The decriminalization and legalization of marijuana and cannabis-based products has been advancing at an accelerating pace over the last half-decade. Many investors have recognized the enormous potential market that this medicinal and recreational drug represents.

However, the contemporary marijuana industry has a very “Wild West” feel to it, and it can be difficult to identify the companies that are best suited to prosper as the industry expands.

Fortunately, there are a few key guidelines that you can follow which will ensure that your investment in marijuana stocks will have a better chance to succeed.

A Proven Track Record of Success

One of the biggest challenges of investing in the marijuana industry is the massive number of brand new companies with little or no reliable experience in their niche area. While this is a natural product of a new industry, it does not offer an ideal environment for employing basic investing principles and due diligence.

While it can be tempting to look for small “unicorn” stocks that claim they will come to dominate the marijuana industry, it is better to look for established companies with a proven track record of success.

Dreaming and talking big is easy, even more so in an exciting burgeoning industry like marijuana stocks, but in the end marijuana is just like any other business, and the companies that thrive will be the ones who can master the mundane day-to-day reality of any successful business: supply chains, marketing, distribution and so on.

A Stream of Steady Revenues

As the cannabis industry expands, there will be a high degree of market disruption among marijuana stocks as customers establish identifiable patterns of consumption. While the marijuana industry is new and exciting, customers will be move back and forth between companies and products as new fads and flavors emerge. However, this early stage will fade, and the companies that survive will be the ones who offer a consistently high quality experience to their customers.

When choosing marijuana stocks to invest in, avoid the companies that only have short bursts of profitability. While they may have the hottest products of the day, there is no guarantee that anyone will even recognize their name tomorrow when the next hottest item hits the market. Instead, look the the marijuana stocks that have already established a steady stream of revenue, as they will be the companies best placed to profit in the long run.

Avoid the Pump and Dumps

With all of the excitement and hype surrounding the marijuana industry and marijuana stocks, it should come as no surprise that there are some less than scrupulous traders who are running pump and dump schemes on non-listed stocks. These traders will invest in a cheap unlisted stock, promote it widely and then sell it off when the price spikes.

There are a number of marijuana stocks that are listed on reputable exchanges, and many others that are traded in reliable over-the-counter markets. It is best to avoid the pink sheet marijuana stocks and instead focus on listed stocks with a proven track record and solid revenues.

Final Thought

Investing in an up-and-coming industry can be stressful if you don’t approach it the right way. By following the tips provided above you will be putting yourself in a better position to finding higher quality marijuana stocks that will limit your risk and increase your chances of success.