SoFi

Considering a career in law enforcement? Besides the satisfaction of serving the public good, one benefit of doing so may be the opportunity to take advantage of the student loan forgiveness program for police officers.

Public Service Loan Forgiveness for Law Enforcement

Public Service Loan Forgiveness may offer loan forgiveness of Direct Loans for police officers and other government employees. The program started in 2007 and offers federal student loan forgiveness for borrowers who work full-time in the public service sector and make 120 qualifying on-time payments (you can see all of the qualifications on the federal student aid website).

This means that if you’re a police officer who works for the government and successfully makes 10 years of qualifying payments, you may be eligible to have the remainder of your debt wiped out entirely.

Of course, this option is not available to everyone; you must work for a qualifying employer to earn forgiveness. Generally, government organizations may be considered qualifying employers under PSLF, which means that if you work for tribal, city, county, state, or federal law enforcement, you may qualify.

And because Public Service Loan Forgiveness is not just limited to police officers, other staff at these agencies may qualify as well—even if they’re not on the frontlines. (Note that detention officers who work at for-profit prisons are not eligible because they work for a private company and not the government or non-profit.)

To be sure that your job is considered public service under the PSLF program, you can submit a PSLF employment certification form. This form is used to confirm that your current job qualifies for PSLF benefits.


💡 Quick Tip: Ready to refinance your student loan? With SoFi’s no-fee loans, you could save thousands.

Public Service Loan Forgiveness Requirements

In addition to restrictions on the type of employment that is eligible for PSLF, there are other criteria you must meet in order to take advantage of this student loan forgiveness for police officers.

First, your student loans must be Direct Loans, borrowed from the federal government. Private student loans are not eligible for loan forgiveness under PSLF.

Additionally, you may be required to consolidate your federal student loans before you qualify for PSLF. Consolidation is a process by which you combine all of your federal student loans, such as Direct Subsidized Loans, Direct Unsubsidized Loans, or PLUS Loans, into one new loan.

Further, you must work full-time in order to qualify for PSLF. That means that in addition to working for a qualified employer, you also need to be employed full-time, which is generally 30 hours or more per week.

There is one exception to this requirement, however: If you work part-time for two different qualifying employers and you work more than thirty hours per week between the two jobs, you may still qualify for PSLF.

Finally, in order to take advantage of the PSLF for law enforcement, you must make 120 qualifying student loan payments. That means that even if you’re working full-time for a qualified employer and plan to take advantage of PSLF, you are still responsible for paying back your student loans for 10 years.

PSLF only forgives the amount of your student loan remaining after the 10 years of qualifying payments. And if you miss a month or are more than 15 days late in making your payment, it won’t count towards your 120 total. That means you could end up making more than 120 payments before the government clears your loans for loan forgiveness.

The one bright side here is that the 120 monthly payments you are responsible for before you can qualify for PSLF can be on any valid federal loan repayment plan. This means that you may be able to choose a plan that keeps your monthly payments relatively low until your 120 payments are complete.

Perkins Loan Forgiveness for Police Officers

Perkins Loans, which were offered until September 2017, may also be eligible for forgiveness if you consolidate them into a Direct Consolidation Loan. Perkins Loans were administered and distributed by your college, which often means that borrowers end up paying one student loan payment to the federal government and one to their alma mater. Under the Perkins Loan program , certain employment such as law enforcement and teaching may qualify for a full or partial Perkins Loan cancellation.

To qualify for forgiveness of your Perkins Loans, you must be employed full-time as a law-enforcement officer or in another qualifying position. If you qualify for Perkins Loan forgiveness, a certain percentage of your loans will be forgiven each year of full-time qualifying employment as follows:

Year 1: Forgiveness of 15% of your loan.

Year 2: Forgiveness of 15% of your loan.

Year 3: Forgiveness of 20% of your loan.

Year 4: Forgiveness of 20% of your loan.

Year 5: Forgiveness of 30% of your loan.

That’s right, after five years of qualifying employment, you could be eligible to get up to 100% of your Perkins Loan forgiven if you’re a law enforcement officer. On top of that, you may not have to pay your Perkins Loans while you hold a qualifying job, which can mean you might end up never paying back a penny of your Perkins loan.

Because colleges independently disbursed Perkins Loans, each school also runs its own forgiveness program. To see if you qualify, reach out to your school’s billing department.

