Penny stocks are always something exciting to say the very least. The recent rise of legal marijuana in 2019 has made this industry a popular one. As with many high profile industries, pot attracts countless startups. With this, we have seen the rise of marijuana penny stocks.
While you’re looking for the best penny stocks for cannabis, keep in mind that there are still risks associated. For starters, the industry is still relatively new. There are plenty of legal pitfalls that companies can encounter especially within the United States. But no matter what your stance is on this type of risk, the basics of penny stocks still hold true. Since many marijuana stocks are also penny stocks, keep these rules in mind.
Always be aware of a company’s share structure. The higher the number of shares outstanding and/or the larger the publicly traded shares in the float, the more difficult it may be to see a particular stock rise in price. Dilution is also important to be aware of.
Who Invests in Penny Stocks?
Many funds will buy large positions in penny stocks at lower prices. This price can even be much lower than retail investors will ever have a chance to purchase
If you see that insiders could have a very large position and it could hit the market at the drop of a hat, it may be best to sit on the sidelines to see if that happens. This isn’t to say that all insiders or funds are looking to hurt the public market. But playing it carefully especially with young industries could help save you on your losses.
Don’t forget to look for the winners early. With laws constantly changing, the low share price that these penny stocks offer, also allows you to accumulate many shares of a company at lower prices and before a potential catalyst. Let’s take the legalization in Canada as an example. Investors that bought shares of companies that have now become leading Canadian marijuana stocks saw incredible profit opportunities. Many of these stocks exploded in price once Canada became fully legal for both recreational cannabis and medicinal marijuana.
At the end of the day, the rules of engagement when buying and selling marijuana stocks are similar to how to buy penny stocks or sell them. Know your risks involved, understand the landscape, and try to identify early opportunities.