The cannabis industry is becoming more and more widespread, and with many states and countries now legalizing recreational use along with medical research, the potential for profits have increased. And if you’re an aspiring investor who wants a bite at that apple, there are opportunities for buying shares of marijuana companies. According to Money Morning, “The legal cannabis industry is expected to grow to $57 billion by 2027, up from $9.5 billion in 2017. And 2020 will be the biggest year yet for growth, with more states closer to legalizing cannabis than ever before.” The thing to remember is that this kind of investment requires the willingness to handle risk because most cannabis stocks are not blue chip stocks, and it’s hard to say which companies will remain dominant and which will fade away. But there are a few things you can look for.

Look At The Cash Flow

Just as with other businesses, cannabis companies who know how to manage cash flow efficiently will usually perform the best. The problem is a lot of marijuana companies don’t have that information readily available and you may have to dig for it if they aren’t publicly traded. That’s one reason you may want to stick to companies that are publicly listed so you can look up their information on the SEC website and make sure everything is up to par. Stability in financial management usually means stability in overall management with marijuana businesses.

Consider How Innovative The Marijuana Company Is

The primary key to investing in cannabis stocks is looking for companies that are highly innovative and lead the way in new developments. Different marijuana companies have their own specialties in growing cannabis, distributing it, or making specific products or selling them directly. But you will want to know how much they’ve invested in technology both for production itself as well as marketing, and whether they’ve been leaders in innovation in the market. Take a little time to read up on the accomplishments of companies whose stock you’re considering buying.

Go Where The Market Demand Is Highest

Since cannabis has so many uses, you should look at which uses are seeing the highest demand in the market. One area that’s starting to gain some momentum is the CBD oils and cream product niche which is becoming talked about as a non-prescription solution for chronic pain and minor health symptoms. There are other healthy uses that hemp derived substances are being introduced in as supplements. But take a look at all of the market overview to see where consumers are going.

Start Out Investing Small And Offsetting Your Portfolio

Since there is still a lot of risk and unknown factors with marijuana stocks, it’s probably better not to go all in yet. Buy small shares to start with and hold them for a while, and offset them with other stocks or safer investments in your portfolio. One thing you might do is invest in a marijuana stock ETF which can offset some of the more risky marijuana stocks with more reliable ones.

With more people starting to talk about all the different uses for cannabis, there certainly is some incentive to invest in that industry. But it may take extra research on your part to make sure you’re getting a good investment in it.