Loan Refinancing for Law Enforcement Officials

For law enforcement officials who don’t qualify for PSLF, student loan refinancing may be able to help you lower the cost of your student loan repayment. This involves taking out a new, private loan to pay off your existing loans, which can include federal and private loans). However, keep in mind that if you refinance federal student loans, you permanently forfeit eligibility for federal benefits and protections, including PSLF, income-driven repayment, deferment and forbearance.

Loan refinancing is one of the few ways to potentially decrease the total amount of interest you pay on your student loan. If you qualify, lowering your interest rate can add up to some serious savings over the life of your loan, depending on how long you take to repay it.

If you’re dealing with high loan payments and are looking to free up some monthly cash flow, refinancing may also help you lower your monthly payment. This can be done by getting a lower interest rate and/or extending the length of the repayment term. Just keep in mind that by extending the term, you may end up paying more interest over time.

Additionally, student loan refinancing allows you to focus on paying off your loan over a fixed time period, meaning that you won’t be stuck paying interest on your loans for the rest of your life.

Of course, not all law enforcement officials will benefit from refinancing, particularly those planning on taking advantage of Public Service Loan Forgiveness. Make sure to do your due diligence when picking out a loan repayment plan that is right for you. In general, there are many loan repayment and loan forgiveness options available to law enforcement, which means you can focus on your job instead of your loans.

Student Loan Refinancing With SoFi

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

SOSL0923060

More than 43 million Americans have student loan debt. Today, the average borrower graduates with a balance of nearly $38,000. For those with private loans, that amount may be closer to $40,500.

If you’re among those borrowers looking for ways to reduce student loan debt as quickly and easily as possible, you may want to consider refinancing.

A common reason for refinancing student loans is to secure a lower interest rate, which can help lower monthly payments and save money on interest. But you may also choose to refinance to change other loan terms or change your lender.

But choosing a refinance lender can be overwhelming. So to help you evaluate student loan refinancing companies, we’ve created a handy cheat sheet. Asking these 10 questions can help you zero-in on your best fit.

Student Loan Refinance Lender Questions Cheat Sheet

1. How Great is the Rate?

One of the main reasons to refinance your loans is to get a lower interest rate.

Ask the lender to provide your interest rate before doing a hard credit pull. Most online lenders allow you to prequalify with a “soft” credit pull , which won’t impact your credit score.1 This should allow you to “rate shop” without affecting your credit.

A “hard” credit inquiry, on the other hand, stays on your credit report for up to two years. One or two hard inquiries will probably have a minimal impact on your credit. But several within a short period can harm it, which is why it’s important to get quotes before officially applying for a loan.

You can use a student loan refinancing calculator to estimate your total savings with a new refinanced loan, even before you prequalify.


💡 Quick Tip: Get flexible terms and competitive rates when you refinance your student loan with SoFi.

2. Do the Pros Outweigh the Cons?

All new federal student loans are granted through the William D. Ford Federal Direct Loan (Direct Loan) Program. Private student loans, on the other hand, are provided by individual financial institutions.

Refinancing federal student loans is an option available to borrowers. Sometimes, refinancing can be beneficial. For example, it may be a good idea if you can qualify for a lower interest rate and save a significant amount of money.

Others may find that refinancing a federal loan isn’t the right option for them. Here’s a quick list of some of the pros and cons to consider if you’re thinking of refinancing federal student loans.

Some of the Pros to Consider:

•   Long-Term Savings: Refinancing to a lower interest rate could potentially help you save money in interest over the life of the loan.

•   Lower Monthly Payments: You can also choose to extend the repayment term, which would result in lower monthly payments. This may make sense if you’re struggling to fit your payments into your budget. However, you may pay more interest over the life of the loan if you refinance with an extended term.

•   Faster loan payoff: Imagine having no more student loans to pay back! By shortening your loan term, you could speed up your repayment.

•   Rate Change: Variable rates often start off lower than fixed rates, which can be helpful if you plan to pay off your loan quickly.

Some of the Cons to Consider:

•   Loss of Access to Federal Repayment Plans: When you refinance federal loans with a private lender, they’ll no longer qualify for any federal repayment plans. This includes income-driven repayment plans that reduce payments to a small percentage of your income.

