Thanks to the mass legalization currently underway, cannabis spending worldwide is skyrocketing. In 2017, spending shot up to $9.5 billion and, according to ArcView Market Research and BDS Analytics, it is projected to increase to $32 billion by 2022 and carry a compound annual growth rate (CAGR) of 27.5%.
That’s a lot of weed and a lot of money.
With such a substantial increase, many new cannabis investors are looking to dip their toes into day trading. While day trading has historically scared away many an average joe with financial horror stories of trading-related bankruptcies, it pretty easy to notice the pipeline between mass legalization and mass profits.
People are witnessing a brand-new market being built right under their feet and they want to get in on the action before the rug gets tugged out from underneath them.
That’s why I wanted to put together this guide for new investors looking to start day trading cannabis stocks. Hopefully, after reading this post, you’ll have a better idea on how to capitalize on the immerging sector.
So, let’s get started.
Before getting involved in any day trading it’s important to understand what kind of investor you are.
I’ve seen a lot of new investors poo-poo and underestimate this step before, and they always end up pockets lighter than air. Day trading will put your personality through the wringer, so much so that even red-eyed marijuana mavens will find themselves pulling their hair out if they don’t properly prepare themselves first.
For an example of what I mean, investors who are prone to impulsive behavior can often trade too frequently and ring up a high tab in brokerage fees. On the other hand, investors who are experts in delayed gratification can often miss the boat on important booms in the market. While both personality types have their own unique psychological trajectories, both are left with low returns on their investments.
New investors should always perform a thorough accounting of their psychological push/pull systems before investing as this will most definitely affect their level of day trading success and stress.
Once they have, they are one step closer to developing a thorough investment plan.
If I could tell investors exactly how to invest in cannabis stocks to make millions, I’d be a multi-millionaire.
Developing a solid trading plan is where the business of day trading becomes an art form. This step will undoubtedly require extensive research on the part of the investor to properly access individual stocks and companies.
However, there are several building blocks to investment plans that every new trader should familiarize themselves with.
Market entry and exit: As the name might suggest, this part of building an investment plan is all about identifying optimal times to enter or exit the market. Day trading is nothing without fluid decision making and the best practices for newcomers is a rules-based approach. New investors should decide on a stock value that they feel comfortable with entering at and exiting with before doing anything else.
Position management: Once an investor has created a market entry and exit plan, they should then set up clear stop losses and profit targets for every trade they make. A stop loss is essentially a kill switch for poorly performing stocks. For example, an investor may decide to set a stop loss at 15% below their initial investment. Once the investor loses 15% of their investment, they quickly sell off their stock to limit their losses. A profit target is; essentially, an inverse of a stop loss. Once the stock reaches an investors profit target, they sell their stock to guarantee their profits.
Risk management: This is where self-assessment really comes into play. Many new investors can become blinded by either high loses or high profits to properly assess risk vs reward scenarios. With a well-defined risk management system, new traders can afford to lose on trades (it happens) without having to fully withdraw from the market. Most experienced investors risk less than 1%–2% of their account per trade.
Best Day Trading Platform for First-Time Cannabis Investors
Since many marijuana stocks are traded on the OTC markets as well as international exchanges, many brokers do not provide access to them. Not to mention that even more cannabis stocks aren’t DTC eligible.
That’s why it’s is crucial to pick the right broker. In this section, I will detail the best brokers that provide fair commissions and accessibility to first-time cannabis investors.
Ally Invest offers very low commissions which are what new traders should look for. Investors can get started with Ally Invest for just $4.95 per trade, and with no account minimums (barring a $100 exception on OTC trades) they can set their own level of risk.
While investors looking to trade on the NYSE or the NASDAQ would do well on Ally Invest, other investors looking to access the international market may want to choose a different broker.
Ally Invest does not provide any trading opportunities on the foreign exchange. Similarly, it does not provide access to unsponsored ADRs. An ADR (American depositary receipt) is a foreign stock traded on a U.S. exchange.
However, U.S. cannabis stocks like Innovative Industrial Properties (NYSE:IIPR), 22nd Century Group (NYSE:XXII) and Zynerba Pharmaceuticals (NASDAQ:ZYNE) can be traded with Ally Invest.
Traders can also use Ally Invest to access OTC listed and DTC eligible U.S. stocks like Americann (OTC:ACAN), Nemus Biosciences (OTC:NMUS) and Zoned Properties (OTC:ZDPY).
To get started with Ally Invest go here.
Commissions: $4.95 – $9.95
While this might be a lot to throw at new investors who are just looking to get a foothold in the U.S. market, there’s a lot of money to be made in Canadian cannabis.
If you didn’t get the memo, cannabis has been recently legalized nationwide in Canada. And even though there are many pot stocks that are dually traded on both the Toronto and the New York stock exchange, not all of them are.
Trading directly on the Canadian market is ideal because it allows you to trade in newly listed Canadian IPOs. Some cannabis IPOs have seen their stock double during a debut.
Unlike the previously mentioned Ally Invest, Questrade can let traders access the Canadian market while still offering a good platform for beginners. Questrade most commonly charges a commission of $4.95; however, they are known to hit investors with “extra fees” for specific types of trades.
Regardless, they have no account minimums and can be a great place for investors to penetrate the Canadian cannabis market.
Get started with Questrade here.
Robinhood was built with first-time investors in mind. That’s why the casual day traders who use the app don’t pay any kind of a commission.
That’s right, investors don’t have to pay a commission to use the app. Robinhood makes its money elsewhere.
But while Robinhood may be great for people looking to become high-volume traders and save on commission fees, the apps access to marijuana stocks is somewhat limited.
Robinhood places somewhere between Ally Invest and Questrade when it comes to access.
Let me explain.
Through Robinhood day traders can invest (commission-free) in any and all pot stocks listed on the NYSE and Nasdaq. This includes:
22nd Century Group Inc. (NYSE:XXII), AbbVie, Inc. (NYSE:ABBV), Arena Pharmaceuticals, Inc. (NASDAQ:ARNA), Canopy Growth Corp. (NYSE:CGC), Cara Therapeutics Inc. (NASDAQ:CARA), Cronos Group Inc. (NASDAQ:CRON), GW Pharmaceuticals Plc. (NASDAQ:GWPH), India Globalization Capital, Inc. (NYSE:IGC), Innovative Industrial Properties, Inc. (NYSE:IIPR), Insys Therapeutics Inc. (NASDAQ:INSY), Intec Pharma Ltd. (NASDAQ:NTEC), Level Brands, Inc. (NYSE:LEVB), Marrone Bio Innovations, Inc. (NASDAQ:MBII), Psychemedics Corp. (NASDAQ:PMD), Scotts Miracle-Gro Company (NYSE:SMG), Therapix Biosciences Ltd. (NASDAQ:TRPX), Tilray Inc. (NASDAQ:TLRY), and Zynerba Pharmaceuticals Inc. (NASDAQ:ZYNE)
These users will not be able to access any foreign markets or OTC stocks.
But investors may want to keep Robinhood in mind if they are looking at the marijuana ETF. Robinhood has 499 commission free ETFs available compared to Ally Invest’s 115. And Questrade’s ETFs typically come with strings attached.
Check out Robinhood here.