How To Invest in Cannabis Through Your IRA

Investing in the marijuana industry may be a great option for diversifying investments. Here's a guide to help decide if investing in marijuana is for you.

Projections state that more than 200,000 jobs in the marijuana industry will be added by 2020. And with more people getting jobs growing, packaging, and selling marijuana, it makes sense that people are interested in investing in this industry.

It can be a great option if you’re interested in diversifying your investments. If you want to learn how to invest in cannabis using an IRA, Inception REIT is a great way to get started. And it will allow you to cash in on the benefits of the marijuana industry.

In this article, I’ve put together a guide to help you get started. From there, you’ll need to decide if investing in marijuana is right for you or not.

Why Invest in Cannabis Real Estate?

As more states move to have laws allowing access to cannabis, the federal status of the plant makes it difficult to raise capital for your new business. Savvy investors can not only help cannabis growers, testers, manufacturers, and retailers but also enjoy a great investment opportunity at the same time.

While investing in real estate has always been popular, now that you can invest in cannabis and get in on the ground level of their real estate and capital needs with Inception REIT, you have an even better opportunity to see great investment returns.

Cannabis companies, no matter their role in growing, manufacturing, or dispensing the plant, are faced with a lot of legal restrictions when it comes to land use. This makes it difficult for some people to get the land they need due to lease restrictions and even trading premiums.

There is a limited amount of real estate that can be used for cannabis, but as an investor, you can quickly provide these entrepreneurs with the money that they need while enjoying high returns on your investment.

Investing in real estate has always had its own set of advantages, and you can experience those when you invest in cannabis real estate. Doing so will allow you to help a new company get started and possibly let you get in on a booming business, which can do wonders for your IRA and retirement in the future.

Consider Investing in Single Stocks

Another way to get started investing in cannabis is by investing in the stock of the company that is growing, selling, or otherwise involved in the manufacturing and distributing of marijuana. This is a great way to start making money with your IRA. And since you can invest in single stocks of companies, you won’t have too much of your capital allocated to one area.

Another reason you’ll want to consider buying individual stocks when investing in marijuana is that you can choose to work with a specific company. That’s one of the pros of investing in single stocks in general.

Invest in Exchange-Traded Funds

If you want to invest in cannabis, but aren’t ready to pick and choose the stocks to buy, you’ll be better off with exchange-traded funds, or ETFs. These are multiple investments that have been bundled together into one fund that is then traded on an exchange such as the NYSE. The fund owns all of the stocks that are inside it and will be tracked as a group of investments.

By investing in ETFs, you are buying small parts of the companies that are inside the ETF. The fraction of the company that you have will depend on the weight of each stock held inside the fund. These have become more popular recently, as investors have the opportunity to invest in a group of stocks and their performance, rather than having to handpick single stocks and worry about diversification.

If you are new to investing or even if you just want to do a better job at diversifying your portfolio, ETFs can reduce a lot of the stress you will feel when trying to choose the best stocks for your needs. Ellen Chang at U.S. News Money has put together a list of great marijuana stocks and an ETF for you to consider.

Invest in Marijuana Using REITs

Hands down, I think that using REITs, or real estate investment trusts, are the best way to invest in cannabis using your IRA. There is a lot less risk with this type of investment than there is with single stocks or trying to fund an investment on your own. Because you won’t have to be involved with actually managing the property, you’ll enjoy all of the benefits of owning property without the frustration.

Additionally, you can choose what to do with your dividends, including investing and purchasing more shares or taking your profits to spend them or invest them in another area. Since dividends tend to be steady, they are a great option if you are worried about income.

Finally, REITs are generally less volatile than stocks because management expenses, as well as rental income, tend to be very predictable both in the short and the long term.

Your Role in Providing Real Estate to Cannabis Companies

As I mentioned, cannabis growers, manufacturers, and dispensers are struggling to find the land and buildings they need to operate their companies, and federal restrictions aren’t making it any easier. Just like you can help out any struggling business that is just getting started and needs additional capital to find their land or building, you can do the same with a cannabis business.

This rapidly growing industry needs assistance, and by working with a company like I-REIT, you can help provide equity capital solutions and real estate debt solutions to the companies in this industry, even if you don’t have any experience with real estate investing or the cannabis industry.

