Why investors should be careful when investing in cannabis stocks

Investors and traders are always on the lookout for booming markets in hopes of making gains. They now have their eyes set on the cannabis industry.

Following Canada’s approval of the Cannabis Act earlier this year, they have every reason to believe that the industry is only moving up, but CNBC’s Jim Cramer warns that people should not get ahead of themselves.

“The Mad Money” host says that the normalization of weed is happening rapidly. Aside from Canada, several other states in America are beginning to accept cannabis more. While shifting to mainstream popularity is a good sign for a growing market, investors should not make heavy purchases if they are expecting that gains are going to happen overnight.

There are still a few hurdles for the cannabis industry. Aside from state laws in the U.S., investors should also consider that there are still a lot of people who are on the fence about cannabis use.

Cannabis industry is a bubble?

Beyond these warnings, there are also a few concerns that the cannabis industry might just be a bubble that is waiting to pop. There are a few signs that point to that being the case, according to CNBC.

To begin with, the overexcitement of people toward investing in marijuana could result in excess liquidity. Such a trend has already happened with the boom of cryptos late last year. When Bitcoin was rallying, investors bought the coin as well as several others. Since then, cryptos have struggled to reach the bars they have set for themselves.

Another reason for concern is that marijuana is a commodity. The performance of the market is heavily affected by the production of the plant which could be affected by several factors including weather, regulation and emerging laws.

Making fewer risks with the CBD industry

There are ways to bypass these concerns and one is by investing in the cannabidiol (CBD) market instead. The CBD market has fewer chances of being a bubble.

For starters, the CBD industry is not growing as popular as the cannabis industry. It is inching toward better public acceptance right under our noses through brands that incorporate the compound into their products.

Moreover, CBD oils are typically extracted from hemp, which is already legal in most states since it contains small amounts of tetrahydrocannabinol (THC). Hemp is also easier to grow than marijuana so weather conditions are not as big a threat to the industry.

Instead of investing heavily in marijuana companies that doubled or tripled in a few months, investors should try supporting CBD businesses that are growing at a steady pace like PotNetwork Holdings, Inc. (OTCMKTS:POTN).

POTN is a part of the cannabis industry, but instead of marijuana, it is focused on the research and development of the hemp-derived naturally occurring beneficial compound, cannabidiol (CBD). POTN distributes CBD-infused products through Diamond CBD, Inc. Since these products contain premium pure CBD with no traces of THC, POTN is treading on a completely legal market.

The company’s sales revenues have improved greatly in the past year. During the first six months of 2018, it was able to generate over $12 million in sales, which accounts for a year-over-year growth of 137 percent.

The cannabis industry is here to stay, and investors can make the most out of the growing market by placing their bets on the right company.

(Featured image by DepositPhotos)

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