Steven R. Gormley

Article / Updated 04-25-2023

Momentum investors (speculators) lean toward technical analysis instead of fundamental analysis when choosing which stocks to buy, when to buy, and when to sell. Investors who rely on technical analysis spend most of their time looking at charts to spot patterns in an attempt to predict the future movement of a stock’s price. Upward momentum With momentum investing, you basically want to buy stocks that show sustainable upward momentum and sell them before the price starts to trend downward. The key word here is sustainable, which means you’re looking for a pattern that you have reason to believe will continue for the foreseeable future. One way to identify a stock with sustainable upward momentum is to look at its 50-day and 100-day simple moving averages in relation to one another. A simple moving average (SMA) shows the change in a stock’s average price over a certain number of days. For example, to calculate the five-day SMA of a stock for a given day, you total the stock’s closing prices over the past five days and divide by five. To calculate the 50-day moving average, you total the stock’s closing prices over the past 50 days and divide by 50. To create an SMA chart, you calculate the SMA for the desired period (for example, for each of the past 50 days) and plot those points on a chart, as shown. You end up with a line or curve that smooths out the daily fluctuations in the share price (which reduces the “noise”) to make the stock’s overall momentum clearer and easier to visualize and understand. The good news is that you don’t have to calculate simple moving averages and chart them. Nearly every online broker features moving average charts as part of its service. I explained how to calculate the SMA and create a chart just so you would have a clearer understanding of how this investment strategy works. As a momentum investor, you look for times when the short-term upward trend is strong enough to trigger a positive shift in the long-term trend. The most common way to spot such a shift is to chart a stock’s 50-day and 100-day moving averages and look for points where the two lines cross. When the 50-day SMA line moves from below to above the 100-day SMA line (see the following figure), this is a sign that the short-term trend may be strong enough to trigger an upward shift in the long-term momentum — a buy signal. However, if you look at enough of these moving averages charts, you start to notice that this technique doesn’t always work. You’ll notice plenty of instances where the 50-day SMA line moves from below to above the 100-day SMA line that corresponds with a sell-off. Likewise, you’ll notice plenty of instances where the 50-day SMA line dives down below the 100-day SMA line corresponds to an upward shift in share price. In other words, don’t blindly follow this technique. Momentum investors may examine the SMA over longer periods or use other types of charts to gauge a stock’s momentum and identify buy and sell opportunities, but this basic method enables you to wrap your head around the concept and try it if you so desire. Be careful buying into an apparent rally, because short sellers can quickly inflate a stock’s price when they exit their positions in anticipation that the stock price will soon tank. Downward momentum After buying a cannabis stock with upward momentum, your next decision is when to sell it. At this point, monitoring the stock’s SMA is even more important, because at any time in the future, the trend can flip from upward to downward. You want to sell your stock as close to the stock’s peak as possible, and as you feel comfortable doing. As is commonly said among investors, “Pigs get fat, and hogs get slaughtered.” Don’t be too greedy when deciding the right time to sell. If you’re unsure whether a stock has peaked, consider cashing out your principle (the initial amount you invested) and riding to the top with your gains (the remaining shares). As you become more familiar with cannabis stocks, you may want to consider taking bigger risks. Deciding when and how much to sell depends on your personal risk tolerance and how much you can afford to and want to gamble. Now, instead of looking for points where the 50-day SMA moves from below to above the line for the 100-day SMA, you want to watch for when that 50-day line crosses down from above to below the 100-day line (see Figure 13-3). How far that 50-day line dives down before you pull the trigger is up to you, but if you want to remain true to this strategy, the sooner you sell, the better.

