Investing in cannabis stocks is booming! There are several canabis stocks up for sale from companies that grow, produce and sell marihuana, but which ones to invest in and isn’t it just a hype?
In this article we will outline all the aspects of investing in marijuana stocks and which stocks you should keep your eye on.
How interesting is investing in cannabis stocks?
Let’s talk some numbers first. The expectations of Statista are that worldwide expenditures on legal cannabis will grow from a fat $24 billion in 2019 to more than $60 billion in 2024. From that $60 billion, almost 75% is expected to be spent in the United States. As there are more and more states that legalized or will legalize recreational and medical use, it seems like a logic story and prediction to us.
This doesn’t mean, however, that you can just buy a few cannabis stocks and lean back. As a fun fact, last year the North American cannabis index dropped a whopping 45%, whilst the S&P 500 ‘only’ dropped 20% in the same timeframe.
What kind of cannabis stocks are there?
Let’s start off with the different branches in the cannabis market. Not every company grows marijuana to sell for a profit. There’s a lot more to it, actually.
– Companies that really grow plants and produce cannabis and distribute this. These companies are also called ‘plant touching companies’
– Medical growing and biotech companies that focus mainly on the pharmaceutical side of the fence
– Suppliers of equipment and fertilizers to the companies outlines above
– Companies that advise the companies outlined above. Think about consultancy, market research etc.
Cannabis regulation is still a mess in the United States
Another important thing to look at when investing in cannabis stocks is regulation. This is still a bit of a mess at the moment. In Canada marijuana is legalized late 2018, but in the United States it’s still a ‘controlled substance’, without any proven medical advantages. So, still illegal, just like heroine and XTC. The federal government of the United States says it’s still illegal, but meanwhile more and more individual states vote for legalization of marijuana. Most not only for medical use, but also for recreational use.
This all makes it kinda weird, if you ask us. Because, what do you do when you can use medical marijuana but you’re flying to a different state where it’s not allowed? All kind of stupid situations arise.
TSA, that handles the security on American airports, says they are not actively looking for it, but if they find it during their searches, they will report it to the authorities. To be honest, I really like this Instagram post of them a few months back:
View this post on Instagram
Are we cool? We like to think we’re cool. We want you to have a pleasant experience at the airport and arrive safely at your destination. But getting caught while trying to fly with marijuana or cannabis-infused products can really harsh your mellow. Let us be blunt: TSA officers DO NOT search for marijuana or other illegal drugs. Our screening procedures are focused on security and detecting potential threats. But in the event a substance appears to be marijuana or a cannabis infused product, we’re required by federal law to notify law enforcement. This includes items that are used for medicinal purposes. #traveltips #travel #traveling #aviationlife #marijuana #420
Stock enlistment of cannabis stocks and shares
The most well-known marijuana stocks are enlisted on the Nasdaq, New York Stock Exchange and the Toronto Stock Exchange. Cronos Group and Canopy Growth where the frontiers.
Apart from the big boys, there’s a whole lot of smaller cannabis stocks (penny stocks), that are being traded Over The Counter (OTC).
There are also a few American companies that specifically choose to be enlisted in Canada, because regulation is looser there.
MedMen is the latest U.S. canna-businesses to set their sights on Canada in order to avoid federal restrictions https://t.co/rUh6SJpDLI
— MERRY JANE (@MERRYJANE) May 30, 2018
What to focus on when investing in cannabis stocks
If you want to invest long term in cannabis stocks, then you have to do your homework. The tips and tricks outlined below are very important when you trade marijuana stocks long term. To trade short term using technical analysis, you don’t need this advice at all, of course.
Standard information for investors
These factors you should ALWAYS check when investing long term and don’t only apply on cannabis stocks.
– Profit growth (pun intended)
– Stability (heavy or little fluctuation within the normal business cycle)
– Competitive position (kinda obvious)
– Debt to Equity Ratio (in what situation are the debts vs. equity)
– Price to Earnings Ratio (chart/profit correlation)
– Management (who’s leading the company and what’s their track record)
– Dividends (how much dividend do you get, just by holding the stocks or shares)
For smaller OTC stocks it’s very difficult to do the right research, because they publish way less numbers and reports and most often are less regulated and thus not obligated to report these stats.
This, however, doesn’t mean OTC cannabis stocks are less reliable. There are always pearls to be found!
Size matters with cannabis stocks
If you’re looking for big and fast gains, it’s not advisable to invest in big cannabis stocks. These names in the cannabis industry are quite expensive to buy, but will make you sleep better at night, though. The bigger the company, the bigger the chance they still exist tomorrow when you wake up.
