[Editor’s note: Oct. 17, 2018 marks the first day of legal marijuana sales in Canada. As the global finance community watches closely and investors decide which pot stocks to buy, we’ve rounded up all of our marijuana stocks content in one place here.]
It was a long time coming but the day is finally here. After historic legislation that moved Canada as the first G7 member state to legalize recreational marijuana, it became official. On Oct. 17, 2018, our neighbors up north became eligible to buy weed without worries. This has significant implications, especially for marijuana stocks.
Thanks to the extremely favorable laws, Canada now opens the door to products that were previously only distributed by criminals. In other words, their government can now enjoy tax revenues that were previously non-existent. As such, investors should strongly consider marijuana stocks to buy, irrespective of their personal reservations.
In this data-driven era, it’s difficult to find early-bird opportunities. Everybody knows what’s coming next, even with marijuana stocks. But what makes this sector different is its inherently controversial nature. Even legalized, cannabis will suffer a lingering stigma.
Moreover, Americans are especially hesitant to jump onboard. The federal government still classifies marijuana as a Schedule I drug. That puts weed on par with heroin and cocaine. Naturally, traditional financial institutions are reluctant to provide support to cannabis-related businesses. But this risk structure is exactly what makes marijuana stocks so compelling. Should Canada’s legislative endeavors spill over into the U.S., it could skyrocket this market subsegment. And it’s not entirely implausible: all politicians have to do is to watch green-friendly states count their, um, green.
To celebrate Canada’s foray into legal weed, here are ten marijuana stocks to buy across different price points:
Tilray (TLRY)
It’s extremely rare that a market segment’s biggest player is also the riskiest and most speculative. Welcome to the world of marijuana stocks. Despite so many people wanting to short Tilray (NASDAQ:TLRY), for completeness’ sake, I can’t ignore TLRY stock and its over $13 billion market capitalization.
Typically, the reason why most traders are bearish on Tilray comes down to both a technical and fundamental argument. In the charts, you can see that TLRY stock has gone absolutely bonkers. The initial public offering was for $17. Today, even after the huge selloff in marijuana stocks, TLRY is priced above $158.
Just do the math, and you can make an easy argument that shares are overvalued. If arithmetic isn’t your thing, look at the crazy valuations. TLRY stock has a forward price-earnings ratio of 2,500. For most folks, that’s completely unjustified. Believe me, I understand the hesitation. However, I’m not sure if shorting TLRY stock is the right move due to a relatively small float. I also don’t think the typical fundamental analysis is as useful in assessing unprecedented investments like marijuana stocks.
Tilray stock has moved up dramatically, so I do expect a correction. I anticipate a fall back to around $100 to $120, at which point shares look much more interesting.
Canopy Growth (CGC)
With a market cap over $11 billion, Canopy Growth (NYSE:CGC) is the second-biggest investment among marijuana stocks. And just like the previously discussed Tilray, CGC stock presently has many doubters. Again, we also have commonly cited technical and fundamental arguments among the bears.
While CGC stock hasn’t enjoyed quite the same momentum as TLRY, Canopy Growth certainly earns its name. Since August, CGC nearly doubled in value. Year-to-date, CGC is looking at 118% returns. Of course, this has many investors concerned about a cannabis bubble.
My InvestorPlace colleague Vince Martin wrote a brilliantly-titled article, “Canopy Growth Stock Is Getting Too High for Its Own Good.” He goes into detail that rationally speaking, the rich premiums in CGC stock can no longer be justified. Martin further makes comparisons to the late 1990s to early 2000s tech bubble.
I don’t necessarily disagree with him. Plus, I highly recommend caution when considering marijuana stocks, so of course, I encourage you to read his cautionary tale. But I’d like to make one comment about valuations and acquisition prices in this sector. It’s difficult to determine if CGC stock, or any other marijuana stocks to buy, is overpriced because we have no reference point. Prior to the last few years, legal marijuana was known as illegal marijuana.
The newness factor is partially responsible for the rich premiums, and is therefore not necessarily indicative of a bubble.
Aurora Cannabis (ACBFF)
Compared to other high-profile marijuana stocks to buy, Aurora Cannabis (OCTMKTS:ACBFF) has slipped under the radar. Nevertheless, ACBFF stock is a powerhouse in the cannabis industry. Currently, the underlying company features a market cap of nearly $11 billion.
Like the other names in the sector, ACBFF stock has seen some crazy trading this year. Since the beginning of August, Aurora Cannabis has doubled in market value. However, in terms of YTD performance, ACBFF just recently moved into the black.