•   No Longer Eligible Federal Forgiveness Programs: If you’re pursuing Public Service Loan Forgiveness (PSLF) or other federal forgiveness programs, refinancing may not be the right option for you, since doing so makes your loans ineligible.

•   Inability to Defer Your Loans: You’d also lose the opportunity to put your federal student loans into deferment or forbearance in the event of financial difficulty.

3. Can You Pick Between Fixed and Variable Rate Loans?

With a fixed rate loan, the interest rate is locked in for the entire life of the loan. This means you’ll have a predictable monthly payment for the entire term.

The interest rate on a variable-rate loan, however, can go up or down over time, depending on market conditions. While the initial rate may be lower, you could end up with a high rate a few years into your loan.

Fixed-rate loans are generally considered to be less risky than variable rate loans. But if you’re able to repay your loan in a relatively short time period, variable-rate loans can be worth considering.

You can use SoFi’s student loan payment calculator to estimate your student loan payments with a fixed rate. Tools like this can help give you an idea of how much more you may need to be paying each month if you want to pay your loan off faster.

4. Can You Choose Your Loan Term?

Typically, this is the case. But beware: Choosing the term that results in the lowest monthly payment isn’t always the best option. Stretching out your repayment term helps reduce the monthly payments, but it also means you’ll pay more in interest over the life of the loan.

If you recently graduated, you may not be making enough money to afford your current payment. In that case, a longer term with lower monthly payments to free up some cash flow in the short-term might make sense.

Be realistic about how much you can afford to pay back each month. If you can afford a higher monthly payment, you’ll likely pay off your loan more quickly, and ultimately pay less money in interest.


💡 Quick Tip: When refinancing a student loan, you may shorten or extend the loan term. Shortening your loan term may result in higher monthly payments but significantly less total interest paid. A longer loan term typically results in lower monthly payments but more total interest paid.

5. What Happens if You Lose Your Job?

Life is unpredictable, and if you unexpectedly lose your job, it may be difficult to keep up with your loan payments. When you miss loan payments, you might incur late fees or other penalties. Additionally, late payments can have a negative impact on your credit score. After a series of missed payments, the loan could go into default.

Borrowers with federal student loans can apply for deferment or forbearance to temporarily reduce or pause their loan payments while they look for work. Or they can look into income-driven repayment plans, provided their federal student loans are current.

6. Will the Lender Help With Your Career?

The higher your earnings, the easier it is to pay off your student loans quickly. A lender who helps you get ahead in your career understands this principle.

Lenders know that if you can’t get a job, or you lose your job, you won’t be able to pay back your loans. Ask your lender if they offer any networking or other career services that could help you advance in your career.

7. What Other Perks Come With Your New Loan?

Not all lenders are created equal. As you are reviewing different lenders and refinancing options, review everything the lender has to offer. In some cases, you might find you qualify for similar refinancing options at a few different lenders, but one might offer additional benefits that pushes it ahead of the other options.

A few of the perks of refinancing with SoFi include:

•   Zero hidden fees: There are no application fees, origination fees, or prepayment penalties.

•   Add a cosigner: Many students have limited income and credit history, so adding a cosigner could help improve their application’s chances of being approved.

•   Automatic payments: Not only can automatic payments help prevent any late or missed payments, but enrolling your SoFi loan in autopay could qualify you for an interest rate reduction.

8. Is the Application Online?

The last thing you want is to be buried in a mountain of actual paperwork. Look for lenders that offer a short, simple, online form.

9. What’s the Lender’s Reputation?

Make sure to do your due diligence on any potential lender. A quick Google search should provide some online reviews and media coverage of the lender, which will help you determine if they’re legitimate.

You can also check out their social media pages. Overall engagement levels and conversations within a lender’s social communities may provide additional, valuable insights and help give you a sense of the company’s commitment to things like customer service.

10. Will the Lender Grow With You?

Sure, lenders can refinance your student loans, but what about helping you with other financial milestones, such as buying a home and saving for retirement? Look for a lender that sees the big picture—and wants to invest in your long-term success.

Start the Refinancing Process Today

Whether you’re ready to start your application or you’re just beginning to consider refinancing, the SoFi team is here to help. Refinancing your student loans with SoFi could help you spend less money in interest, lower your monthly payments, or even pay off your loan faster. (You may pay more interest over the life of the loan if you refinance with an extended term.)

