Investing In Marijuana Stocks, Part II: The Stocks Themselves

Earlier this week we discussed what new investors to pot stocks should keep in mind before buying. The stock market is in a volatile position right now – Coronavirus might be shutting down a substantial portion of the world’s economic development over the coming months, and the stock market reflects that. But markets heal, and stocks sometimes behave in ways that might seem counter-intuitive – so either now or in the future, you may find yourself wanting to try to benefit financially from supporting a growing industry.

But since cannabis stocks can be pretty volatile, and are subject to the weird and unpredictable whims of a regulatory landscape that’s less of a landscape and more of a ten-dimensional polyhedron. So investing in cannabis means experimenting a lot and moving forward very delicately. In short: Don’t be afraid to invest in cannabis, but don’t sink too much of your portfolio into it.

Here’s what to know about cannabis stocks and the how the weed business in general relates to the market.

Medical-use cannabis is substantially different from recreational cannabis

Normally, the line is a hazy one – should someone who uses pot for anxiety not also use it for fun? If someone uses it for chronic pain, can they somehow deny themselves its other benefits? Philosophically, the difference isn’t always clear. But from a market perspective, the line is hard and fast, since companies tend to specialize in either medical-use-only or broad consumer use. 

But the breakdown gets even more granular, with most pot stocks falling into three categories:

  1. Growers and retailers. This is what most people think of when they think of the marijuana industry: The farms and hydroponics firms that grow the weed; the companies that turn it from raw bud into edibles, vape cartridges and more; and the dispensaries that sell it (publicly traded dispensary chains aren’t much of a feature in the marketplace yet, but with legalization constantly moving forward, it’s a strong possibility for the future).
  2. Biotech. This is where that hard-and-fast line between medical weed and recreational weed comes in. Some biotech firms specialize in developing cannabinoid drugs with no resources directed to recreational use. Thus far, most cannabis-derived drugs are derived from synthetic cannabis, but as regulations relax, biotech firms are seizing their opportunity to work with the real thing.
  3. Ancillary products. These are companies that don’t grow or process marijuana but provide support to companies that do. Examples include management solutions, packaging, and perhaps most importantly, hydroponic and botanical supplies. These can actually be among the most reliable stocks, since they don’t rely solely on the marijuana business; even if all weed disappeared tomorrow (knock on wood), there’d still be plenty of things to grow. We haven’t listed any of these stocks here – choosing instead to focus on the first two types – but a good example is Scotts Miracle-Gro, which trades on the New York Stock Exchange as SMG.

The Top Marijuana Stocks

One of the reasons investors are skittish about sinking money into the cannabis industry is that so many cannabis businesses have either struggled or openly failed. The number of pot stocks with billion-dollar valuations used to be in the double digits; now it’s less than ten. And it’s hard to know what the future might bring. If the federal government legalized tomorrow, that number might shoot up again.

But here’s what’s available now:

  • Curaleaf Holdings. (OTC: CURLF) CuraLeaf is an American company that keeps expanding throughout newly legal states – earlier this year it purchased BlueKudu, a Colorado edibles manufacturer, giving it a presence in 20 states. This is after a similarly huge move last year, when CuraLeaf bought GR Companies, largest privately-held vertically-integrated multistate cannabis company.
  • GW Pharmaceuticals. (NASDAQ: GWPH) GW is a drug developer with a focus on cannabis. It’s mostly known for developing a CBD-based oral therapy to treat childhood epilepsy (and if there’s a better argument for making medical marijuana legal everywhere, we haven’t heard it). There’s no shortage of up-and-coming pharma companies targeting GW’s market share, but for now, these guys are among the biggest players in the game when it comes to medical cannabis research.
  • Cronos Group. (NASDAQ: CRON) Last year, these guys got a massive cash infusion from Altria – the tobacco company formerly known as Philip Morris – which boosted their valuation tremendously. Altria had previously boosted Juul Labs… just before 2019 had its big anti-vape cultural moment. So Cronos is looking like it’ll have a decent future.
  • Canopy Growth. (NYSE: CGC) Probably the largest marijuana stock in terms of valuation, but it’s worth noting that this Canadian company’s stock used to be worth a lot more. And the bad news keeps coming: Under new management, Canopy recently announced it was drastically cutting production space and laying off hundreds of employees.
  • Tilray. (NASDAQ:TLRY) Tilray is not doing well. Its valuation is in danger of falling below a billion, due in part to the expenses it’s incurring in shifting its market from Canada to Europe.
  • Innovative Industrial Properties. (NYSE:IIPR) IIP is a curve-ball: It’s actually a real estate company. Its goal is to acquire sites that can be leased solely and entirely to cannabis growers and processors. Right now they own more than 50 properties.
  • Green Thumb Industries. (OTC:GTBIF) With big gains at the end of 2019, GTI experienced a 300 percent increase in revenue over the previous year. It also has beachheads in Illinois and Nevada, which are poised to become billion-dollar weed markets in the coming year. And these guys actually have retail spaces you can visit. 
  • Aurora Cannabis. (NYSE: ACB) Another Canadian company, Aurora is probably the most popularly traded weed stock on the market, and its apex was a high one at $9 billion worth. But that’s in the past – its price has been tumbling, its business shedding employees, and its debt restructured.

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