Everything You Need to Know About Marijuana Penny Stocks

If you're looking for a cost-effective way of investing in the cannabis industry, then marijuana penny stocks might be for you.

The cannabis industry has undergone an explosive level of growth over the last several years, and things really kicked into overdrive following the passing of the 2018 US Farm Bill, which made hemp-based CBD products legal at the federal level.

This rapid expansion was also further compounded when—a little over a year ago—Canada made the momentous decision to legalize recreational cannabis nationwide, becoming an unofficial torchbearer for the global marijuana industry.

In fact, when you consider the increasing adoption of cannabis as a pharmaceutical product—not to mention the recreational applications of the plant—it should come as no surprise that market research firm, Grand View Research, has predicted the global marijuana market could swell to USD 66.3 billion in value by 2025.

And as a result, we're starting to see a new wave of interest from investors who are looking to get in on the cannabis game.

However, buying stocks, of any kind, is always an inherently risky proposition. Stock prices can plunge at the drop of a hat, and even larger more established companies aren't immune from the market going south.

This lack of certainty can sometimes scare off neophyte investors, and unfortunately—due to its status as an emerging industry—the cannabis market is particularly vulnerable to spikes in volatility.

For these reasons, many investors have begun turning to marijuana penny stocks as a way of getting some skin in the game without breaking the bank, even though they are typically viewed as being even riskier than established stocks.

Luckily, we've done all the hard work for you, and have identified several cannabis penny stocks that we think stand a real shot at success. But before you get too excited, you'll need to familiarise yourself with the basics.

So, what exactly are marijuana penny stocks?


How Do Penny Stocks Work?

Originally, the term penny stock referred to any stock that traded for below $1 per share. However, over time this definition was widened to include all stocks that trade for less than $5 a piece.

As you can expect, these penny stock companies tend to be highly speculative in nature and are also often traded over the counter rather than being listed on a major exchange, although this is not always the case.

This means that there are a number of risks that come into play when investing in penny stocks, such as the substantially lower liquidity levels when compared to established companies.

Liquidity refers to an individual stock's capacity to buy or sell an asset without causing a significant change—either positive or negative—to the asset's price. In more practical terms, what this means is that a company with high liquidity levels will be able to sell off an asset quickly, without having to reduce the share price by much.

Conversely, a stock with low liquidity will need to reduce the price by a more considerable amount. Unfortunately, this can sometimes leave penny stock investors in a position where they're forced to offer their shares at a sizeably reduced price to attract buyers—as penny stocks are typically harder to sell than those listed on a major exchange—increasing the likelihood of an investment loss.

Low liquidity levels also mean that penny stocks can be vulnerable to pricing manipulation from traders, who will often employ a "pump and dump" strategy to temporarily boost share prices.

Pump and dump schemes usually involve the promotion of a stock via intentionally misleading information, in an attempt to make the company's shares briefly increase in value.

As soon as the stock price begins to climb, pump and dump investors will then immediately unload their shares—to the detriment of other investors—often causing the stock to begin declining in value again.

Another key weakness of penny stocks is the lack of publicly available information surrounding them. Normally, an investor who is looking to buy into a given stock will review the company's financial statements—and other corporate documentation—so they can make an informed decision about their investment.

However, investors may find it a little harder to track down information on penny stocks, as they lack the financial transparency requirements that larger companies are faced with when listing on a major exchange.

This means that there will often be substantially less information available to prospective investors, and it may be less heavily scrutinised than the corporate documentation released by major industry players.     

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Although these issues may make marijuana penny stocks sound like a terrible investment, eagle-eyed investors will notice that they primarily stem from being traded over the counter, rather than via a major stock exchange.

This is because companies that list on the major exchanges are bound by minimum standards cover requirements, where they must disclose crucial information about their number of shares and shareholders, stock prices and overall market value.

Fortunately, not all penny stocks are exclusively traded over the counter—with many already being listed on major stock exchanges—which significantly reduces the risk to potential investors.

In fact, we've identified four different marijuana penny stocks—that trade in the same places as the industry's largest companies—that we believe have the potential to break through the $5 barrier and move into the big leagues.


Disclaimer: past performance is not an indicator of future performance

Auxly Cannabis Group

The Auxly Cannabis Group (TSXV:XLY) is an international cannabis company that is focused on bringing high-quality cannabis products to the medicinal, wellness and adult-use markets.

The company made the headlines several times in August, after it received an $123 million investment from Imperial Brands, giving them 19.9% ownership of the company. As part of the deal, Auxly will also be granted global licenses for Imperial Brand's vaping technology and intellectual property, including gaining access to the company's vapour innovation business, Nerudia.

The new partnership between the two companies came at a stellar time for Auxly, as it allowed them to get a head start on staking a claim in Canada's growing cannabis-derived product market before the arrival of Legalization 2.0 in October.

Later that month the company caused another big splash when it announced that it had entered into a cultivation and purchasing agreement with a hemp farming cooperative—comprised of six individual hemp license holders—located on Prince Edward Island.

At the time of the announcement, the company had already provided $4.5 million in funding—out of a planned $6 million—which is expected to generate approximately 100,000 kilograms of raw hemp biomass.

Stock in the company is currently trading at an affordable 0.69 per share, making it an easy way to get investing without having to risk a substantial initial outlay.    


Disclaimer: past performance is not an indicator of future performance

Supreme Cannabis

The Supreme Cannabis Company (TSX:FIRE) is a mid-tier licensed producer based in Canada with a unique business strategy.

