Pot stocks are as hot in 2018 as bitcoin was in 2017.
Advocates insist, however, that marijuana will not suffer the same fate because there is a real market to be served — and a real product to sell. Canadian legalization alone is expected to result in sales of $5-7 billion next year, and many U.S. states are looking enviously at Colorado, the first state to legalize recreational marijuana.
Thus, valuations in the cannabis sector are extremely high, and they have recently been correcting.
The Canadian market officially opens Wednesday, so speculation and excitement over pot stocks are at a fever pitch. It’s not just about smoking. Edibles, oils and the possibility of pharmaceuticals are also driving money into the market.
And in this still very speculative space, every pot stock has to have a gimmick, which lets it stand out and convinces investors that it’s less risky than those other marijuana stocks. This gimmick could be a corporate investment, it could be technology or it could be raw distribution power waiting for the U.S. market to open up.
Here are 3 pot stocks with less risk.
Canopy Growth (CGC)
Constellation is one of the largest — and smartest — liquor companies in the world, having begun as a small New York wine producer and grown into a giant with beer brands such as Modelo and liquor brands such as Svedka vodka.
Constellation is a legitimate player, with $7.5 billion in revenue, a dividend of nearly $3 per year, and a market cap of $42.66 billion. Their willingness to put a big portion of that into Canopy, for a 38% stake, put the whole sector into overdrive.
CGC stock’s $11.46 billion market cap, however, is built on sales of $77 million in 2017, $48 million for the first six months of 2018, and a lot of hype. On October 15, Canopy paid about $330 million to acquire the assets of Ebbu, a hemp research company in Colorado.
Cronos Group (CRON)
What sets Cronos Group (NASDAQ:CRON) apart — besides its partnerships with pharmaceutical companies like Gingko Bioworks, which wants to produce cannabinoids through fermentation — is the fact that it was the first pot company to list on the Nasdaq. Also, since listing in Canada in 2016, CRON’s value has grown 6,500%.
CRON’s valuation is not built on sales, however. Cronos reported revenue of just over $4 million in 2017, and about $6 million for the first six months of 2018. The balance sheet showed just $5.3 million in debt in June, against $9.2 million in cash, and operating cash flow was approaching balance.
By pushing the idea of marijuana as a pharmaceutical, and as a raw material from which drugs can be extracted, Cronos hopes to enter the U.S. market with products before mass legalization, and thus gain scale it can use to grow into the market as it matures.
Of five analysts following the stock, two currently have it on their buy lists.
MedMen Enterprises (OTCMKTS:MMNFF), based in Culver City, CA, makes no pretense to being anything than what it is: a marijuana dispensary. It’s not a Canadian company, and it’s not a pharmaceutical company. It sells pot to medical marijuana patients who need it and recreational users — in locations where recreational use is legal.
The goal of MedMen is to gain distribution in the medical pot business that will let it expand into the recreational side as it develops. It has dispensaries in 4 U.S. states, including high-profile locations like Manhattan and Las Vegas.
MedMen went public in May but the stock didn’t see much action until last week. MedMen announced an acquisition of PharmaCann for a reported $682 million in stock. Buying medical will add licensed dispensaries in other states, mainly in the Midwest, to its network, giving it a total of 79 cannabis facilities in 12 states.
The deal sent MMNFF stock rocketing. Since the announcement, the stock is up 51%. While other pot stocks have been falling lately, MedMen is powering ahead.
CEO Adam Bierman said that the acquisition makes MedMen “the largest U.S. cannabis company in the world’s largest cannabis market” — and that sounds like a good place to be in as more U.S. states move toward full legalization.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write him at [email protected] or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this article.