Keep in mind that refinancing federal student loans with a private lender will eliminate them from federal protections and benefits like deferment, loan forgiveness, and income-driven repayment plans.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

SOSL0923055

Due to the financial challenges created by the COVID-19 pandemic, federal student loan payments were automatically paused from March 2020 to September 2023. During that time, interest didn’t accrue and collections activities were also paused. But now that payments are due again, many borrowers are looking for ways to make their loans more manageable, especially those who are facing ongoing financial hardships.

One option is student loan deferment, which allows you to temporarily pause your student loan payments. As with most financial decisions, there are pros and cons to deferring your student loans. Here’s more information about student loan deferment and what it could mean for your financial future.

What Is Student Loan Deferment?

Deferment is a program that allows you to temporarily stop making payments on your federal student loans or to temporarily reduce your monthly payments for a specified time period.

This is similar to another option known as forbearance. However, unlike forbearance, you may not be charged interest while your loan is in deferment. According to the Department of Education, if you hold one of the following types of loans, you will not be responsible for paying interest on your loan while it is in deferment:

•  Direct Subsidized Loan

•  Subsidized Federal Stafford Loan

•  Federal Perkins Loan

•  The subsidized portion of a Direct Consolidation Loan

•  The subsidized portion of a Federal Family Education Loan (FFEL) Consolidation Loan

If you have one of the following types of loans, you will be responsible for paying the accrued interest on your loan while it is in deferment:

•  Direct Unsubsidized Loan

•  Unsubsidized Federal Stafford Loan

•  Direct PLUS Loan

•  FFEL PLUS Loan

•  The unsubsidized portion of a Direct Consolidation Loan

•  The unsubsidized portion of a FFEL Consolidation Loan

If you are responsible for paying interest on your student loans while they are in grad school deferment, you have two options: 1) you can make interest-only payments on the loans while they are in deferment; 2) if you choose not to make these interest-only payments, the accrued interest will capitalize (be added to the loan principal) when the deferment period is over.


💡 Quick Tip: Ready to refinance your student loan? With SoFi’s no-fee loans, you could save thousands.

How Do You Qualify for Student Loan Deferment?

In order to qualify for student loan deferment, you must meet one of the following requirements:

•  You’re enrolled at least part-time at a qualifying university

•  You’re unemployed or unable to find employment (for up to three years)

•  You’re experiencing an economic hardship

•  You’re currently volunteering in the Peace Corps

•  You’re on active-duty military service (or are in the 13 months following that service)

•  You’re in an approved graduate fellowship program

•  You’re in an approved rehabilitation program (for disabled students)

Requesting a Deferment

If you’re interested in deferring student loans to go back to school, you’ll need to apply for an in-school deferment. Most likely, you will request the deferment directly through your loan servicer—there is usually a form for you to fill out. When you request a deferment, you’ll also need to provide some sort of documentation to prove that you qualify for a deferment.

If you are enrolled in an eligible college or career school at least half-time, may be placed in deferment automatically . If it is, your loan servicer will notify you that deferment has been granted. If you enroll at least half-time and do not automatically receive a deferment, you will need to contact the school in which you are enrolled. The school will then send the appropriate paperwork to your loan servicer, so that your loan can be placed in deferment.

Pros and Cons of Student Loan Deferment

The biggest benefit of student loan deferment is the ability to temporarily postpone student loan repayment. As of the first quarter of 2023, 2.8 million loans were in deferment.

If you are deferring for extreme financial hardship, deferment allows you to free up money to pay off bills that require immediate attention like rent or electricity.

For students who have qualified for deferment through community service, like a stint in the Peace Corps, deferment gives them the opportunity to serve their community without any added stress from student loan payments.

While temporarily pausing loan repayment may seem like a blessing, it can come at a cost, especially if your student loans are not subsidized by the government. When in deferment, interest continues to accrue on your loan. And at the end of your deferment period, that interest will be capitalized on the loan. (This means that the accrued interest will be added to the principal balance of the loan. So ultimately, you’ll be paying interest on top of interest.)

This can mean you end up paying even more money over the life of the loan. To see how much deferring your student loans could cost, you can use an online calculator to get an estimate of how much interest will accrue while the loan is in deferment.

