Investors in any industry can make mistakes. But for cannabis investors, there is a very unique set of missteps that can impact how you make the most of this exciting new opportunity. Including:
1. Failing to Diversify
With experts predicting a $40 billion global cannabis industry by 2024, it can be tempting to put all your eggs in one basket. Yet, this is a classic investing faux-pas. Forbes notes that “many first-time investors in the sector, or even in general, invest in just one or two companies. This strategy is risky in general but especially in the cannabis sector.”
Bottom line: instead of investing heavily in a single source and hoping for the best, it’s important to consider spreading an investment across different avenues you’ve researched and are comfortable with. Diversification lowers risk and is better for the overall outcome of an investment. At the same time, it is actually possible to over-diversify a portfolio. So be wary of picking up too many investments at one time. If you’re unsure whether or not you have too much on your plate, a highly skilled cannabis investment advisor can give you sound professional insights to help you make sense of where you are in relation to your goals.
2. Rushing Ahead to Avoid Missing Out
The fast-paced growth of the high-energy cannabis space can make it easy for investors to feel like they’re missing out if they don’t go all-in ASAP. Yes, the industry is expanding at a phenomenal rate and more opportunities seem to be surfacing almost daily. Still, this doesn’t mean new investors should charge ahead blindly without doing a few fundamental things first—primarily due diligence and thorough research to better understand the market itself.
Take the time to get to know the industry and familiarize yourself with the latest news and trends. But also, fully investigate all potential opportunities using logic, reason, and hard facts rather than a feeling of intuition or emotion simply because in cannabis investing, virtually every basic investing principle applies—times ten.
3. Over Researching
One of the most appealing aspects of the space right now is that there is a relatively low barrier to entry—meaning investors can get in on most opportunities easily. But wait too long, and as a smaller investor, you could be priced out of the market. So while research is an absolute must, it’s possible an investor can get too wrapped up in it that they never actually make their way into the market. Which, in theory, may lead to missing out.
4. Being Easily Swayed by Good Marketing
Some companies and brands are simply better than others at presenting themselves—which can blind an investor from seeing the field through the trees. Things like impeccable branding, a strong website, a digital presence, and a solid investor deck are obviously incredibly important. But without critical data to accompany these assets, they offer little to no significant insight into the actual substance of an opportunity. In other words, don’t be afraid to dig deep. See what the data and financials have to say about an opportunity, and factor those concrete details into your decision-making process.
5. Relying On Information From Press Releases Instead of What the Financials and Filings Say About the Opportunity
The same thing can be said about getting wooed by what you read in a press release. By design, press releases are circulated to generate buzz and attention for the company creating them. It doesn’t matter if the company in question is a major brand or a small business in your hometown—releases highlight the good and rarely mention critical information. And while there is a noticeable stream of positive news coming from companies in the cannabis industry, it’s still important to research filings and documentation with actual figures instead of fully relying on press releases or media coverage.
6. Overlooking Cannabis Legalization
Legalization and regulatory developments must be carefully considered before you determine if an opportunity in the cannabis industry is right for you. Most experts agree full legalization will happen in the USA eventually, but the timeline for this is a moving target. The good news is that a number of states have recently passed legislation to legalize adult use of cannabis including Arizona, New Mexico, New Jersey, and Virginia. And the number of states moving to legalize continues to grow as more and more states are taking strides to pass cannabis legislation.
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