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How to invest in cannabis stocks

Here are the pot stocks to watch if you're looking to invest in the cannabis boom from Australia.

Cannabis stocks have had a meteoric rise following new legislation, although the buzz around the stocks has been cooling of late.

However, the sector still has the potential to exponentially rise even if it faces a number of headwinds.

How to invest in cannabis

There's more than one way to invest in cannabis.

  • Australian cannabis stocks. This means buying stocks on the Australian share market in cannabis companies or companies that have cannabis exposure.
  • International cannabis stocks. Some of the biggest cannabis companies are listed on stock exchanges in overseas markets such as the US or Canada. It's possible to invest in these if you use a broker that offers global stocks. Click on the "global" list above to see some of these stocks.
  • Cannabis ETFs. ETFs contain a bundle of stocks, usually hundreds, and these often track an index of stocks. There are around 6 cannabis ETFs listed in the US; to date, there are no ASX-listed cannabis ETFs.
  • CFD trading. You can trade cannabis stocks, ETFs or indices using CFDs. CFDs are contracts that allow you to make money on the price movements of an underlying asset, such as a share or commodity. Warning – these are complex products best suited to experienced traders.
  • Copy portfolio. Share trading app eToro has a pretty neat portfolio of cannabis stocks that you can invest in. These are called copy portfolios and there are a bunch of investment themes you can track. To check them out, click on eToro's link in the table below.

How do I buy cannabis stocks?

    1. Choose a share trading platform. If you're a beginner, our table below can help you choose.
    2. Open your account. You'll need your ID, bank details and tax file number.
    3. Confirm your payment details. You'll need to fund your account with a bank transfer, debit card or credit card.
    4. Find the shares you want to buy. Search the platform and buy your shares. It's that simple.

Finder survey: Which industries do Australians hold stocks in?

Response
Cannabis3.29%
Source: Finder survey by Pure Profile of 1145 Australians, December 2023

ASX cannabis stocks

Note: The global cannabis list refers to the EQM Global Cannabis Index at the time of writing. This is a general guide only and should not be taken as investment advice. The above lists may not be fully representative of the Australian or global cannabis marketplace and some companies may not directly deal in cannabis but have cannabis exposure.

Cannabis products

While smoking weed is perhaps the best-known use of cannabis, there are many types of businesses that are set to benefit from the growing sector. In Australia and other countries, legalisation of many of these products is still new and, in some cases, still underway. These include the following:

  • Medicinal products. Medicinal cannabis is used in Australia for the treatment of cancer pain, epilepsy, palliative care, chemotherapy nausea, neuropathic pain, anorexia and neurological conditions.
  • Science and research. Recent policy changes mean that cannabis may be cultivated for both scientific and medicinal reasons in Australia.
  • Recreational use. Marijuana as a recreational drug is still illegal or restricted in most countries and in some cases carries serious punishment. However, legalisation is starting to occur in parts of the US and in all of Canada. It's consumed to achieve feelings of relaxation or euphoria – however, there are also a number of possible side effects.
  • Food products. Hemp is used as an ingredient in a range of products, including cooking oils, snacks, protein powder, cooking flour and more. The sale of hemp food products in Australia was legalised in 2017.
  • Building materials. Hemp is used in insulation and building construction materials and has several names, including hempcrete, hemp masonry and hemplime.
  • Clothing. Hemp is broadly recognised as one of the most sustainable materials available in the manufacturing of clothing.
  • Beauty products. Hemp is commonly used in various health and beauty products, such as moisturisers, lip balm, makeup and skin oils.

Marijuana vs hemp

Unlike marijuana, hemp is not normally a narcotic. While hemp and marijuana come from the same cannabis plant, hemp has a lower component of the psychoactive THC – which means that it has no psychoactive effects. Typically, hemp is used in food products, building materials and textiles while marijuana is used for medicinal and recreational purposes.

Meteoric rise and potential opportunity

Just 5 years ago, few investors took cannabis stocks seriously. Today, as billions of dollars pour into the sector thanks to changes in legislation, few doubt that cannabis will be one of the next big disruptors.

This is largely due to changing government regulations.

Countries continue to become less stringent on the use and production of marijuana and hemp products, paving the way for an explosion of new businesses.

A year after Canada became the second country to legalise recreational marijuana in 2018, the legal cannabis sector was estimated to be worth $150 billion, according to Euromonitor International. Between then and 2025, they predict the sector will grow by 2,000% globally.

Risks

Despite the large opportunity, the sector has plenty of risks investors need to be wary of before investing.

  • Speculative bet. The sector is still emerging. It's a new industry with marijuana only being used beyond medical purposes since 2012. As such, most of the companies are small caps, which means they are likely to have large share price swings as well as being traded less often. As such, they are more speculative than large caps.
  • Limited investors, especially from large institutions. While the sector is growing, it certainly doesn't have the mainstream adoption of much of the market.
  • Valuation risks. Given the size of many of the stocks and potential growth being unknown, it's harder to valuate a fair price for these stocks.
  • Dilution risks. Cannabis stocks are still controversial and have challenges that are unique to the sector. As such, investors may face the risk that the companies they own have fewer ways to raise money other than through issuing more shares. This could mean the value of your ownership falls.
  • Commodity risks. Just like all other commodities, cannabis is a crop. Some years, its value will be higher; other years, it will fall. This risk can be avoided by not investing in the producers themselves.
Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades. Read the Product Disclosure Statement (PDS) and Target Market Determination (TMD) for the product on the provider's website.

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