While the company cultivates high-end cannabis for both the medicinal and recreational market in Canada—as many licensed producers do—they operate in each market using very different sales models. Rather than selling their medicinal cannabis directly to retailers or the Provinces, they instead provide premium 7ACRES product wholesale to other licensed producers.

Meanwhile, their 7ACRES recreational cannabis is sold to provincial wholesalers in 8 of the 10 Canadian provinces, allowing the company to scale without the added cost of patient acquisition, retention, and fulfilment.

The company's 7ACRES products also sit at the premium end of the market—often selling for up to $10-14 per gram—which is good news for investors with concerns about cashflow and revenue intake.   

Supreme took several steps up the cannabis food chain this year, following the acquisition of Blissco Cannabis Corp, a global wellness brand based in British Columbia. This was followed by an announcement that Supreme would subsequently acquire Truverra Inc, a private cannabis company that services the Canadian and global cannabis market through its wholly-owned subsidiaries, Canadian Clinical Cannabinoids Inc and Truverra Europe.

The company also scored the deal of a lifetime in June, when it partnered with Pax Labs to become a foundational brand partner and official supplier of the PAX Era vaporizer in the Canadian market. As Pax Labs are a market leader in their field—with more than 1.5 million devices sold worldwide—this partnership will likely provide a huge boost to the company's brand building efforts.

Supreme Cannabis stock is currently trading at 0.67 a share, making it an even cheaper investment than the Auxly Group. And with Canada's moving into the second phase of cannabis legalization—which will see derivative products such as edibles and extracts hit the market—there's never been a better time to jump on board.


Disclaimer: past performance is not an indicator of future performance

Indiva Limited

Indiva Limited (TSXV:NDVA) is a global family of cannabis brands that aims to set the industry standard for both quality and innovation.

The company has a strong portfolio of products that it sells to both Canadians and cannabis enthusiasts around the world—through various licensing agreements and joint ventures—which includes Ruby Cannabis Sugar and Sapphire Cannabis Salt, as well as the award-winning Bhang Chocolate brand.

Indiva has had a particularly busy 2019, which kicked off earlier this year with the announcement of a partnership with the global cannabis provider TerrAscend.

Under the terms of the partnership agreement, TerrAscend will provide the company with a supply of 800kg of dry cannabis flower for extraction each year. Indiva will then apply its extraction and refinement services to the raw cannabis biomass, before returning the final product to TerrAscend in either oil or distillate form.   

The company subsequently secured an $11 million bridging loan from an institutional lender, which has been earmarked for facility expansion efforts, bulk biomass purchases, extraction and encapsulation equipment purchases, and general working expenditures. This was then followed by the announcement that Indiva had secured an approval from Health Canada to add an additional 10,000 square feet to its' production space—including three new grow rooms and two additional processing rooms—subject to regulatory approval.

The company has said that it intends to start planting activities in its new grow rooms immediately, while the newly licensed processing rooms will be dedicated solely to the production of Indiva's pre-rolled and chocolate products.

And if Supreme Cannabis and The Auxly Group are still too rich for your blood, then don't worry. Shares in Indiva Limited are currently trading for 0.26, making them a highly cost-effective way of investing in the cannabis industry.            


   

Disclaimer: past performance is not an indicator of future performance

Next Green Wave

Next Green Wave Holdings (CSE: NGW) is a fully integrated premium cannabis producer with 8 legacy brands, as well as 45 products currently available to the market via its subsidiary WEARESDC. The company owns and operates a cutting-edge cultivation facility in Coalinga and is currently in the process of expanding its operations.

In August this year, the company provided an important update to its investors, announcing the successful completion of its first cannabis harvest and the fulfilment of its initial major milestones.

The harvest was also able to meet California's strict category three compliance testing requirements, which is good news for investors, as the company is looking to exploit a gap in the market it has identified in the state for commercially available premium cannabis flower.

And it looks like Next Green Wave's efforts are beginning to pay off, as by October the company was already announcing the completion of its third cannabis harvest for 2019.

According to the CEO of Next Green Wave, Mike Jennings, the company's cultivation activities are now operating, "at full capacity and our employees will continue to play a significant role as we expand our market share by supplying the highest quality cannabis products to market in a timely fashion."

"In less than 6 months since opening our flagship facility, we have completed three harvests of premium quality, high THC cannabis, as well as fully scaled the entire space," Jennings said.

If you're looking for a bargain, then Next Green Wave might be the marijuana penny stock for you, as it is currently trading at just 0.19 a share.

Although this may seem like a cause for concern to some investors, it's important to remember that the company only completed its first harvest of cannabis earlier this year and still has plenty of room left to grow.

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Lucky Penny

Although penny stocks are seen as being considerably riskier than traditional investments, they do offer an easy way of getting in on the cannabis game without the need for a large initial investment outlay.

And as any good investor knows, all investments carry an inherent degree of risk. It's all about being in the right place, at the right time, and knowing how to pick a winner.   

So now that we've covered the basics—not to mention pointing you in the direction of some promising marijuana penny stocks—you're ready to get investing. Just try to remember that the old saying "in for a penny, in for a pound" doesn't always need to be applied.

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Hugo Gray
Hugo Gray

Hugo Gray is a Melbourne-based journalist with a body of work that covers a diverse range of topics, including immigration law, sex technology, and now the rapidly expanding cannabis industry.

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