Article / Updated 07-19-2022

If you’re more interested in cannabis-focused exchange traded funds (ETFs), venture capitalist (VC) funds, or private equity (PE) funds, than you are in individual cannabis stocks, you can find the best tools for tracking down cannabis funds. Most websites and online brokers that feature stock screeners also include an ETF screener, but they rarely include screeners specifically for cannabis ETFs or for VC or PE funds, which makes the Daily Marijuana Observer’s investment fund databases so unique and so useful to you as a cannabis investor. Before you invest in any fund, research the fund manager as thoroughly as you would research the founders and managers of a business. Make sure the person knows the cannabis industry inside and out. A fund’s return depends directly on the people who are choosing where to invest the fund’s capital. What to screen for Screeners typically feature a variety of filters that enable you to focus on securities based on different parameters, such as region or country, market capitalization, price, sector, and industry. You set the parameters and execute your search, and the screener displays a list of only those securities that match the specified parameters. Not all screeners use the same parameters. In fact, the two screeners covered in this article that are most useful for identifying cannabis investment opportunities support very few of the parameters I describe next. However, if you use one screener to find a stock and another to dig up more details about it, having an understanding of these parameters will help. In the following section, I use the Equity Screener at Yahoo! Finance as an example. First up: The major categories When you first access a market screener, you usually enter some general parameters first to start the process of narrowing your list of candidates. For example, if you go to Yahoo! Finance, click Screeners in the menu at the top, and click Equity Screener, you’re prompted to specify the following parameters (see the following figure): Region: Here you enter data about your chosen country to refine your search. If you’re looking for U.S. stocks, the choice, of course, is “United States.” For cannabis stocks, you probably want to focus on the U.S. and Canada, and perhaps Australia, Germany, and Israel. Market Cap: In the Market Cap category, you choose the size of the company—Small Cap, Mid Cap, Large Cap, or Mega Cap. Looking for growth potential? Go for small cap or mid cap. Looking for more safety? Go to large cap or mega cap. Price: In the Price field, enter a minimum and maximum. For example, if you’re interested specifically in penny stocks, you can enter a maximum of $5. Sector and Industry: A sector is a group of interrelated industries. For example, the health care sector has varied industries, such as hospitals, medical device manufacturers, pharmaceuticals, drug retailers, and so on. After choosing a sector, you can narrow your search further by specifying an industry within that sector; for example, if you choose health care as the sector, you can then choose biotechnology or drug manufacturers as the industry. The main event: specific filters After specifying your preferences, you can click + Add Another Filter to display a pop-up menu containing many additional filters broken into several groups, including Fair Value, Share Statistics, Balance Sheet, Income, and Valuation Measures (see the following figure). Using these filters, you can further narrow the list of stocks. Every screener has a different way to access these filters, and some may not offer certain filters. Share statistics The group of filters labeled Share Statistics contains more than 40 stock-related criteria ranging from share price action (the 52-week high or low) to fundamentals, such as total assets or total liabilities. One area I like to focus on is the price-to-earnings (P/E) ratio. This ratio is one of the most widely followed ratios, and I consider it the most important valuation ratio (it can be considered a profitability ratio as well). It ties a company’s current stock price to the company’s net earnings. The net earnings are the heart and soul of the company, so always check this ratio. All things considered, I generally prefer low ratios (under 15 is good, and under 25 is acceptable). If I’m considering a growth stock, I definitely want a ratio under 40 (unless there are extenuating circumstances that I like and that aren’t reflected in the P/E ratio). Cannabis stocks tend to have much lower P/Es than those of well-established companies in well-established industries, because the cannabis industry isn’t mature yet. More private companies have earnings at this point than do publicly traded companies. Make sure your search parameters have a minimum P/E of, say, 1 and a maximum of between 15 (for large cap, stable, dividend-paying stocks) and 40 (for growth stocks) so that you have some measure of safety (and sanity!). If you want to speculate and find stocks to go short on, two approaches apply: You can put in a minimum P/E of, say, 100 and an unlimited maximum (or 9,999 if a number is needed) to get very pricey stocks that are vulnerable to a correction. You can put in a maximum P/E of 0, which would indicate that you’re searching for companies with losses (earnings under zero). Income The Income group offers some important filters tied to sales and profits. Keep in mind that income in terms of sales and profits is one of your most important screening criteria. Sales revenue (called Total Revenue in the Yahoo! Equity Screener) may be expressed in absolute numbers or percentages. In some stock screeners, ranges may be described as something like “under $1 million in sales” up to “over $1 billion in sales.” On a percentage basis, some stock screeners may have a minimum and a maximum. An example of this is if you were searching for companies that increased their sales by at least 10 percent. You’d enter 10 in the minimum percentage and either leave the maximum blank or plug in a high number, such as 999. Another twist is that you may find a stock screener that shows sales revenue with an average percentage over three or five years so that you can see more consistency over an extended period. Profit margin (called Net Income Margin % in the Yahoo! Equity Screener) is, basically, the percent of sales representing the company’s net profit. If a company has $1 million in sales and $200,000 in net profit, the profit margin is 20 percent ($200,000 divided by $1,000,000). For this metric, you’d enter a minimum of 20 percent and a maximum of 100 percent because that’s the highest possible (but improbable) profit margin you can reach. Keep in mind that the data you can sift through isn’t just for the most recent year. Some stock screeners give you a summary of three years or longer — such as what a company’s profit margin has been over a three-year period — so you can get a better view of the company’s consistent profitability. The only thing better than a solid profit in the current year is a solid profit year after year (three consecutive years or more). Valuation measures For value investors (who embrace fundamental analysis), the following parameters are important to help home in on the right values. In Yahoo! Equity Screener, all of these are in the group labeled Valuation Measures: Price-to-sales ratio: A price-to-sales ratio (PSR) close to 1 is positive. When market capitalization greatly exceeds the sales number, the stock leans to the pricey side. In the stock screener’s PSR field, consider entering a minimum of 0, or leave it blank. A good maximum value is 3. P/E/G ratio: You obtain the P/E/G (price/earnings to growth) ratio when you divide the stock’s P/E ratio by its year-over-year earnings growth rate. Typically, the lower the P/E/G, the better the value of the stock. A P/E/G ratio over 1 suggests that the stock is overvalued, and a ratio under 1 is considered undervalued. Therefore, when you use the P/E/G ratio in a stock-screening tool, leave the minimum blank (or at 0), and use a maximum of 1. Price/Book Value (P/B): This ratio compares a company’s market value (share price multiplied by number of outstanding shares) to its book value (net assets of the company). Anything under 1.0 is considered a great P/B value because it indicates a potentially undervalued stock. A P/B value of 3.0 or less is good. Financial highlights In the Financial Highlights group, Return On Equity % is a useful filter. ROE is a good measure of how wisely a company uses its equity (original investment plus any money it borrowed) to generate profits. Because this is an average (in percentage terms) over five years, do a search for a minimum of 10 percent and an unlimited maximum (or just plug in 999 percent). If you do get one that’s anywhere near 999 percent, by the way, call me and let me know!