I believe that ACBFF stock has the goods to continue building momentum particularly due to its international presence. Aurora has operations in 18 countries across five continents. Not only that, management is keen on expanding the company’s footprint. Current projects include a 100,000 square-foot hybrid greenhouse in Denmark, and key acquisitions in Australia.
As with other marijuana stocks to buy, risks abound. One of the most commonly-cited criticisms centers on Aurora’s cash burn. It’s not a pretty situation, and you should consider this before climbing onboard. However, the significant legalization movement in Canada provides a blueprint for other nations to follow suit. Thus, speculators will have to forgive initial fundamental weaknesses for the ultimate payout.
Aphria (APHQF)
Similar to Aurora, Aphria (OTCMKTS:APHQF) hasn’t attracted as much attention as other marijuana stocks that suddenly rose to prominence. Still, with a market cap just over $3 billion, Aphria is currently the fourth-most valuable publicly-traded cannabis firm.
One of the reasons why APHQF stock fell out of favor was its disjointed market performance. In the first half of this year, shares hemorrhaged nearly 42% of equity value. Understandably, this freaked out the weak hands in the cannabis segment.
But in the second half, APHQF stock jumped over 58%, drawing a sigh of relief among the buy-and-holders. While I anticipate some choppy sessions moving forward, I believe Aphria can maintain its newfound positive momentum.
I say that in part because of Aphria’s international ambitions. Earlier this year, the company acquired Nuuvera, an international cannabis firm that has ties with Germany, Israel and Italy. What this deal does is diversify away from the U.S. market, which is federally green-unfriendly.
More significantly, the move taps into the medical cannabis market. This is one specific area where even the puritan U.S. government has recently granted leeway.
Of course, APHQF stock isn’t without significant risks. Like other sector players, it has a serious cash burn problem. However, the broader developments in legal weed may be enough for speculators to accept the present vulnerabilities.
Cronos Group (CRON)
To buy or not to buy Cronos Group (NASDAQ:CRON), that’s the question investors have debated in recent months. On this issue, I have somewhat mixed results. In early August, I pushed CRON stock. Since that time, shares have nearly doubled.
A month later, I again discussed Cronos Group, this time for its landmark deal with Ginkgo Bioworks. Under the agreement, Ginkgo will develop medical-grade cannabinoid (CBD) strains for Cronos. CBD shows great promise for breaking into the U.S. market due to its composition. They represent the non-psychoactive component of the cannabis plant, and is therefore a workaround to the Schedule I classification.
I stated at the time that CRON stock had several challenges, the most conspicuous being high-profile short traders. Subsequently, CRON became volatile, at one point losing over 30% against its all-time closing high.
But now that shares have calmed down a bit, should investors buy into CRON stock? Analogous to other marijuana stocks, Cronos has a cash burn problem. But unlike the competition, it has a healthy cash balance relative to its debt.
Based on some important fundamental strengths and the bullishness in the underlying industry, CRON stock is worth a measured look.
Scotts Miracle-Gro (SMG)
Admittedly, Scotts Miracle-Gro (NYSE:SMG) is an unusual idea in the cannabis sector. For one thing, the lion’s share of its $2.6 billion revenue stream is from boring lawn and garden products. However, its Hawthorne Gardening subsidiary specializes in hydroponics products which cannabis growers utilize in their “botanical” craft.
Several investors bought into SMG stock for their Golden State ambitions. However, due to unexpected legal logjams, Hawthorne couldn’t get up to speed like they anticipated. As a result, Wall Street punished its parent company.
The impact was no laughing matter. In sharp contrast to many marijuana stocks to buy, SMG stock has slumped badly this year. Since the January opener, shares have dropped more than 30%. Just in this month alone, SMG has given up nearly 6% of market value.
That said, it appears SMG stock may have hit a bottom. Company shares haven’t dipped decisively below its August lows. This provides confidence that on a longer-term scale, other states will legalize marijuana, providing more growth opportunities.
Finally, SMG stock is a rarity in legal marijuana in that it pays a 3% dividend yield. With the broader markets suddenly feeling the heat, you shouldn’t ignore this passive-income generating cannabis investment.
CannTrust (CNTTF)
With a market cap of $1 billion, CannTrust (OTCMKTS:CNTTF) is a respectable mid-tier player in the cannabis sector. But many investors overlook CNTTF stock for the sexier names that have captured mainstream attention. It’s not an unreasonable reaction. For one thing, CannTrust is traded here in the over-the-counter markets, which doesn’t exactly generate confidence.
