Cannabis stocks are the next hottest stock investments for investors looking to get in on the ground floor of a skyrocketing industry. As of now, 33 states have legalized medical marijuana and 10 (including the District of Columbia) have approved recreational use. In October 2018, Canada made history by becoming the second country to legalize marijuana. Needless to say, this is a good sign for cannabis stocks.
The wave of marijuana legalization foreshadows more states and countries relaxing their laws on cannabis. But, what does this all mean for cannabis stocks? There’s definitely a lot of room to grow, but investors should tread carefully to avoid dubious companies with misleading valuations and shoddy management. It’s not an easy task finding the best cannabis stocks.
Estimates from BDS Analytics, put global marijuana sales at $146.4 billion in 2025. That’s about a 35% growth rate from 2019’s projected revenue, $16.9 billion. In 2018, 8 marijuana companies were listed on the Toronto Stock Exchange. Canada is expected to be a major player in the industry with Germany leading close behind and the U.S. at the front of the pack.
Major Companies Show Support for Cannabis Companies
2018 was a big year for cannabis and marijuana stocks. Although cannabis stocks are highly volatile, big investors are willing to heavily finance companies that are poised for success. For example, alcohol powerhouse producer Constellation Brands invested $4 billion in Canada’s Canopy Growth in August for a 38% stake in the company. They also plan to build a hemp industrial park in New York.
Heineken, another alcohol giant, is dipping its toes in the proverbial cannabis pool with a new line of cannabis-infused sparkling water in California. Molson Coors Brewing Company also has its eyes set on creating a cannabis beverage for the Canadian market. Beverage leaders like Coca Cola and Pepsi have also shown interest in following the trajectory of cannabis stocks.
Major companies are also invested in ancillary services to the cannabis industry. For example, Scotts Miracle-Gro acquired Sunlight Supply Inc, a leading distributor of hydroponics in the U.S. Canadian grower, Cronos Group, received a $1.8 billion investment from Altria Group, a big tobacco company. With Trump signing the 2018 Farm Bill and the FDA approving Epidiolex, the first experimental CBD-based drug, things are looking up for cannabis stocks.
Cannabis Companies on the U.S. Stock Market
In 2018, the New York Stock Exchange (NYSE) and NASDAQ began listing Canadian cannabis companies. For now, the U.S. stock market doesn’t list American marijuana companies because of its federal prohibition. Canadian companies can trade on the U.S. stock market because marijuana is legal in that country.
GW Pharmaceuticals (Stock Symbol: GWPH)
GW Pharmaceuticals focuses on creating cannabis-based pharmaceuticals. They were successful in becoming the first company to develop a cannabis-based drug approved by the FDA. The drug helps treat 2 rare forms of epilepsy: Dravet syndrome and Lennox-Gaustat syndrome.
Tilray (Stock Symbol: TLRY)
In June 2018, Tilray became the first cannabis grower to raise capital by listing on a U.S. stock exchange, the NASDAQ. They’re a cannabis grower, processor, and distributor in Canada. Although they have tempered production due to Canada’s possible oversupply, they have announced plans to focus on investments in the U.S. and overseas.
Aphria (Stock Symbol: APHA)
Despite getting caught overpaying for some acquisitions, Aphria still has a fighting chance as a worthy cannabis stock for its price. The CEO stepped down giving Aphria a sort-of clean slate to continue its acquisitions and partnerships in Canada and overseas.
Cannabis Companies on Canada’s Stock Market
Canada’s two stock exchanges, the Toronto Stock Exchange (TSX) and the Canadian Securities Exchange (CSE) list marijuana-related companies. Only the CSE allows U.S.-based companies to list on their stock exchange. At the moment, a few major Canadian cannabis companies are leading the Canadian Marijuana Index, which tracks cannabis stocks within Canada.
Canopy Growth (Stock Symbol: CGC)
Canopy Growth is one of the largest Canadian cannabis growers $17 billion market cap. It’s truly one of the biggest cannabis stocks in the world. It’s ramping up production, distribution, and even made its way to the NYSE in May 2018. They also have big beverage brands like Constellation Brands backing them up financially.
Cronos Group (Stock Symbol: CRON)
Cronos Group is a cannabis grower that received considerable support from Altria Group to grow its line of CBD products. Altria owns Juul, which could be a big move for CBD vaporizers. Cronos Group started exchanging on NASDAQ in February 2018. Overall, Cronos Group is seen as a worthwhile stock option.
Aurora Cannabis (Stock Symbol: ACB)
Aurora Cannabis is another major Canadian cannabis producer. Like Canopy Growth, they have a very high capacity to churn out cannabis to medical and recreational consumers. Aurora has been especially busy in international markets. It operates in 24 countries, including Germany, a major cannabis market. The company Robinhood says 420,000 of their users own Aurora Cannabis stock.