Article / Updated 03-31-2022

You’ll find no shortage of investing strategies and schemes online for earning a fortune trading stocks, but no magic formula exists. If such a formula did exist, the person who discovered it probably wouldn’t be so eager to share it or to try to make money selling the “foolproof” technique. You can also find plenty of investment gurus online touting the best cannabis companies or stocks to invest in or predicting what will be the next big thing in cannabis, but can you really trust them? The most profitable and safest way to invest in cannabis is no secret: Put your money in the best companies. While that certainly sounds easy enough, how do you know which cannabis companies are best? How do you really know that a company will be successful and that you’ll earn a good return on your investment? The answer is, you don’t. However, you can increase your odds by investing in profitable businesses, or businesses that have what it takes to be profitable. Following are 11 criteria for choosing a business to invest in. A business doesn’t have to meet all ten criteria to be a good investment. For example, if a business has a great management team, the fact that the business isn’t profitable yet may be less important. However, you should consider all these criteria before investing in any cannabis business. Experienced and successful management team I cannot stress enough the importance of vetting the people who are running the business. These are the folks who will make or break the business (and your investment), so you want to be sure they’re knowledgeable and experienced in both cannabis and running a business, and that they don’t have a history of failed business ventures. Here’s what to look for: Any past criminal activity that could be a warning sign that the business is not legitimate, such as past Securities and Exchange Commission (SEC) violations Cannabis knowledge and experience Business management knowledge and experience No long track record of failed business ventures A positive reputation — respected in the cannabis industry or in business circles An individual rarely has all of the qualities needed to run a successful cannabis business. For example, someone with loads of cannabis knowledge and experience may not have business or people management expertise. However, the management team, as a group, should have all of the knowledge, skills, and experience required. Steady revenue growth Revenue growth is a good indicator of a business’ success, showing whether sales are increasing or decreasing. If revenue growth is steady or negative, the business is failing to remain competitive. Check the business’ revenue from month to month and from quarter to quarter. If the company has been in business for several years, look at its annual revenue from one year to the next. You can find a company’s revenue on its income statement. To compare revenue growth between two or more businesses, convert the dollar values to percentages. Start with this year’s revenue, subtract the revenue from the same period last year, divide the result by last year’s revenue, and then multiply by 100. Note that you don’t need to know the revenue for an entire year to make this calculation. For example, suppose it’s July, so the business only has revenue from the first six months of this year. This year, the company had $10 million in revenue. For the first half of last year, the company had $8 million in revenue. Its revenue growth as a percentage is: ($10 million – $8 million)/$8 million x 100 = 25% Consistent profit growth Profit is total revenue minus total expenses. A positive result means the business has earned more than it has spent. A well-run business shows growth not only in revenue but also in net profit. Negative or declining profit growth with rising revenue growth could be a sign that a business’ operational efficiency is dropping — that revenue isn’t keeping up with increases in expenses to operate the business. A negative profit margin (revenue minus expenses) is not necessarily bad. Successful businesses often operate at a loss when they’re investing toward future growth. If profit growth is negative or declining, dig deeper to find out what the business is investing in, how it’s getting the money to continue operating, and, if it is borrowing money, whether it has the means to make the loan payments. Comparatively low price-to-earnings ratio What is the price-to-earnings (P/E) ratio? It is a stock’s share price divided by its earnings per share, which is the company’s total profits divided by the number of shares. Suppose a stock’s share price is $10, its annual profit is $1 million, and the total number of shares is 500,000. Earnings per share is $1 million divided by 500,000, which equals $2 per share. The P/E ratio is $2 divided by $10, which is a ratio of 5 to 1. By itself, the P/E ratio doesn’t tell you much, but when you compare it to the P/E ratios of other companies in the same business, it’s a good indicator of whether a stock’s price reflects the company’s value. A comparatively low P/E ratio may indicate a good value for your investment. Don’t consider the P/E ratio in a vacuum. A company that’s growing fast and investing heavily in that growth may have a high P/E ratio but be a better investment than a company that’s more profitable now but is losing market share. Positive money flow indicator One way to gauge a company’s value is to check the money flow index (MFI), which measures the momentum of a security by looking at movements of trading volume and price. If investment dollars are flowing toward one company and away from another, this trend could be a sign that the company drawing more investor interest is on its way up, while the other company is on its way down. The MFI falls into the realm of technical analysis, and it may not be the best indicator of a company’s health. A rising share price could be an indicator of a pump-and-dump scheme or simply that the company’s name was mentioned in a news article that shed a positive light on it. It’s more an indicator of investor sentiment than the health and vitality of the business. Expanding free cash flow When a company has a positive cash flow (is earning more than it’s spending), it has money to reinvest in the business, settle debts, pay expenses, build a buffer against future financial setbacks, and even share its profits with investors. Generally speaking, you want to invest in companies that demonstrate an increasingly positive cash flow. In a young industry like cannabis, in which businesses are just getting started, fewer businesses are likely to have a positive cash flow, let alone an expanding free cash flow. They’re more focused on getting started and growing. In addition, too much free cash flow could be a sign that the business isn’t spending enough money for growth or isn’t leveraging the money it has as optimally as possible. Operations in other states or countries Due to laws prohibiting the sale and transportation of marijuana across borders, cannabis businesses often struggle to survive in their own jurisdictions and face even greater challenges establishing operations in other states and countries. However, those that are successful in increasing their reach tend to be impacted less by challenges or setbacks in individual markets. In addition, they’re better positioned to expand into other markets as marijuana laws are relaxed. Growing market Markets for certain products expand and contract. For example, the market for vape products in the cannabis industry is huge, because many consumers want a similar experience to smoking it, without the smoke. However, when people started getting sick from black market vaping products, the vape market took a huge hit. It has since recovered, but this example shows how industries can be affected by new products (vapes) and news. Before investing in a company, consider how well it caters to current consumer demand and how well it adjusts to changes in consumer demand. In many ways, the cannabis industry is like the smartphone industry — to be successful, a cannabis company must be able to stay ahead of the curve on consumer demand. Increasing market share The cannabis industry is highly competitive, and demand for product isn’t unlimited. To grow, businesses must increase their share of the pie; they can’t simply make more pie (increase demand). And, the ability to grow by expanding into different markets is often restricted by legal and regulatory issues. So, when investing in cannabis, look for companies with increasing market share. You may be able to find out a cannabis company’s market share by researching on cannabis business news sites. Or, you can search these same sites to find out the total revenue for the industry in the country or state in which the company operates and then divide the company’s revenue by the industry’s revenue for that same period. Positive reputation in the industry As you immerse yourself in the cannabis industry and read cannabis newsletters and other publications, you’ll begin to notice the names of companies and people appearing again and again. Pay close attention to which companies and people seem to be leading the industry. Which people are renowned authorities in the industry? Which companies and people seem to be the most highly respected? Then, research these companies and individuals to find out what they’re doing and what they’re saying about other businesses and individuals in the industry. As you begin to identify the movers and shakers in the industry, you’ll develop a better sense of where to invest your money. Who’s partnering with whom? Where are cannabis companies going to buy the products and services they need? You can often tell a lot about a company by looking at its business associates. Manageable debt Plenty of companies, including cannabis companies, struggle with solvency. Excessive debt is a key issue in today’s economy. When domestic energy became a hot industry a few years ago, many of those companies ultimately went bankrupt due to unsustainable debt. Imagine if you didn’t have enough income to cover your mortgage, utility bills, and credit card payments — the same thing can happen to businesses. Managing debt is a critical success factor especially for cannabis (or any) companies that are not yet profitable. You also want to look at the debt holder. Some companies, particularly those that seek aged debt, are toxic lenders. Avoid any company that has debt holders with convertible notes or aged debt — it’s a killer.

