ETF.
I've been researching Marijuana stocks for a while on my own. I read the Wall Street Journal and Barron's and follow an expert writer in that area called Bill Alpert ( I think that's his name offhand). What I haven't done which one should do is always invest in something that has dividends.
Cronos, Canopy, Sproutly, Tilray, Aurora, Curaleaf”
Joann Perahia, Systemic Solution Inc
Self-Directed Solo 401(k) Plan To By-pass Federal Regulation
“Although cannabis is technically allowed to be owned by a retirement account, the issue is that most banks, financial institutions, and self-directed IRA custodians will not allow you to use retirement funds to invest in any cannabis business because of federal regulation. Cannabis is still illegal federally even though it is legal in some states. For example, IRA Financial Trust Company is a self-directed IRA trust company under South Dakota law and we are prohibited from holding any cannabis related investments with retirement accounts. However, one option is using a solo 401(k) plan. With a self-directed solo 401(k) plan, you as the trustee can approve the investment and the plan can be opened at any local bank. Since the bank where the account is opened does not have any reporting requirement with respect to the plan, generally the cannabis-related investments through the solo 401(k) plan have not been an issue.”
Looking For History And Size Are Two Musts
“It's no secret the cannabis industry is booming as investors, entrepreneurs and ancillary businesses look to cash in on the ultimate cash crop.
All of the inherent risks of investing in other stocks are also present in the cannabis industry, if not even more so due to the relative young age of the industry and it's still shaky legal standing variances between state and federal governments.
However, for the right type of investor, the risks will outweigh the potential rewards and rewards there will be in coming years as this already multi-billion dollar industry comes into its own nationwide.
As for specific investment tips, because of how new the industry is, with players seemingly popping up overnight, and likewise players disappearing overnight, looking for history and size are two musts when it comes to investing in cannabis stocks.
This means we're looking at companies that have been publicly traded for over a year if possible and which not only have a history of growth but of strategic growth via diversification within the industry (investing in field-to-store supply chain operations) as well as strategic acquisitions.
Some companies that fall into this category include Canopy Growth Corp (CGC), Aurora Cannabis (ACB), and Tilray (TLRY). Tilray doesn’t hit the age requirement but sheer size and growth velocity win it a spot in this list.”
Erik Bowitz, Owner, Herb CEO, a community-driven online resource for cannabis enthusiasts, entrepreneurs, and investors.
The Cannabis Sweepstakes
“There are simply no top cannabis stocks that are appropriate for inclusion in an IRA. This is because of the stratospheric valuation levels of cannabis stocks. Canopy Growth (WEED), Aurora Cannabis (ACB) and Cronos Group (CRON) sell at 95, 69, and 217 times sales, respectively. For perspective, Amazon (AMZN) sells at less than 4-times earnings and is considered richly valued by many investors. I wouldn’t touch any of the cannabis companies and a little lesson from history is relevant.
I am reminded of an anecdote that Berkshire Hathaway Chairman Warren Buffett relayed in a 1999 address before investment professionals in Sun Valley, explaining that many investors in innovation end up disappointed. Arguably the most important invention in the last century was the automobile. Yet, in the early part of the last century, there were two thousand auto companies. The advent of the automobile had a transformational impact on how we live. If one had a crystal ball and knew at the time of the first cars how much this country would rely on automobiles, one would likely have invested heavily in the technology. Buffett explains, however, that of the two thousand companies, as of the late 1990s, only three car companies survived. He went on to say that at one time or another, all three were selling for less than book value, which is the amount of money that had been put into the companies and left there. While autos had a tremendous impact on society, investors weren’t duly rewarded. Who knows which companies will ultimately prevail in the cannabis sweepstakes.”
Robert R. Johnson, Professor of Finance, Creighton University
Be Wary Of Fly-By-Night Companies
“Our advice is to watch out for fly-by-night companies which are creating a lot of hype around nothing (Namsaste Technologies was one these companies which took investors on a wild ride last year before ousting their CEO)
The best companies are going to be the darlings which have already performed well and are established with external investments and a diversified line of offerings.
Canopy Growth is our top pick for a pure pot stock. They are leading in Canada sales figures, have made the best acquisitions including Storz and Bickel (makers of the Volcano Vaporizer) and have vested interests from bigger players like Constellation Brands.
Reminder, this is a long game, all the big name pot stocks are bound to be volatile but Canopy is the only one I would put 1% of my money into and not worry about for 20 years.”
Tyler Browne, Owner/Operator, To the Cloud Vapor Store
Although legalized cannabis in the US is still in its budding phase, none-the-less, it is a multi-billion dollar industry. It can be tricky for investors to navigate the legalities of federal regulation. However, for those willing to invest in the long game, investing in cannabis stocks for an IRA has tremendous potential for reward, especially once there is federal legalization.