With smaller marijuana stocks you have to calculate for yourself whether the chance on a big, phat profit within a certain time frame is worth the risk versus cannabis stocks that already proven themselves.
Location and Export Possibilities
There’s loads of trading going on between Canada and the US for cannabis companies to keep on growing, but this can change rather fast. Within a few years the chance exists that the supply will be bigger than the demand and then, as a company, you have huge advantages if you have an export license. Europe has almost 750 million inhabitants and they spend a lot of money on healthcare. If cannabis is to be legalized here, this means a huge growing market!
Who is pulling the strings?
In the beginning of this article, I already told you to look at the management and their track records. With investing in cannabis stocks this is super important. The three year bull run in the cannabis market has of course attracted shady figures. Everybody knows how much money there is to be made in this sector. So the market obviously attracts ex-investment bankers and other slick businessmen, that never actually had a single plant in their home or backyard.
I would personally stay completely away from boys that don’t have any experience, just because they are looking to earn a quick buck. As a trader this doesn’t really matter on the short term, but this article is mainly focused on long term marijuana investing.
So, enough introductionary stuff, let’s take a look at some cannabis stocks!
Cannabis Growing Stocks and Shares
These are the so called ‘plant touching’ companies that actually grow cannabis. Please note that you do have to separate recreational and medical growing companies, though.
Ticker Symbol: CGC/WEED
Lets start of with the biggest and the first Canadian cannabis growing firm. Canopy Growth owns many brands for both medical and recreational marijuana growing and selling. Late 2017 Constellation Brands (known from the Corona beers, not the virus) bought a 9.9% stake in Canopy Growth. The plan for the future is to create products together, like (alcoholic) drinks with cannabis extract, but more on that later.
Another big Canadian player in the market is Aurora Cannabis. After the take over from competitor MedReleaf they managed to grow super fast and they can call themselves the proud owner of the biggest marijuana dealers on the planet with over $2.5 billion in marijuana sales.
If they grow on full speed, they produce about 570,000 kilograms of cannabis yearly, using nine different locations in Canada and two in Denmark. That’s a whole lot of pot.
Aurora Cannabis is in the driver’s seat in terms of peak annual production of 570,000 kg. when running on all cylinders. By comparison, Canopy Growth Corp. and Aphria are the next-closest competitors, with estimated annual output of around 500,000 kg. and 255,000 kg. $ACB pic.twitter.com/PbkUehY6qn
— Smart Money Gains (@smartmoneygains) February 4, 2019
Ticker Symbol: CRON
The first pot stock ever enlisted on the NASDAQ. Toronto based Cronos Group grows and produces medical marihuana only. They serve the international market and most of their export goes to Germany. Apart from that, they are building a huge facility in Israel with which they hope to export to Australia. They don’t really have a foothold in the US yet, but they are busy taking over Redwood. So there might be some change in that soon.
Also, Cronos numbers look very good for the time being…
Terra Tech Corp.
Ticker Symbol: TRTC
This agricultural company was founded 10 years ago. Terra Tech focuses mainly on the production and distribution of medical weed. Their own brands are IVXX and Edible Gardens. Apart from that they have their own dispensary stores under the name Blum. At the moment of writing of this article Terra Tech is still an OTC stock and mostly active in California and Nevada.
Their stock was once valued at $21 in 2014 but nowadays trades for only $0,41 due to bad results. One to watch, especially if you’re an underdog investor.
Pharma and Biotech Company Stocks
You can also invest in cannabis stocks in companies that use the working essentials from the plants and synthesize these for medical use. These boys do better than growers for the time being.
Ticker Symbol: ABBV
The pharmaceutical company ABBVie has launched a medicine on the market which mainly contains cannabis. This substance is called Marional and is FDA approved. Marional is being used on cancer patients that suffer from nausea during chemo therapy and on AIDS patients to increase appetite. The nice thing about this stock is that AbbVie also develops substances that have nothing to do with cannabis. If you decide to invest in this stock, you’re not entirely dependent on the cannabis market.
AbbVie also has one of the highest dividends on the American stock exchange of at least 4.19%, which is at least $3,17 per share. Imagine this whilst the average dividend in the biotech sector is only 0.5%!
During summer 2018 the FDA approved the substance called Epidiolex, which is produced by GW Pharmaceuticals. The remarkable fact about this substance is that it contains active cannabis ingredients instead of synthetics. This medicine is used to counter two versions of heavy and rare epileptic attacks. Although a lot of pot stocks were being dumped last year, GW Pharmaceuticals made a profit of at least 60% during the last 8 months.