Advantages for Your Portfolio

When you learn to invest in cannabis, you’ll find many benefits. By diversifying your portfolio, you will have a lot less risk than if you had all of your investments in one area.

Cannabis real estate funding is a risk, like any investment, but diversifying your portfolio will allow you to spread out and mitigate that risk. As Arielle OShea writes at USA Today, with so many ways to invest in real estate, it makes sense to use this as a way to diversify your portfolio.

Rather than becoming a landlord or trying to flip properties, when you use a real estate investment trust (REIT), you can invest without actually holding the physical property yourself.

Comparisons are often drawn between REITs and mutual funds, and these companies will keep the property for their investors, generally pay high dividends, and can be traded in many ways.

Make sure that when you purchase a REIT that you understand the amount of risk that you are accepting, as publicly traded REITs are going to have less risk than ones that aren’t. You can use some of the money in your IRA to invest in a REIT, giving you control over property without assuming all of the risks yourself.

Why Expertise Matters

Cannabis is a new business, and so it’s essential that you work with a professional who can navigate all of the new changes, laws, and regulations that are being released and updated within this industry.

This is why you need to work with a company that is managed not only by real estate professionals but also by cannabis professionals. Together these experts can help you get the most out of your cannabis real estate investment without you having to do the work yourself.

Just like you would turn to a real estate professional when you want to invest in real estate, you need to make sure that you include cannabis professionals in the conversation when you are going to be investing in property for growing, testing, and distributing cannabis.

These professionals are aware of problems and changes in the industry and will be able to help better protect you and your investments when you work with them. Working with a company that provides a combination of cannabis, finance, and real estate expertise is essential and will help you to realize the best gains from your investment.

Because the cannabis industry is so new and undeveloped at this point, while you can benefit from getting in on the ground floor, you need to make sure that you are working with a professional who can offer you help and advice.

Things to Be Aware of When Investing in Marijuana

It’s vital that you are aware that when you invest in the cannabis industry, just like when you invest in any other industry, your dividends aren’t guaranteed. This is why I don’t recommend individual investors to try to tackle and fully understand the cannabis industry on their own.

Rather than attempting to complete all of the research necessary to find an excellent investment opportunity, working with a company that can help you invest your IRA in REITs is a much better idea and will reduce the stress you feel during this time.

While you’re not the one who will be vetting the buildings and land that you’re investing in, you do need to make sure that you are working with a reputable company. You also need to be aware of any legal challenges that the cannabis industry is currently facing so that you will feel at peace about your investment choices. While state governments are working to legalize cannabis, federal guidelines still have it labeled as a schedule-1 drug.

Because the federal government still sees cannabis as a dangerous substance and has it classified as such, this can create potential problems for investors, which is preventing any public trading. It’s also crucial that you are very careful to not invest in a scam. For this reason, I strongly recommend investing in REITs from a reputable company.

Bottom Line

Investing in cannabis is a great way to diversify your portfolio, but only if you have a higher risk tolerance due to the complexity of finding the right investment and the possibility of problems with the company you invest in. However, if you do invest in cannabis, then you have the opportunity for very high returns, as more and more people spend money with these companies and they continue to grow.

This has the potential for high returns and yields, and as more states make cannabis legal, it’s becoming an excellent option for you to invest in with your IRA. While investing in real estate via a REIT is a much better way to invest, as you will have lower risk and your money will be managed by experts, there is a risk no matter how you choose to invest in cannabis.

One thing that I like to remember is that as long as you have a self-directed IRA, you can easily invest with a qualified REIT company, helping you diversify your IRA and prepare for the future.

I personally think this is a great way to diversify and when you carefully choose the stocks or REIT that you are going to invest in, then you can set yourself up for incredible gains. However, just like with any other investment, you need to do your due diligence and complete your research before investing any part of your IRA in the cannabis industry.

Have you ever considered investing in marijuana, and if so, do you have any other advice on how to invest in cannabis using an IRA?

Chris Muller

Chris Muller

Chris has an MBA with a focus in advanced investments and has been writing about all things personal finance since 2015. He's also built and run a digital marketing agency, focusing on content marketing, copywriting, and SEO, since 2016. You can connect with Chris on Twitter @moneymozartblog.

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