The Pros and Cons to Student Loan Refinancing

If you have private loans that aren’t eligible for federal student loan deferment, refinancing your student loans is another option to consider. You may also want to think about refinancing when you’re done with your graduate degree to pay off your loans at a potentially lower interest rate.

When you refinance, your existing student loans are paid off with a new loan from a private lender. If you are refinancing private loans before going back to graduate school, you may be after a lower monthly payment, which you could potentially qualify for when refinancing your loans and extending the loan term. (You may pay more interest over the life of the loan if you refinance with an extended term.)

Alternatively, if you’re looking to refinance after graduate school, you could potentially qualify for a lower interest rate, which could reduce the amount of money you spend over the life of the loan. The lender will use your credit score and earning potential to determine what interest rate you’ll qualify for. And thanks to your new graduate degree, you could have significantly increased your earnings.

Another big benefit of student loan refinancing? You’re able to combine all of your student loan payments – for both federal and private loans – into one easy-to-manage payment.

If you hold only federal student loans, however, you could look into a Direct Consolidation Loan , which allows you to consolidate federal loans into one loan with a single monthly payment. The new interest rate will be the weighted average of your current interest rates (rounded to the nearest one-eighth of 1%), so unlike refinancing, when you consolidate your student loans, you won’t necessarily qualify for a lower interest rate.

If you are taking advantage of your federal loans’ flexible repayment plans or student loan forgiveness programs (or if you are planning to do so), refinancing might not be the best option for you. A major con of student loan refinancing is that you’ll lose access to federal loan benefits when refinancing with a private lender—including deferment and income-driven repayment plans.

Refinancing Your Loans with SoFi

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

SOSL0923056

Investing in the cannabis industry is becoming a bigger area of interest for many investors, as marijuana becomes increasingly legal in different states around the U.S. As more states legalize cannabis use for recreational purposes, investors may be attracted to its growth potential – and the potential to drive returns for their portfolios.

But investing in cannabis carries some significant risks. It’s still a federally illegal substance, for one, and it’s unclear if there’s a path to national legalization. There’s a lot to take into consideration for investors.

Overview of Cannabis Legalisation

As of mid-2023, 23 states in the U.S., as well as the District of Columbia, Guam, and the Northern Mariana Islands, have legalized cannabis for recreational use. Many others have legal medical marijuana laws.

It’s likely that more states will legalize marijuana for recreational or medical use in the years ahead, too. Federal legalization is also a possibility, but for now, it’s uncertain. Given that over the past ten or so years recreational legalization has grown from zero to roughly half of states, though, investors see investing in cannabis as an opportunity.

Outside the U.S., Mexico legalized recreational marijuana in 2021, becoming the largest market for cannabis in the world. It followed Canada, which in 2018 made the same move.


💡 Quick Tip: Look for an online brokerage with low trading commissions as well as no account minimum. Higher fees can cut into investment returns over time.

How to Invest in Cannabis Stocks

The main ways investors can get exposure to marijuana businesses in their portfolios is by first, owning the individual stocks of cannabis-related companies. The other option is through cannabis-themed exchange-traded funds, or ETFs.

Cannabis Stocks

Historically, cannabis companies tended to remain private companies. But in Canada, medical use of marijuana has been legal since 2001, making the Toronto Stock Exchange and TSX Venture Exchange the listing venues for many cannabis-related businesses. Investors in the U.S. are able to trade Canadian stocks via American Depository Receipts (ADRs).

Then in 2018, medical marijuana company Tilray became the first cannabis company to directly list in the U.S., having its initial public offering (IPO) on the Nasdaq Stock Exchange. Since then, many other cannabis companies have gone public, including Cronos Group Inc., Canopy Growth Corporation, and Aurora Cannabis. There are also publicly-traded companies that offer cannabis or cannabis-related products or that are otherwise active in the cannabis space, such as Anheuser-Busch InBev, Altria Group, Molson Coors, and Scotts Miracle-Gro.

While a listing on a major exchange does not imply that an investment is good or bad, stocks that are listed on an exchange are held to higher regulatory and reporting standards. Those that don’t qualify to be listed on an exchange typically trade over-the-counter (OTC).

No matter where an investor purchases a stock – on an exchange or OTC – it’s wise to be cautious.

Different Types of Cannabis Companies

When investors think of cannabis stocks, they may think of marijuana growers. But this is not the only type of business available for investors to consider.