Ticker Symbol: AXIM
Another biotech firm that’s waiting for a few medicine approvals. Axim focuses on the treatments of dry eyes but also on addictions like quitting smoking.
This OTC stock dropped like a bomb the last 2 years. So bargain hunters, there you go!
Stocks from Suppliers
Everything goes kinda fast in the weed industry and producers need all kinds of equipment to keep their business going and scale up. Think about growing equipment and packaging materials.
KushCo supplies packaging materials and equipment, where producers and suppliers can put their own logo on (white-label). They have 12 branches spread around the US. Their revenue grew from a small $19 million in 2017 to a whopping $52 million in 2018.
Their stock plummeted about 50% last year, so it’s definitely one to put on your watchlist!
The Scotts Miracle-Gro Company
Ticker Symbol: SMG
Another one of those stocks that almost doubled last year. In 2016 the CEO of a garden equipment company decided it would be a smart move to start selling to big cannabis players. And that went quite well. In Q1 and Q2 they presented fantastic numbers and we can see that back in their share price!
Ticker Symbol: GRWG
This OTC stock has been banging in 2019. Some analysts think GrowGeneration can grow up to 100% yearly. They exploit special shops focusing on hydro culture and garden equipment, also called grow shops. Their revenue target for this year is $85 million so that’s a triple compared to 2018, very ambitious if you ask me!
Stocks of Business and Service Providers
If it goes well in a certain sector, the consultants, real estate boys and service providers dig in. Also in the case of the cannabis industry. These companies also issue stocks, with which you can ride along the hype.
Innovative Industrial Properties
Ticker Symbol: IIPR
This real estate company focuses on buying and selling industrial real estate to medical marijuana growing companies. They own property in California, New York and Arizona.
This stock doubled up in value in 2019 by the way!
General Cannabis Corp
Ticker Symbol: CANN
Another service provider. General Cannabis offers a broad range of services within the cannabis industry. They have real estate, offer consultancy and security and even have their own clothing brand.
Overall this stock just sunk to the absolute bottom, but in August 2019 it doubled from 50 cents back to a dollar.
Ticker Symbol: MCIG
These boys are literally jacks of all trades. They have their own dispensaries, own products like vaporizers but also do consulting and media.
Their stock was once valued at $1 but dropped now to like $0,05. It literally became a penny stock. A recent memo to share holders was kinda funny…
Piggyback on the Cannabis Hype with the Booze Boys
Because of the growing popularity of cannabis and the legalization, traditional alcohol and tobacco companies feel the heat. There’s even a report out there which states that alcohol and tobacco sales will drop because of the growth of the marihuana business. However, in this same report is outlined that this development comes with new opportunities for companies as well.
The usage of legal weed could replace alcohol but it could also lead to new beverages. Imagine for instance, cannabis-infused soft drinks.
Some of the big boys already take advantage of this market shift…
Ticker Symbol: HEIA
Molson Coors Brewing Company
Ticker Symbol: TAP
If there’s one company being very talkative about the impact of marihuana legalization it’s got to be Molson Coors.
They see cannabis as a serious risk factor and threat for the entire alcohol sector and even state this in their yearly financial reports, that they file to the Security Exchange Commission.
So, as a result, Molson Coors also announced that they will start an entire new product line including cannabis-infused soft drinks. They will partner up with a company called Hydrotherapy for the Canadian market.
Ticker Symbol: STZ
Like I told you before, the parent company behind Corona beer is already entangled within the cannabis industry by their mega investment in Canopy Growth. Apart from this investment, they are also very busy developing their cannabis drinks, which they will start selling later this year.
Small detail though, Constellation Brands does expect to lose a couple million on their investment in the short term.
Enough Opportunities in the Cannabis Industry!
For a few companies the initial bubble seems to burst soon and their shares will drop. This comes with opportunities but always do your due diligence. Apart from that, there are quite some cannabis stocks that will simply sky rocket, especially the pharmaceutical ones. This market is still in it’s infant stage and with the right analysis these stocks can be considered bargains and will net great profit in the long term.
Where can you buy cannabis stocks?
Nowadays every good broker offers investment opportunities in the marihuana sector, both short term and long term.
If you want to invest long term in marihuana stocks, then it’s better to directly invest in the underlaying value or stocks directly. This is best done at Admiral Markets, with the Admiral.Invest account, with which you can invest in marihuana stocks with very small (almost zero) transaction fees.