Cannabis Stock Risks
Cannabis stock naysayers worry that the investment bubble is affecting valuations. For example, Bitcoin evangelists were gung ho about buying up stocks until the price of the stocks plummeted in late 2017. Like many stocks, cannabis stocks will undergo bubbles and crashes costing investors millions. A company’s high valuation can be propped up with dubious financial claims and an undeterred hope.
Lack of Data
Cannabis’ illegality also puts its stocks in a precarious position. Trickling research makes it hard to determine the potential medical benefits of marijuana to ease consumers and investors. U.S. companies turn to Canada’s stock exchange or the OTC markets. These markets don’t have as stringent disclosure requirements as major Americana stock exchanges. That leaves investors without reliable data.
The cannabis industry suffers from a lack of support from banks due to cannabis’ federal prohibition. Consequently, cannabis companies have had to deal in cash only. Retailers often carry large sums of cash on site making them vulnerable to theft and robbery. The marijuana industry is already witnessing self-dealing and federal investigations into shady business practices which can lower stock prices.
Cannabis companies are also limited in growth due to different laws and regulations across states and countries. U.S.-based cannabis companies have to grow, process, and sell their cannabis products within their state. Transporting cannabis across state lines is illegal. That means that cannabis companies wanting to expand to other states must build a cultivation facility wherever they want to sell cannabis.
One of the biggest obstacles to the marijuana industry is the black market. Legal companies are up against black market competitors who aren’t paying taxes. High taxes force some consumers to buy from black market dealers.
Cannabis prohibition has also prevented some federal workers in defense and national security positions from owning cannabis stocks. Owning marijuana stocks could potentially lead to a loss of security clearances or gaining clearances in the future. Although catching these investments may be a low priority, federal workers are still wary of investing in cannabis at the moment.
Cannabis Penny Stocks
Contrary to popular belief, penny stocks are not necessarily valued at one cent. Officially, a penny stock refers to a company’s stock that trades for under $5 per share. Most penny stocks trade via over-the-counter (OTC) transactions, but some have made their way to the NYSE. Cannabis penny stocks are especially high risk, but a few, like Medical Marijuana Inc., Aurora Cannabis, and Canopy Growth Corp were once penny stocks.
Penny stocks can be purchased through a stockbroker, through an online brokerage service, or the Pink Sheets service. Unlike bigger-name stock markets, these stocks often come with very little financial information about the company and a probability of fraud or bankruptcy. Despite the risks, there are plenty of rewards in penny stocks for those with patience.
ETF Cannabis Stocks
Choosing the right cannabis stock requires a lot of luck and financial ingenuity. If investors want to balance their risk and potential return, they’ll turn to exchange-traded funds (ETF). There is only a handful of marijuana ETFs. An ETF enables hopeful investors to purchase multiple cannabis stocks, thereby, reducing the risk level, but also the return on investment.
Horizons Marijuana Life Sciences ETF (Stock Symbol: HMLSF)
Horizons owns over 20 stocks with large cannabis holdings including Canopy Growth, GW Pharmaceuticals, Scotts Miracle-Gro, Aphria Inc, Cronos Group, MedReleaf Corp, and other Canadian marijuana stocks.
ETFMG Alternative Harvest ETF (Stock Symbol: MJ)
ETFMG focuses on several marijuana stocks, although its companies aren’t exclusively focused on cannabis operations. Its holdings include Cronos Group, Aurora Cannabis, MedReleaf Corp, Canopy Growth, CannTrust Holdings, and GW Pharmaceuticals.
A Fast-Growing Cannabis Industry is Promising for Cannabis Stocks
Despite the many potential risks of investing in marijuana stocks, there’s no doubt that the marijuana industry will grow exponentially. Even in a cannabis stock bubble, some of the best companies will come out on top. Even Amazon, one of the heavyweights that came out of the Internet bubble, took multiple years to post a real profit. Many companies won’t make it, but a few will actually make some money.
At the moment, it’s hard to tell which companies will be the Amazon of weed. It’s too soon to assess the development of the cannabis industry, which may worry investors. It’s important to research management teams, business strategies, and financial status of potential cannabis stocks worth investing in. Lack of profits isn’t necessarily a deal-breaker if the company significant financial investment.
It’s hard to tell whether to be bullish or bearish when it comes to cannabis stocks. The unprecedented growth may lead someone to think cannabis stocks are worthwhile to buy. The cannabis industry is new and developing. In a sea of high valuations and changing regulations, cannabis stocks aren’t a clear winner, but, for some, choosing the best stocks may be a chance to invest early and win big.
Curious about Cannabis?
Click on Tours or Activities below and see what all the hype is about.