•   Investors may be interested in biotech companies that are developing prescription drugs using the compounds found in marijuana (cannabinoids).

•   There are companies that provide products and services to the cannabis industry itself, such as distribution, packaging, energy and lighting systems (for greenhouse growth), banking, and hydroponics – a plant-growing method that involves no soil.

•   Another way to look at investing in marijuana businesses is via companies that do the majority of their business in other markets, but have growing cannabis-related arms.

Marijuana ETFs

An ETF is a basket of securities, such as stocks or bonds, that’s packaged into a single share that investors can find listed on stock exchanges. Many ETFs mirror the moves of an underlying index, like the S&P 500 Index or Nasdaq 100 gauge.

In general, ETFs have been lauded for their ability to help investors get exposure to a broad array of investments at a low cost. Similarly, a cannabis ETF could potentially allow an investor to diversify their stocks holdings, while avoiding pricey management or transaction fees and the research required when picking individual stocks.

Cannabis ETFs generally have higher expense ratios than those of the most popular, non-cannabis, low-cost ETFs. This is largely due to the fact that investing in individual marijuana stocks remains expensive, and the active management involved in curating stocks to include in the ETF.

Cannabis ETFs may also hold fewer stocks than more traditional ETF. This is typical of so-called thematic ETFs, ones that allow investors to wager on more niche trends. While such funds allow for more targeted bets, investors are also exposed to fewer names, making it more likely that a big move in one company will impact the price of the ETF as a whole.

Potential Risks of Cannabis Investing

Marijuana stocks have tended to be more volatile than the overall market. In addition, pot stocks have also been a target for short sellers – investors who bet shares of a company will fall. Investors who aren’t comfortable with such stock volatility may want to forgo investing in cannabis stocks.

Legal & Regulatory Risks

Because marijuana is still prohibited on the federal level in the U.S., there can be a legal risk to investing in pot-related companies. For instance, cannabis-related businesses in the U.S. are shut out from the banking system in many respects.

In addition, even if the U.S. were to pass federal legalization, that doesn’t mean growers and retailers will be able to sell their products immediately under a streamlined regulatory structure. Some states may put in place new regulation that makes pot sales and usage onerous.

After Canada legalized marijuana in 2018, many people thought that the move would lead to quick sales and profits. But in reality, the opening and licensing of cannabis stores took place slowly. Plus, illegal pot sales continued to thrive and compete with the legal marketplace.

In the first year after legalization, the stock value of Canada’s six largest marijuana companies plummeted by more than 50% on average.

New Industry and Market

Because the legal marijuana industry is relatively young, so are many of the companies within it. Many of these companies have untested business models.

From a stock investment standpoint, many of the stocks that are currently for sale in the OTC market qualify as microcap stocks and penny stocks. Many of these companies have yet to post positive earnings and bear no track record. Microcaps typically experience a high rate of failure and are often highly volatile.

Separately, unexpected developments and news reports may hit a new industry like cannabis. For instance, in 2019, many pot stocks took a dive amid concerns that vaping was tied to a serious respiratory disease.

Fraud

In addition to the general market risk that comes with investing in a new industry, fraud often attaches itself to new, exciting, and less-regulated industries.

In a 2018 investor bulletin, the Securities and Exchange Commission (SEC) alerted investors that their office regularly receives complaints about marijuana-related investments. “Scam artists often exploit ‘hot’ industries to trick investors,” the regulator said.

The SEC said investors should particularly be wary of risks related to investment fraud and market manipulation. Investment fraud includes unlicensed, unregistered sellers; guaranteed returns; and unsolicited offers. Meanwhile, market manipulation can involve suspended trading in shares, changes to a company name or type of business, and false press releases.


💡 Quick Tip: Are self directed brokerage accounts cost efficient? They can be, because they offer the convenience of being able to buy stocks online without using a traditional full-service broker (and the typical broker fees).

The Takeaway

Hunting for the next big marijuana investment may seem like an exciting endeavor. But investors should keep in mind that the cannabis industry may continue to encounter obstacles even if legalization on a broader scale occurs in the near future.

And outside the regulatory challenges, cannabis-related businesses tend to be newer, untested, and not yet profitable, posing greater risks for investors. The marijuana market may turn out to be an area of growth for stocks, but investors should weigh the considerable risks associated with it, too.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

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