Article / Updated 03-31-2022

When discussions arise about the legality of cannabis, they usually revolve around growing it, selling it, or possessing it. However, cannabis laws and the enforcement of those laws also impact the industry, influencing everything from where different cannabis businesses can operate and under what conditions, to the taxes and fees they pay and, ultimately, the cost and availability of the product. Complications and confusion often arise over differences in laws and regulations at the federal, state, and local levels. For example, in the U.S., cannabis is illegal at the federal level, legal for medical use in many states, legal for both medical and adult use in several states, and prohibited for sale and possession in many municipalities within states where it’s legal. In 2013, Uruguay became the first country to officially legalize cannabis for both medical and adult use. In 2018, Canada became the second country and the first G7 member to legalize cannabis. In the provinces of Quebec and Alberta, the legal age is 18; in the remainder of the country, it’s 19. In New Jersey, before voters even had a chance to vote on a proposition to legalize adult-use marijuana, more than 50 local governments already had passed laws banning its sale or possession. This article brings you up to speed on federal, state, local, and international marijuana laws in the hopes that by knowing the laws, you’ll be better prepared to ride the waves that are sure to rock the cannabis industry as its future unfolds. U.S. cannabis federal law and enforcement In the U.S., in the 1800s, marijuana was used as an ingredient in many medicinal products sold in pharmacies across the country, but by 1931, 29 states had outlawed it, citing research at the time that linked the use of marijuana with violence, criminal activity, and other deviant social behaviors. Federal regulation didn’t occur until President Franklin D. Roosevelt signed the Marihuana Tax Act of 1937, which required every person who sold, acquired, dispensed, or possessed marijuana to register with the Internal Revenue Service (IRS), pay taxes on their transactions, and complete an order form that required the name and address of both buyer and seller and the amount of marijuana being sold or bought. Although the act did not specifically criminalize marijuana, it came to be used in that way. In 1970, the Supreme Court overturned the law, and Congress repealed it but simultaneously passed the Controlled Substances Act, designating marijuana a Schedule 1 controlled substance based on the belief that it had a high potential for abuse, no currently accepted medical use, and a lack of accepted safety regarding the use of the drug. Adding marijuana to the list of Schedule 1 controlled substances (along with heroin, LSD, ecstasy, and magic mushrooms) effectively made it illegal for anything other than very limited research. In particular, the following activities are federal crimes: Transporting cannabis across any state line, even if it’s transported from one state in which it’s legal directly to another. Flying with cannabis, because it enters into federal airspace. Possessing or using marijuana on federal land, including national parks and forests. Federal laws and their enforcement impact cannabis businesses and investors in the following ways: Because transporting cannabis across state lines is illegal, cannabis businesses that want to expand sales into other states must duplicate their operations in those states. They can’t take advantage of economies of scale simply by shipping their products across state lines. The Bank Secrecy Act (BSA) and federal money-laundering statutes discourage banks from offering services to cannabis businesses. (Passed in 1970, the BSA is a U.S. law that requires financial institutions in the U.S. to assist federal agencies in detecting and preventing money laundering.) Violations can result in steep fines and imprisonment of bank officials. Inaccessibility to basic banking services increases the costs and complexities of operating cannabis businesses. Some banks are starting to serve cannabis businesses, and the Financial Crimes Enforcement Network, the financial intelligence unit of the U.S. Department of Treasury, offers guidance to banks on how to comply with regulations when serving marijuana and ancillary businesses. However, compliance places an added burden on banks to police the marijuana businesses they serve. In addition, the Department of Justice reserves the right to prosecute banks for working with these businesses, which face these obstacles: Without basic banking services, cannabis businesses have no access to the capital markets, which are useful for raising money for development and growth. They need to rely on private investors, which provides private investment opportunities but at a very high risk. According to the principles of contract law, any contract in breach of public policy is void and unenforceable, which is a major concern for investors or funds regarding any investment contract’s legitimacy. This concern serves as another obstacle to cannabis businesses seeking to raise investment capital for development or expansion. Cannabis businesses are required to pay income taxes, but filing tax returns (federal and state) constitutes self-incrimination. In addition, without banking services, cannabis businesses must pay their taxes in cash, which is inconvenient, costly, and risky. Due to the 280E provision in the IRS tax code, cannabis businesses are prohibited from deducting ordinary business expenses from their gross income, thereby significantly increasing their tax burden and negatively impacting their profitability. Bankruptcy protections are unavailable for cannabis businesses in the U.S. Without the option to restructure, cannabis businesses are often forced to shut down when they encounter credit issues. As a result, creditors may have difficulty collecting their debts, which discourages them from loaning money to cannabis businesses in the first place. Fear among potential customers of losing a federal job, student financial aid, the right to own a firearm, or eligibility for federally subsidized housing can put downward pressure on cannabis sales. If marijuana is legalized at the federal level, the entire business environment will change, allowing large, well-established companies in other industries, such as alcohol, tobacco, and pharmaceuticals, to compete for market share. So, what does this mean for investors? Regulations generally move in a direction that favors growth and investment opportunity. At this time, more than two-thirds of Americans live in a jurisdiction that has some form of legal cannabis. The country is trending toward a repeal of prohibition, but that will likely be a slow and clumsy process from a regulatory standpoint. If you’re looking to invest in licenses and permits, consider states with a more limited number of granted permits. States that limit the number of permits make those permits more valuable by doing so. You also want to consider states that have constitutions providing for voter referendums. As you do, you’ll notice that most states that allow for referendums are west of the Mississippi and business friendly. There’s a historical reason for that. Those states joined the union in the 19th century, and their state constitutions are based on the Spanish and French democratic models that allow voters to pass laws by referendum. As a result, and generally speaking, states with voter referendum and business-friendly regulatory environments tend to have legislation providing for some degree of legalized cannabis. Be careful when you’re considering investing in any company whose licenses are based on narrow zoning laws. I’ve invested in real estate that was once coveted because it was zoned for cannabis only to have the city loosen its zoning restrictions six months later. I paid a premium for the property, only to see its value drop when zoning laws made more real estate available for cannabis businesses. I could have avoided that mistake by researching more thoroughly what was on the ballot or what was being discussed by the zoning committee. Keep an eye on the Strengthening the Tenth Amendment Through Entrusting States (STATES) Act, which would amend the Controlled Substances Act (CSA) so that any state-legal cannabis activity would no longer be considered illegal under federal law. The STATES Act would also solve the cannabis banking problem, because the federal money-laundering statute is triggered only for illegal activities. Likewise, because the 280E provision applies only to revenue generated by illegal means, cannabis businesses would be able to deduct their business expenses just like any legal business. Although the STATES Act has bipartisan support and was passed by a large margin in the House of Representatives, as of this writing, the bill was hung up in the Senate. The Cole Memorandum During the Obama administration, on August 29, 2013, U.S. Deputy Attorney General James M. Cole issued a trio of memos, including the Cole Memorandum, to all U.S. attorneys general. The memo informed them that due to limited resources, the U.S. Department of Justice would not be enforcing federal marijuana prohibition in states that legalized and effectively regulated and enforced their own marijuana laws. The memo directed the state attorneys general to “not focus federal resources in your states on individuals whose actions are in clear and unambiguous compliance with existing state laws providing for the medical use of marijuana.” Instead, states were encouraged to address federal priorities, for example, “by implementing effective measures to prevent diversion of marijuana outside the regulated system and to other states, prohibiting access to marijuana by minors, and replacing an illicit marijuana trade that funds criminal enterprises with a tightly regulated market in which revenues are tracked and accounted for.” This memo was rescinded under the Trump administration in January 2018 by Attorney General Jeff Sessions. The impact of the rescission in individual states has yet to be determined, but it’s a cause for concern because it indicates that the feds may be leaning toward greater enforcement of the federal prohibition of marijuana. State cannabis laws Although cannabis is federally illegal, each state has the right to legalize it within its borders and set the rules and regulations for personal and commercial growth, production, transportation, sale, possession, and use. States fall into one of the following five categories: Fully legal: Both medicinal and adult use are allowed. Fully illegal: No medicinal or adult use is allowed or decriminalized (see the final item in this list for more about decriminalization). Medical and decriminalized: Medical use is legal, and possession and use is decriminalized. Medical only: Marijuana is legalized only for medical use, which in some states allows only cannabidiol (CBD) oil use (CBD doesn’t contain the psychoactive ingredient THC). Decriminalized: Possessing or using small amounts of marijuana will not lead to arrest, prosecution, prison time, or a criminal record (decriminalization details vary by state). The easiest way to find out where each state in the U.S. stands on legalization is to search the web for “marijuana legal states.” You’ll see a color-coded map like the one shown. State marijuana laws change frequently, so access a map from a reliable source that has current information. State laws and enforcement of those laws can negatively impact cannabis businesses and investors in several ways, including the following: Every state in which marijuana is legal has numerous rules and regulations that apply to marijuana growers, producers, sellers, and distributors. These rules and regulations govern everything from verifying the identities of buyers to packing, labeling, and tracking products, and all of them add to the cost and complexity of doing business. Marijuana taxes vary by state, with adult-use marijuana typically taxed at a much higher rate than medical marijuana. Higher taxes add to the product cost and can drive sales to illegal sellers, negatively impacting sales for legal businesses. States vary in the number of legal cannabis businesses they allow, how much they charge for licenses, and how quickly they implement legalization, which can all impact how successful cannabis businesses are in each state. Some states require marijuana businesses to reserve large amounts of cash before applying for a license. This practice encourages rolling up marijuana businesses—a method that involves acquiring and merging small businesses to increase their collective value. In these states, large marijuana businesses have a distinct advantage over smaller operations. State laws may stipulate residency requirements for investors in cannabis businesses. Some states in which marijuana is legal are less stringent in enforcing laws against illegal sales, which can negatively impact sales for legal businesses. Local laws In states where cannabis is legal, local municipalities can separately regulate its growth, production, and sale within their borders. They are also allowed to add taxes and fees to commercial efforts above and beyond those of the state. In some cases, municipalities can completely ban commercial endeavors. For example, Colorado Springs permits medical sales but has continued to ban adult-use dispensaries. Penalties can vary significantly from one municipality to another. These variations and costs can negatively impact the sales and profits of cannabis businesses, even in states in which cannabis is legal. Cannabis laws in other countries As an investor, you want to know about a cannabis company’s range of operations—specifically, the countries it serves around the world. A company that operates in several countries may be less susceptible to changes in laws and regulations than a company operating in only one country. In addition, a company’s global reach reflects its ambitions for growth. Here’s a list of countries in which cannabis is legal or decriminalized to some degree: Australia Canada Germany Italy Mexico The Netherlands New Zealand South Korea Spain Switzerland Uruguay S. Virgin Islands Carefully research each market before investing in companies that operate in it. Examine the laws and enforcement of those laws, cannabis demand, the costs of doing business, competition from illegal sellers, and other factors to gain a better understanding of the potential for sales, profits, and growth, as well as the risks involved.

