Investing in hemp stocks can help retirees plan for retirement as it can provide additional income in their golden years, but like any industry, it’s essential to learn more about the investment before jumping in. Here’s what you need to know about investing in hemp and the cannabis industry.
In this article:
- Investing in Hemp Companies: The Start of Publicly Traded Marijuana Stocks
- Marijuana Stocks vs Hemp Stocks: Are There Any Differences?
- Industry Risks That May Affect an Investment
- Advantages of Hemp for the Cannabis Industry
- What Should I Consider for an Investment in the Green Sector of the Stock Market?
What Is A Hemp Stock? | What Investors Should Know About the Marijuana Market and Production
Investing in Hemp Companies: The Start of Publicly Traded Marijuana Stocks
The so-called “green sector,” which is a term used to describe the legal hemp and cannabis industry, has attracted investors who have seen the growth of the stocks and portfolios in the industry.
However, before the passage of the 2018 Farm Bill, both investors and companies in the hemp industry had limited access to the high-value industry. Strict regulations constrained the industry solely t0 the manufacturing and retail of medical cannabis products.
With the 2018 farm bill, the law legalized hemp production and transformed the quiet cannabis industry into stocks to watch.
The bill also loosened restrictions on hemp farming, which helped farmers grow their business.
With the bill, the industry has:
- Increased market
- Allowed insurance companies to offer policies. This newly added protection allows farmers to lower their risk and ultimately lower the industrial hemp production costs.
- Taken out hemp from the federal list of controlled substances
- Allowed farmers to both grow hemp plants as well as sell the raw materials
The bill gave hemp stocks a financial push as well as access to much-needed capital. The new capital allowed local players to become global leaders, with companies becoming vertically-integrated to include:
- Hemp farming
- Manufacturing of cannabis products
- Retail and marketing of cannabis products
Marijuana Stocks vs Hemp Stocks: Are There Any Differences?
To answer simply, both yes and no.
Interestingly, the public thinks that hemp and marijuana are the same. Scientifically and economically speaking, hemp contains less than 0.3% of THC (tetrahydrocannabinol), which is the chemical that makes people experience the so-called high of marijuana.
The two can be distinguished based on their THC content — hemp contains less THC than marijuana, which contains higher doses. Of course, they both come from the same cannabis species.
Hemp doesn’t contain any flowers or flowering part. Industrial hemp doesn’t contain any chemical that can intoxicate a person, making it a perfectly flexible and safer material than marijuana.
Examples of the application of industrial hemp include:
- Substitute for fiberglass
- Oil paint
- Food ingredient
- Health supplement
- Soap, cosmetics
To make it simpler, THC, cannabinoid, or hemp products equals medical use. Marijuana products are usually for recreational use.
Of course, some states allow recreational marijuana. The great news is that local players (which later turned into global leaders) have vertically integrated, offering products with both marijuana and hemp.
Usually, hemp stocks are often marijuana stocks, but under the law, hemp and marijuana are two different things.
You can actually add hemp stocks in your 401(k) investment portfolio to diversify your investments. As long as the company is publicly listed on the stock market, you can add them into your retirement account.
Industry Risks That May Affect an Investment
The greatest risk is actually legalization. However, the United States is currently under a marijuana legalization spree, which can make legalization easy.
On the other hand, the market also has expectations for legalization. Delayed legalization in a state or bad news about the products can mean a downward movement for hemp stocks.
Another boon and bane is globalization.
With many countries in the African continent approving hemp farming, global production and supply will see a rise. This can affect the local market, like how the nationwide marijuana legalization has led to a boom in tourism for American citizens visiting for weed.
However, globalization can be a problem for local hemp companies due to competitive sourcing of raw materials. Also, as labor costs in African and Asian continents are lower, some companies can make cheaper products and export them in the U.S.
Of course, there are still legal restrictions, like banning the importation of raw cannabis or hemp. However, the globalization of markets means the fast flow of goods through international trade and can mean lower profits for local companies and ultimately to investors.
On the other hand, hemp companies can extend their farming operations where costs are low, which can lead to an overall increase in profitability provided the government gives permission in the import and export of products.
Of course, nothing is ever guaranteed in investing. An investor gets profit by taking a calculated risk.
As long as the retiree or investor does his or her research properly, risks are minimized. Working with a financial adviser can also help, as an expert can provide crucial information or plans that can help people reach their retirement goals better.
Advantages of Hemp for the Cannabis Industry
1. Has the Potential to Enter Different Industries
The great thing about the hemp industry is that it can disrupt a lot of industries.
- Medical industry — CBD (cannabinoid) has helped many patients with pain management, at a lower cost and at safer levels.
- Food industry — Both the food industry and consumers are hungry for tasty edibles that are legal and safe.
Aside from that, manufacturers have also started making hemp-based shirts and denim, strong hemp ropes, health supplements, and even biofuel made from hemp.
2. Allows Small Players to Earn a Profit
Since hemp needs less water than cotton and is hardier than most products, even village farms can gain profit. The value-added then circulates in the economy, making the market more resilient.
3. Provides an Additional Revenue Stream for the Government
Finally, the hemp industry has also provided another revenue stream for the state and federal levels of government.
On the other hand, there are still voices of dissent over the hemp industry, although they are slowly getting quieter with more research and time. Changes in regulations and policies surrounding hemp also contribute to the public’s perception of it.
What Should I Consider for an Investment in the Green Sector of the Stock Market?
No one has a crystal ball that can predict the market. What an investor can do instead is to be prudent.
Here are some of the things before making any investment decisions:
- Think about your investment philosophy and create a retirement plan first. The plan must contain your risk profile, goals, what assets and vehicles as well as strategies to hit your goals.
- List down potential companies that meet your standards.
- Review the stocks you’ve shortlisted.
- Only invest money you can afford to lose.
- Don’t put all your eggs in one basket.
- For the hemp industry, always invest using your own analysis, since the market can be crowded with many opinions.
As long as you do your research and diversify, you can minimize your losses while increasing the possibility of growth. For more personalized financial advice, it’s best to talk to a professional investment adviser.
Do you have any questions about hemp stocks? Do you plan to invest assets in the hemp industry? Let us know in the comments section below.
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