How to invest in cannabis IPOs

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Getting started in marijuana stocks may be confusing, but it isn’t impossible

When most investors look at where they should put their money, they do so by comparing the history of the target companies. In the case of marijuana, however, there is no significant historical data – and in many cases, none – to review. However, this doesn’t need to be a deterrent and now is a great time to get in, while prices are still accessible. One of the many ways is through an initial public offering (IPO), which have recently increased in frequency as capital markets begin to embrace the cannabis industry.

In an IPO, an investor can purchase stock before the company launches publicly, meaning that the price will often be lower. However, participating in an IPO typically requires having an inside connection, as retail investors often cannot jump right in. California-based edibles manufacturer Plus Products recently conducted an IPO and saw its share price more than double within just a few short weeks. Charlotte’s Web has also seen a significant amount of success with its stock gaining over 200% since the company’s IPO.

A different type of IPO, the special-purpose acquisition company (SPAC), has gained a lot of support in recent months. With a SPAC, investors purchase a piece of a company, which then has a set amount of time within which to make an investment. If it doesn’t complete that goal, it is forced to refund the investments. One example of a SPAC is the acquisition of MJ Freeway, a cannabis software provider, by MTech Acquisition Corp. (MTEC). MTEC listed on NASDAQ, received a considerable amount of attention and then completed its acquisition, fulfilling its requirements.

Getting in on the ground floor has the potential to provide strong dividends. As with any investment, though, due diligence is paramount. Read prospectuses and filing statements, understand the people involved and the float. 2019 is already proving to be a strong year for cannabis stocks and things are only going to get better from here.