Article / Updated 03-31-2022

You’re going to invest in cannabis. Remember that investing in cannabis is risky business. Many people who invested years ago got the jitters, sold their shares, and lost a lot of money. Some people lost money to con artists or well-intentioned friends or family members. Others lost out because they invested in cannabis businesses that didn’t make it. However, as long as you’re well aware of the risks, if you decide to move forward, I applaud your bold initiative, and I hope you receive ample compensation for your risk-taking. People like you are the ones who drive innovation and fuel the success of new industries such as cannabis. Still, I’m going to take this opportunity to caution you in the hopes that the risks persuade you to tread carefully — to do your homework and perform your due diligence. Savvy investors stand to earn handsome returns on their investments as long as they make smart investments. Those who rush in and are clueless and careless will lose their shirts. Following are 10 reasons for not investing in cannabis. Keep these reasons in mind as you seek your fortune in the green rush. Marijuana is still federally illegal in the United States Although momentum seems in favor of federal legalization of marijuana sometime in the future, nobody has a crystal ball that can tell them for sure what will happen. A new study might come out revealing some currently unknown harmful effect that makes legislators who are already against legalization dig in their heels. Or, some other unforeseen event or change in culture or beliefs could cause voters to become less accepting of marijuana use. Who knows? Until marijuana is federally legal, the federal laws against it will restrict growth in the industry in several ways, including the following: Increase the cost of doing business Continue to fuel the black market for cannabis Complicate and increase the cost of expanding businesses across state lines and into foreign markets Make banking and other financial services less available for cannabis businesses When you invest in cannabis, to a certain degree, you’re betting that it will ultimately become legal on a federal level. I believe that will happen, eventually, but it’s not a sure thing, and even if it were, nobody knows when it will happen. Marijuana investment scams are rampant Con artists profit on the human desire to have a better life. Some would call that greed, but I really think most people just want to have enough money to pursue their dreams. Many people see cannabis as the next gold rush. In fact, the recent boom in legal cannabis companies has been described as a “green rush.” Everyone wants to get in on the action and not to miss out on the opportunity to profit from this exciting new industry. And that’s exactly what makes people vulnerable to scams — that and the fact that people generally trust others. Con artists know that people are eager to invest in cannabis, so whenever someone expresses this eagerness, they become a target. Of course, the threat of a scam isn’t reason enough to avoid investing in cannabis, but it is a good reason to remain skeptical of opportunities that seem too good to be true. Earning a profit as a cannabis business is a huge challenge As an investor, you’re wise to invest in profitable businesses or at least those that have a good chance of being highly profitable. Unfortunately, cannabis is a heavily taxed and regulated industry, which increases the costs and complexities of doing business. It’s not like selling bottled water. Here are a few line items that take a huge bite out of cannabis business profits: Taxes. Cannabis businesses are prohibited from claiming business deductions on their federal taxes. Also, the high sales and excise taxes on cannabis products reduce demand and steer sales to the black market. Application and licensing fees. Application and licensing fees for legitimate cannabis businesses can be exorbitant in some states; for example, Connecticut charges a $25,000 application fee and a cultivation licensing fee of $75,000. In addition, businesses often must hire a lawyer to navigate the process. Capital requirements. Many states require cannabis businesses to hold a certain minimum in liquid assets (typically hundreds of thousands of dollars) to obtain and keep their license. Compliance costs. Companies often incur high legal costs and must purchase specialized software to remain compliant because most states require tracking cannabis “from seed to sale.” I could go on, but the point is that earning a profit in cannabis isn’t easy, and until it becomes easier, cannabis businesses will have a tough time proving their value to investors. Illegal operations undermine demand for legal products In many areas where cannabis is legal, the black market continues to thrive because 1) cannabis is often cheaper on the black market where businesses don’t pay taxes or application and licensing fees and don’t incur the costs of attorneys and compliance, and 2) the cannabis community is sort of anti-establishment, so many consumers prefer to buy from unlicensed growers and dealers. In addition, in many states in which cannabis is legal, people are allowed to grow a certain number of cannabis plants of their own. They need to buy seeds, fertilizer, and maybe the equipment to set up a grow room, which gives suppliers of those items additional business, but it decreases demand from commercial growers, manufacturers, and dispensaries. The industry is very fragmented The cannabis industry consists mostly of small businesses competing against one another, which means businesses will come and go. Some will fail, and some will succeed. Eventually, as cannabis legalization grows, large national companies will step in and either buy up competing companies or drive them out of business. People who invest in cannabis now, when the industry is fragmented, are likely to experience losses as some of the companies they “bet on” fall to the competition. The take-home message here is that if you’re accustomed to trading in companies listed on the major stock exchanges, such as the NYSE and Nasdaq, now may not be the best time to invest in cannabis. You may want to wait until the industry starts to consolidate; then, you’ll have an easier time predicting winners and losers. Oversupply is more likely than not Many states in which cannabis is legal face problems with oversupply — too many growers growing more cannabis than the consumers in the state want or need. Oversupply drives down prices and profits and makes companies less attractive to investors. Oversupply is another problem that’s at least partially due to the fact that cannabis is illegal on a federal level. If cannabis were legal federally, or if growers could at least ship their products over state lines, they’d have a larger market in which to sell and compete. As it is now, states must deal with the problem of oversupply internally, which usually means issuing fewer licenses to cultivators or charging significantly more for applications and licenses. Bad news is just around the corner To a large degree, rumors and news drive the stock market. In fact, some investment gurus advise to “buy on the rumor and sell on the news.” With cannabis, the opportunity for bad news is pretty high. In 2018, good news (mostly a combination of hype and hope) drove share prices in cannabis companies sky high. Shortly thereafter, the bad news (mostly poor earnings reports from some of the major players) led to a massive selloff. This boom-to-bust cycle is likely to continue because hype and hope continue to motivate investors in this industry. In addition, because cannabis is a drug, both good news about its benefits and bad news about its side effects are likely to contribute to the volatility. There is money to be made by investing in cannabis, but I urge you to invest with your head and not your heart. Carefully research each company’s fundamentals and be sure the share price is supported by those fundamentals. Marijuana laws are slow to change As long as marijuana remains illegal at the federal level, many states are going to drag their feet over legalization, and local jurisdictions are going to use the federal law as an excuse to pass their own restrictions on its sale and use. When the federal prohibition of marijuana will end is anybody’s guess. I think it’s likely to happen the next time the Democrats control the White House and Congress, which might happen before this book is published, four years later, or maybe even a much longer time from now. Company shares are being diluted Companies can secure financing through debt (borrowing) or equity (selling shares in the company), which is true of all companies. What’s different about cannabis companies is that they have trouble securing loans from banks, so they have to rely more on equity. When they get in a financial pinch, if they can’t get a loan, they need to sell more shares, and the more shares they sell, the more diluted the price of existing shares becomes. Unfortunately, investors have little control over decisions to issue more shares, even though that decision impacts the value of their investment. Shares can be diluted in any sector, any industry, and any company, but the possibility is higher among cannabis companies. Demand is unpredictable Several states that have legalized marijuana are finding that demand can be unpredictable for a variety of reasons, including the following: Cross-border sales may increase demand for marijuana in legal states surrounded by illegal states. However, when bordering states legalize it, cross-border sales decline. Any black-market sales reduce demand for legal cannabis. Any bad news about negative side effects reduces demand, although the drop in demand is usually short-lived. Whether demand for cannabis will increase or decrease with its legalization is hotly debated. I think demand is almost certain to rise with legalization, but others think it could fall as marijuana loses its appeal as a “forbidden fruit.”

