Ever since cannabis legalization began trending across the United States and Canada, savvy investors have been trying to cash in on this nascent and emerging industry—and encountering countless roadblocks along the way.
Varying laws and regulations, inconsistent support from financial institutions, an increasingly competitive (and unpredictable) global playing field, stock market trading restrictions—the list goes on. And yet, despite these obstacles, many investors have managed to make money in this space—two to three times over. How? Through private placement .
By getting in on the ground floor and effectively diversifying your alternative investment portfolio, it is possible to realize returns from this uncertain and emerging industry—and come out ahead when the dust eventually settles. But given its swiftly-evolving nature, you need to be on top of emerging trends and disruptive forces—and ensure your portfolio covers all of the industry’s pent-up potential.
Right now, there are a few ways to do this:
Invest in the businesses with staying power
We’ve entered a new era of cannabis in Canada, as yesterday’s start-ups prepare to scale up. As a result, today’s cannabis investments should no longer be based on hope—or a business’s potential—but rather on solid business fundamentals.
At this stage in the game, companies are building their business models, devising strategies to commercialize their products or services, establishing distribution networks and preparing to scale their operations. And through private placement, you have the opportunity to support these efforts now—before these companies become the next Facebook or Snapchat IPO.
That said, scaling up doesn’t come without its challenges—in fact, it is a stage at which many businesses fail. To minimize your losses, therefore, it’s wise to invest in an alternative investment fund focused on the cannabis space—ideally managed by a firm that can differentiate between the companies that have long-standing business potential and those that simply have a great idea.
When there’s gold in the hills, sell picks and shovels
Cannabis opportunities extend well beyond the flower—and when other countries, like Jamaica, are selling that flower at 1/10th the price of North American grow-ops, it is important to include non-production companies in your investment portfolio.
While importation (except primarily for research) is not yet permitted in North American jurisdictions, it is no secret that many of these jurisdictions—particularly in Canada—are having trouble keeping pace with recreational and medicinal demand. As a result, it won’t be long before governments open the gates—and when that happens, many North American producers will likely have difficulty remaining cost-competitive.
To overcome this obstacle, investors should look at the industry as a whole and consider investing in more than merely production. This can include anything from cannabis paraphernalia and retail chains, to distribution companies, edible products and commercial property companies that specialize in cannabis storage.
Don’t forget about medicinal
With all the fanfare surrounding recreational cannabis, it can be easy to forget about the medicinal space—but, in fact, many of the greatest long-term opportunities lie in this market.
As more scientific research is conducted and more applications for cannabis are discovered, we’ll likely see increased prescriptions from doctors and more well-versed pharmacists. With highly quality-controlled products in the form of CBDs, derivatives, orals and edibles, consumers may be more comfortable going this route, particularly if they are using cannabis for medical issues such as anxiety or pain relief. This will, in turn, allow for more growth in the medicinal space.
Finger on the pulse
Given how quickly the cannabis sector is evolving, it is important that all investments are based on the most up-to-date information. Since most retail investors do not have 12 hours in a day to regularly vet the cannabis space, it would be wise to invest with a firm that is knowledgeable about the sector and can do the work on your behalf—determining which opportunities have the greatest chance of success.