CNTTF stock came to prominence in the tail-end of last year. In the first half of this year, shares dropped almost 20%. It wasn’t until mid-August that CannTrust went bananas. While CNTTF stock has roughly doubled over the trailing two months, I still see the potential for longer-term gains.
CannTrust features somewhat stable financials, at least relative to most marijuana stocks. Notably, it has a strong balance sheet with significantly more cash than debt. The company also generates positive earnings, which is a true rarity in the botanical world.
However, CNTTF isn’t perfect. I sound like a broken record at this point, but CannTrust suffers from a serious cash-burn problem. While its earnings are in the black, CNTTF stock is fundamentally overpriced. Still, a rising tide lifts all boats.
Aleafia Health (ALEAF)
Let’s face reality: most of you read articles about marijuana stocks to buy for ten-bagger returns. While I absolutely will not make any promises, the following companies might give you that possibility.
I’m going to start with my favorite speculative cannabis investment, Aleafia Health (OTCMKTS:ALEAF). With a market value of only $360 million, ALEAF stock definitely qualifies as a small-cap player. But in contrast to the typical over-the-counter crapshoot, Aleafia levers significant strengths.
Primarily, I love that the company has a strong balance sheet. Its currently sitting on $22 million in cash, but with zero debt. That simple fact immediately places ALEAF stock in a very exclusive club. But the biggest tailwind for the medical-cannabis firm is its patient database. With over 50,000 patients, “Aleafia runs the biggest physical medical-cannabis clinic in Canada.” I can almost guarantee that this figure will skyrocket over the next few years thanks to Canadian legalization efforts.
Beyond that, the patient base is its own goldmine for ALEAF stock. Finding the most effective cannabis strain for specific ailments is, and will continue to be big business. Therefore, Aleafia is ideally positioned for tremendous growth.
Marimed (MRMD)
With a market value of $939 million, Marimed (OTCMKTS:MRMD) straddles the line between a small-cap and a mid-tier investment. I view MRMD stock as the best of both worlds: the relative stability of a known commodity, and the upside potential of an undiscovered penny stock.
Fundamentally, Marimed plays a critical role in the emerging legal-cannabis market. While favorable legalization has inspired many “weedpreneuers,” the harsh reality is that botany is a tough business. As I mentioned earlier, traditional financial institutions shy away from cannabis-related startups. In addition, legal and administrative resources can be difficult to find.
That’s where Marimed comes into the picture. The company provides holistic services for marijuana businesses, ranging from legal support to facility management. Basically, if you need it, Marimed has it.
More importantly, in the marijuana sector, it’s all about people, people, people. Marimed’s leadership team features combined expertise in the law, finance, real estate, and business operations. The company also has advisors with facility management and law enforcement experience. This is a big plus for MRMD stock since the cannabis industry doesn’t always attract the best and the brightest.
Finally, the share price has been relatively stable. Yes, MRMD stock ballooned this year to a 509% lead. But the journey is characterized by steady gains, not a single, outsized leap. That tells me that the markets are buying into Marimed’s growth potential.
Easton Pharmaceuticals (EAPH)
Before I begin, let me clarify that I don’t consider Easton Pharmaceuticals (OTCMKTS:EAPH) one of the stocks to buy in the cannabis sector. Instead, I consider Easton a hail Mary pass. Don’t buy EAPH stock with money you can’t afford to lose because you’ll probably lose it.
That said, if you’re looking for a hundred-bagger, Easton has an outside possibility of doing that. Please note that I said “possibility,” and not “probability.” But since I want to cover marijuana stocks from the most capitalized to the least, I’m giving EAPH a fair shake.
The bullish argument for EAPH stock is largely based on industry tailwinds. Easton previously specialized in cancer-treatment therapies, wound-healing drugs, and cosmetics. But in a recent joint venture with Alliance Group, Easton dove into the cannabis market. One of their primary goals is to integrate their unique pharmaceutical delivery system with medical-cannabis products.
If the partnership succeeds in producing effective cannabis therapies, EAPH stock can fly to the moon. That, of course, is a big “if.” The factors hindering this idea is namely the financials. Without pouring into all the details, they stink.
Also, EAPH stock is as micro-cap as you can get, featuring a market value of only $18 million. Clearly, this is a name for dreamers, but sometimes, dreams do come true.
As of this writing, Josh Enomoto is long ALEAF and MRMD stock.