Article / Updated 03-31-2022

One of the key benefits of the Marijuana Stock Universe and the Daily Marijuana Observer’s database is that they cover a wide range of exchanges and markets on which cannabis stocks are traded, including over-the-counter (OTC) stocks. OTC stocks (many of which are penny stocks, meaning they sell for less than five bucks a share) are stocks that aren’t listed on the major exchanges, such as the New York Stock Exchange, Nasdaq, or the Toronto Stock Exchange. The Daily Marijuana Observer’s list of OTC cannabis stocks The Daily Marijuana Observer’s OTC-Listed Cannabis Stocks Database is another excellent resource for tracking down over-the-counter cannabis stocks. You can search for stocks by name or ticker symbol or use the filters listed off to the side of the page to browse stocks by country, exchange, or sector. To access the OTC-Listed Cannabis Stocks Database, go to mjobserver.com, select Databases (from the menu bar at the top), click Cannabis Stocks, and under Browse a List of All Cannabis Stocks, click Visit Database. You can then browse and search the database in the following ways: Click in the text box below “Search Cannabis Stocks,” type a company name or ticker symbol, and click the Search button. Scroll down the list and use the Next button at the bottom of the list to view additional listings. Use the filters on the right side of the page to narrow the list by country, exchange, or sector. For example, under Browse Stocks by Country, you can choose to view All Cannabis Stocks or only those from certain countries: Australia, Canada, Germany, Israel, the U.K., or the U.S. Use the Sort By options above the list (and off to the right) to sort the list by rating, rating count, or company name. (Click the Sort By option again to flip the order of the list, if desired.) When you find a company or stock that interests you, click the View button (in the lower-right corner of the company’s listing) to view charts and details about that company or stock. Different exchanges and markets Exchanges and marketplaces covered by the Marijuana Stock Universe and Daily Marijuana Observer’s OTC database include the following: OTCPK: OTC Pink (or OTCPK) is the lowest and most speculative of the three tiers of stocks trading over the counter. Companies listed on the OTCPK market don’t have to meet any disclosure requirements or financial standards and could include companies in default or financial distress. I recommend steering clear of these stocks at least until you’ve built a track record of success trading OTC stocks in the higher tiers. OTCQB: Commonly referred to as “The Venture Market,” OTCQB is the middle tier of stocks trading over the counter. Companies listed in this market are early-stage and developing U.S. and international companies that don’t yet qualify for the higher OTCQX tier. To be included in this market, companies must meet minimum reporting standards, pass a bid test, and undergo annual verification. OTCQX: This is the top tier of the three OTC stocks and includes blue-chip (well-known, established) companies that aren’t listed on the more traditional exchanges (such as NYSE and Nasdaq). To qualify to be listed on the OTCQX, companies must follow certain rules and criteria and are subject to Securities and Exchange Commission (SEC) regulation. Penny stocks are excluded from this market. CV EM: Short for caveat emptor, which is Latin for “buyer beware,” CV EM is a special designation for OTC stocks to warn investors to take special care and perform thorough due diligence before buying shares in the company. Grays: The term “grays” refers to Gray Sheet stocks, which are usually shares in startups or spin-offs that are sold publicly but before they’re officially available for trading on a stock exchange or other financial market. You could find some great deals here or some real lemons. NYSE American: Formerly known as the American Stock Exchange (AMEX) and more recently as NYSE MKT, NYSE American is similar to the NYSE, but it deals mainly in small- and mid-cap stocks and derivatives, so it’s likely to offer a wider variety of cannabis stocks than what’s listed on the NYSE. CSE: Short for Canadian Securities Exchange, CSE is an alternative stock exchange in Canada that offers simplified reporting requirements and reduced barriers to listing for Canadian companies. This makes it easier for small cannabis companies to get listed. TSX: The Toronto Stock Exchange (TSX) is one of the largest stock exchanges in North America (listing more than 1,500 companies) and the eighth largest in the world (based on the market capitalization of the companies listed). TSX leans toward listing larger, more established Canadian companies. TSXV: Short for TSX Venture Exchange, TSXV lists smaller Canadian companies that don’t qualify to be listed on the TSX. TSXV is the Canadian equivalent to OTC markets. NSD: Nasdaq is one of the big, formal U.S. stock exchanges. You’ll find stocks for some of the biggest U.S. players in the cannabis space listed on this exchange, but your choice of cannabis stocks will likely be very limited. NYSE: The New York Stock Exchange (NYSE) is the largest stock exchange in the world (in terms of market capitalization of its listed companies). As with the Nasdaq, you’ll find stocks for some of the biggest cannabis companies in the U.S., but smaller companies are underrepresented. Many stock screeners don’t display OTC stocks, which include a vast majority of cannabis stocks. So, when you’re choosing a stock screener, make sure it lists stocks traded on OTC markets; otherwise, your selection of stocks will be severely restricted.

Article / Updated 03-30-2021

Investing always carries some risks, but momentum investing in cannabis stocks has some unique risks you should be aware of before trying it. This article explains some of the risks and provides guidance on how to avoid them. (Most of the time, just knowing of the potential threat is all you need to avoid it.) Before adopting any investment strategy with real money, try it with fake money. Numerous financial websites feature sample investment portfolios or simulators, such as Investopedia’s Stock Market Game and the MarketWatch Virtual Stock Exchange. Most of these simulators are set up as games in which you compete against other investors. Watch out for the short squeeze A short squeeze is a spike in a stock’s price that forces a large number of short sellers to close their positions, which pushes the price higher. Short selling is a strategy for profiting from a stock when its price drops. A short seller borrows shares from another investor, immediately sells them, then waits for the stock price to drop. When it goes as low as the short seller thinks it will go, he buys shares at the lower price, returns them to the lender of the shares, and pockets the difference. If a short seller buys stock expecting the price to drop and, instead, the price rises, the more it rises, the more money the short seller stands to lose when he ultimately decides (or is forced) to close his position. At any time, the lender of the shares can demand their return. When or even before that happens, the short seller may close his position (buy shares and return them to the lender to cut his losses), further driving up the stock’s price and trading volume. As a momentum investor looking at a simple moving average chart and the trading volume, you may believe that this surge in price reflects the popularity of the stock when the increase is really due mostly to short sellers panicking. Stock exchanges release short interest data every month (or more often), and you can usually obtain this data by visiting the stock exchange’s website. For example, to obtain short interest data from Nasdaq, you can take the following steps: Open your web browser and go to www.nasdaq.com. Type the stock’s symbol or the company name in the Find a Symbol box, then click the stock in the drop-down list that appears. In the navigation bar on the left, click Short Interest. A list appears, showing the number of shares being shorted, average daily share volume, and days to cover. The higher the number of days to cover, the greater the short interest, and the stronger the belief among short sellers that the stock price will drop. If you’re thinking of buying on the upward momentum, you may want to reconsider. However, some investors, known as contrarians, will buy when short interest is high, thinking that if the share price continues to rise, short sellers will be forced to buy even more, which will drive the price higher. In other words, their strategy is to make money specifically on the spike in price caused by the short squeeze. Steer clear of pump-and-dump scams Many cannabis stocks are penny stocks, meaning they’re cheap, which makes them easier to use in pump-and-dump scams; con artists buy lots of shares, then they get lots of suckers to buy them, which drives up the price. As soon as the price is high enough for their greedy, cheating minds, they dump their shares, taking their profit while the other investors lose a ton of money. Avoid cannabis stock and industry bubbles Investors often pour money into “sexy” companies, including just about all companies in the cannabis sector. All this money drives stock valuations sky high, which creates a bubble, and all bubbles eventually burst. During the dot-com boom of the 1990s, speculators drove the value of the Nasdaq composite index higher than 100 times its forward earnings, with some companies valued at 300 times their forward earnings. When the dot-com bubble burst over the course of March of 2000 to February of 2003, the Nasdaq composite index lost 70 percent of its value. The moral of this story is to check a company’s fundamentals before investing in it, even if you’re doing momentum investing. Pulling up a company’s price-to-earnings (P/E) ratio takes only a few seconds and serves as a valuable “sanity check.” Sure, already inflated stock prices can continue to rise, but they almost always drop, and when they do, you can lose a lot of money trying to buy high and sell higher. Know when momentum investing works and when it doesn’t Momentum investing typically delivers better results during periods when markets are relatively stable. During periods of significant volatility, other investment strategies may be more effective, such as diversification (which is always a good idea), investing in value stocks, and holding onto some cash. Volatility is fluctuation in the price or value of individual stocks, sectors, or the stock market overall. You can gauge the volatility of a stock by looking at its standard deviation—the average amount a stock’s price has differed from the mean (average) over a period of time. Instead of getting into the math, just pull up a chart of the stock’s price over the desired period of time that shows Bollinger Bands, which consist of three lines: a line showing the simple moving average (SMA), a line showing the standard deviation above the SMA, and a line showing the standard deviation below the SMA. The greater the distances between standard deviation lines and the SMA line (that is, the wider the band), the greater the volatility.

Article / Updated 03-30-2021

Before you get into the nitty gritty of the different choices you have when placing an order to buy or sell shares in a cannabis company, you should be familiar with the concept of the bid-ask spread. The bid-ask spread is the difference between the price a buyer is willing to pay for shares and the price a seller is willing to accept. This difference is the transaction cost—what the brokers and other market makers earn as a commission for executing the order. Several factors impact the bid-ask spread, including the following: Liquidity: How quick and easy it is to buy and sell shares, which is related to the daily volume of shares exchanged. Stocks that trade in large volumes tend to have a lower bid-ask spread. Volatility: Swings in share prices. When share prices are volatile, the bid-ask spread tends to widen. Share price: Lower share prices tend to widen the bid-ask spread, mostly because stocks with low share prices are in less demand. Supply and demand: Stocks in high demand and low supply have a narrow bid-ask spread. Stocks in high supply and low demand have a wider bid-ask spread. When you view a detailed stock quote or choose to buy or sell shares online, the online broker typically displays the bid and ask price, as shown. Here, the bid for Organigram Holdings, Inc. (OGI) is $1.22 and the ask is $1.31, which means the spread is $0.09, which is nearly 7 percent—a high price to pay for simply buying or selling one share. The bid-ask spread is a hidden cost to investors, but it’s not all that hidden. Perhaps more importantly, the spread can help you gauge the supply and demand for a stock and its liquidity. A large spread may be cause for concern. Unless demand increases, selling your shares later may be difficult or expensive. How to place an order to buy or sell cannabis stock shares Placing a buy or sell order is easy. All you do is call your broker or log on to your online brokerage account and specify the name of the cannabis company you want to invest in (or its ticker symbol) and the number of shares you want to buy or sell. It gets more complicated when you start adding conditions and a timeframe for the sale, as explained in the sections that follow. Here are the steps for entering a basic buy or sell order through an online brokerage: Find the company or stock you want to buy or sell. If you’re selling shares, the stock is included in your list of investments. Click the company’s link to access details about it. Click the Buy or Sell button, as shown. A dialog box appears, prompting you to specify details about the trade. The dialog box includes general information about your account, the company name, the ticker symbol, and settings that enable you to specify the action, order type, and time the order remains in force. Enter your preferences and click the Preview Order button. A preview window appears, as shown, which enables you to verify the details and then place the order or go back to edit it. Note that the order shown includes an Estimated Foreign Settlement Fee of $50. Why? Because this order is being placed through a U.S. brokerage for shares in a Canadian company—Fire & Flower Holdings Corp. (FFLWF). When you’re ready to place your order, click the Place Order button. A confirmation dialog box appears, indicating that your order has been received.

Article / Updated 03-30-2021

The single best stock-screening tool for tracking down cannabis stocks to invest in is (drumroll, please!) the Marijuana Stock Universe, made available by the generous folks at The Marijuana Index. The Marijuana Stock Universe is a searchable database of all marijuana and hemp stocks listed on the following markets in the U.S. and Canada: S. Marijuana Index includes cannabis stocks listed on the NYSE/AMEX, Nasdaq, OTCQX, and OTCQB markets. Canadian Marijuana Index includes cannabis stocks listed on the TSX, TSX Venture, and CSE exchanges. To be listed in the North American Marijuana Index, companies are required to have material involvement in the marijuana or hemp industry. This includes companies that touch the plant (such as growers, manufacturers, and dispensaries) and ancillary companies (such as fertilizer manufacturers and businesses that provide financial services to the cannabis industry). Companies must have filed financial statements in the last year and must maintain a minimum average daily trading volume of US $100. To access the Marijuana Stock Universe, go to marijuanaindex.com and click Marijuana Stock Universe (in the menu bar near the top of the page). The Marijuana Stock Universe appears, as shown. During the time of this writing, the Marijuana Stock Index listed 448 cannabis securities. You can browse through the entire list by scrolling down and using the page options at the bottom of the list to bring more securities into view. However, a more efficient approach is to use the search filters near the top of the list to narrow the list of securities. These search filters include the following: Price. If you’re looking for stocks in a specific price range, click the Price tab and drag the left and right sliders to narrow the list by price (see the following figure). As you drag a slider, the list becomes shorter to show only the companies in the selected price range. You’ll also see the number of securities just above the list drop. Volume. You can filter the list of securities by daily trading volume (from zero shares traded up to one billion). Click the Volume tab and drag the left and right sliders to specify the desired range. Market Cap. Market capitalization (or market cap) represents the dollar value of a company. It’s calculated by multiplying the total number of shares by the current share price. To screen securities by market capitalization, click the Market Cap tab and drag the sliders to specify the desired minimum and maximum. Exchange. By default, the Marijuana Stock Universe displays all securities regardless of the exchange or market on which they trade (see the next section for more about the different exchanges and markets). To limit the list of securities based on one or more exchanges or markets, click the Exchange tab and click the checkbox next to each exchange or market you want to include (see the following figure). MJ Sector. Probably the coolest feature of the Marijuana Stock Universe is that it enables you to screen by sector, including AgTech (agricultural technology), Biotechnology, Consumption Devices, Marijuana Products, and more. Just click the MJ Sector tab and select the sectors you want to include (see the following figure). Filters have a cumulative effect, so if you screen by price to narrow the list and then screen by sector, the list will include only those securities that meet both your specified price range and the sectors you chose. To clear the filters and start over, click Clear Filters, in the top-right corner of the page.

Article / Updated 03-30-2021

Whether you decide to place your cannabis investment buy-or-sell orders through a full-service broker or financial advisor, or through an online discount broker, do your research to ensure that the person or firm is competent, reputable, trustworthy, and reliable. Know what to look for in a broker and an advisor and what to watch out for. Comparing costs Every dollar you hand over to a broker or advisor is a dollar less you have to invest, so compare costs and value received for those costs. Insist that your broker or advisor disclose all fees, which may include one or more of the following: A percentage of the total value of your portfolio (referred to as “assets under management”). For example, a full-service financial advisor may charge one or two percent of the portfolio’s total value. If your investment portfolio is valued at $1 million, that’s $10,000 per year, and most advisors collect that fee regardless of whether your investments earn money. Hourly fees for consultations and advice. A flat fee (typically $1,500 to $2,500) to create a one-time financial plan. Commissions, in the form of additional compensation when an investment is bought or sold. Mutual fund fees. If your advisor sells you a mutual fund, that fund will charge its own, separate fees to compensate the manager of that fund and cover other management costs. Performance-based fees, if the portfolio’s return exceeds that of a certain index or performance benchmark. If you’re going to pay an advisor a certain percentage of your portfolio’s value, make sure that fee is tied to a performance benchmark. For example, stipulate that the fee not exceed the return on that portfolio or that your portfolio must outperform a certain index before the fee is paid. Comparing quality and service Don’t think solely about the costs of a broker or advisor. If you can find an advisor who charges 5 percent of your portfolio but delivers a return of 15 percent annually, you’re obviously better off than if you pay 1 percent and get a return of only 5 percent flying solo. Additionally, a qualified financial advisor can save you money in the following ways: Creating a solid investment strategy that balances risk and return Offering general financial advice to increase your net worth Avoiding emotional decisions Structuring withdrawals from accounts to minimize taxes and penalties Ensuring you’re sufficiently insured against personal tragedies, such as accident, illness, or death Helping you navigate major financial events, such as receiving an inheritance and planning for a child’s higher-level education Bottom line: Try to estimate the dollar value a financial advisor brings to the table. If the advisor will save and earn you more money than that person charges, the person is worthy of consideration. Use this benchmark to compare advisors. Which one is most likely to deliver the most bang for your buck? Checking credentials Before you sign over control of any financial assets to an investment professional, check the person’s credentials on Investor.gov. You can search for the person by name or by Central Registration Depository (CRD) number, as shown. If the person is a registered investment professional, the initial search result shows the person’s name and CRD number, and indicates whether he’s a registered investment adviser, a registered broker, or both. (By the way, Ivan Illan, whose information is shown, happens to be the author of Success as a Financial Advisor For Dummies [Wiley].) You can click the Get Full Report button for additional details, including licensing information, years of experience, number of exams and licenses, and any disclosures about compensation or fees. This is the same detailed information you’d get if you looked up the broker or advisor on the Financial Industry Regulatory Authority"s (FINRA) BrokerCheck web page. Comparing online brokers If you decide to go with an online broker, two of the most important considerations to make as a cannabis investor are as follows. Access and fees for over-the-counter (OTC) trades: Most cannabis stocks in the U.S. are traded OTC, and many are penny stocks (which generally trade for less than $5 per share. You want to be sure the broker supports OTC trading and that any extra fees it charges to process OTC trades are competitive. Access and fees for trading foreign securities: If you’re interested in investing in companies that do business in countries other than the U.S. where cannabis is legal, such as Canada, be sure the broker supports trades in foreign securities and that any extra fees it charges to process those trades are competitive. (Some foreign companies have listings in the U.S. and trade like U.S. listings, without the extra fees.) While most online brokers advertise $0 charges for online equity trades, these free stock trades usually don’t apply to OTC penny stocks and trades in foreign securities. Be sure to read the fine print. Many online brokers charge an extra fee for trades of shares priced less than a certain dollar amount. Most charge extra for trades of foreign securities plus a currency conversion fee. Here are a few online brokers you may want to compare: Charles Schwab enables you to trade securities in foreign markets by opening a global account. You can buy and sell OTC securities through a Schwab One brokerage account. E*TRADE used to offer an extensive global trading service but no longer does. Now, to trade in foreign securities, you must place your order over the phone. E*TRADE does allow the exchange of OTC securities but generally discourages OTC trading due to the heightened risks. Fidelity enables all non-retirement brokerage accounts to add its international stock trading features. It also provides traders access to the OTC market. In fact, Fidelity’s stock screener can search specifically for penny stocks that trade on OTC exchanges. In addition, they don’t charge an additional commission on OTC trades. Interactive Brokers is the best choice in this list for trading on foreign exchanges, providing access to more than 200 countries and charging the lowest commissions. Where Interactive Brokers excel is with those who want to trade Canadian stocks directly, as the trades can be done online at a much lower price than that offered by competitors. Interactive Brokers also provides access to OTC markets. TD Ameritrade offers no direct trading of foreign securities, but it does allow OTC and penny stocks to be bought and sold online for the same fees as other types of trades. Like Fidelity, TD Ameritrade’s stock screener enables you to screen specifically for penny stocks.