At times, marijuana stocks have the ability to be the best-performing stocks in the market. They can catch fire — no pun intended — on headlines or reports and scorch higher. During some of these runs, it’s not odd to see the stocks double or triple in value over a short period of time.
A high level of short interest also helps spark a nice move. In other words, bears put on a number bets to the downside, shorting these stocks as they look for a big move lower. Oftentimes, these bears get exactly what they’re looking for, as marijuana stocks tend to be a volatile bunch.
However, sometimes these bets backfire.
High short interest can lead to a short squeeze, like what we saw with GameStop (NYSE:GME) and all of the Reddit hype earlier this year. These large short positions have to be unwound through buy orders and when coupled with natural buyers, can really help drive the stock price higher.
As authorities continue to decriminalize and legalize cannabis use on a state-by-state basis, investors are also waiting on a more favorable federal stance.
As that likelihood draws closer, let’s look at seven marijuana stocks to buy.
- Canopy Growth (NYSE:CGC)
- Constellation Brands (NYSE:STZ)
- Aphria (NYSE:APHA)
- Tilray (NASDAQ:TLRY)
- Cronos (NASDAQ:CRON)
- GrowGeneration (NASDAQ:GRWG)
- Curaleaf (OTCMKTS:CURLF)
For comparison purposes, we are measuring year-to-date performance against the ETFMG Alternative Harvest ETF (NYSEArca:MJ), a cannabis-focused exchange-traded fund with a 32-stock portfolio that includes five of the eight stocks that follow. The ETF is up 47.6% for the year versus an 11.8% increase in the S&P 500 index.
Marijuana Stocks to Buy: Canopy Growth (CGC)
YTD: +11.24% vs. MJ +47.6%
Perhaps the best-known name on this list, we couldn’t begin any story about cannabis without starting with Canopy Growth. It’s considered a blue-chip cannabis company, as it has one of the strong balance sheets and best management teams.
Thanks to a sizable investment from an outside investor — namely, Constellation Brands (see below) — the company will not run out of funds before business really starts humming. Not only does that buy investors peace of mind, it also buys the company time to do things right.
There’s nothing worse than a company that has its back against the wall with limited resources and not enough time to properly execute its strategy. Plus, the additional cash allows Canopy, a Canadian company, to make the necessary investments and acquisitions here in the U.S.
If the U.S. were to legalize marijuana at the federal level, the market would be far larger than the Canadian market. Even just the legalization of a few more U.S. states would surpass the Canadian population.
Luckily, Canopy continues to position itself for the ever-loosening restrictions in the U.S. markets and I would expect this company to be one of the big winners down the road.
Analysts expect solid growth over the next few years, allowing Canopy to go from $440 million in expected revenue this year to more than $866 million in two years. On the flip side, Canopy still operates at a loss, but because of its beefy balance sheet, it’s creating little concern for investors.
Constellation Brands (STZ)
YTD: +10.2% vs. MJ +47.6%
Want exposure to marijuana stocks but feel that the group is too volatile, speculative or aggressive? Well then it might be worth considering Constellation Brands.
Constellation is a well-known beverage company, with its largest brands including Corona and Modelo. The company recently introduced its Corona hard seltzer lineup, which did well after launch. It also owns several wine brands and spirits, perhaps most notably with its Casa Noble tequila line.
But for our purposes, it also owns a 38.6% stake in Canopy Growth. If it were to exercise the remainder of its warrants, the company could own more than 55% of Canopy.
In that sense, investors who are looking for a more stable investment, Constellation may be what they’re looking for. It may lack some of the upside that these pure marijuana stocks are capable of, but it also sidesteps a lot of those nasty pullbacks.
The company is a steady grower in regard to the top- and bottom-lines, but also sports a reasonable valuation. For those that care about income, Constellation also kicks out a 1.3% dividend yield, although with the stock near all-time highs, the payout isn’t much.
YTD: +104.3 vs. MJ +47.6%
Aphria is another interesting choice for investors. At one point, I considered Aphria one of the under-the-radar marijuana stocks, because it was turning in decent earnings reports, yet couldn’t gain much upside traction because the entire group was in a massive bear market.
Despite the decent results — maybe the best in the bunch — the rallies were sold as no one wanted Aphria or any other cannabis stock for that matter. Now that the group is no longer in a bear market though, Aphria’s quarterly results have been less impressive.
It’s a bad case of poor timing, although you might not know it by looking at the stock price.
Despite being well off the highs, Aphria stock is still up more than 200% over the last six months. Luckily, analysts expect solid growth from Aphria over the next few years, along with a return to break-even operations.
Interestingly, Aphria has also agreed to a merger with the next company on this list…
YTD: +106.7% vs. MJ +47.6%
Tilray has been more of a trading vehicle over the years rather than a viable investment. Part of that reasoning — or most of that reasoning — comes with how the company began its life as a public company.
Shortly after going public in July 2018, the stock went on a ballistic rally. After three weeks of relatively muted and sideways trading, Tilray took off, rallying for 10 straight weeks and at one point, gaining 1,400% from the post-IPO low to the high a few months later.
Obviously TLRY has traded lower since, as it was locked in a painful bear market. However, it’s had some more momentum lately following the merger news with Aphria, which was announced in December.
YTD: +18.6% vs. MJ +47.6%
Cronos stock has taken a ride on the volatility roller coaster a few times this year. Shares started off 2021 near $7, soared to a high of $15.83 — up more than 100% — before getting cut in half again as it currently trades near $8.25.
That volatility can be a huge turn-off to some investors. However, for others, it can act as an opportunity. By having such wild swings, it gives investors a chance to buy — even if it gives them some heartburn.
The company doesn’t have the strongest fundamentals, but it does have strong growth estimates and a big backer. Analysts expect revenue to almost double this year, then grow by more than 60% in each of the next two years.
YTD: +12.2% vs. MJ +47.6%
GrowGeneration is an interesting company when it comes to looking through marijuana stocks. Sort of like Constellation Brands, this is a secondary play on the cannabis space, not a direct investment.
There’s also a risk of the “Covid-trade” unwinding. When the no-longer-so novel coronavirus hit, much of the public was forced to rethink their hobbies. Gone were the days of dining in a restaurant or going to the movies. Instead, at-home dining and outdoor activities took over.
With a hobby like plants gaining steam, GrowGeneration saw a boom in its business. The company makes all sorts of products and equipment to help with growing — which is also being used in cannabis.
The company operates hydroponic and organic gardening stores in the U.S., and sells everything from lighting to trays, seeds, organic material, hand tools, irrigation equipment, water pumps and more.
Further, the company recently acquired Downriver Hydro to help expand its footprint in Michigan, a state that has legalized recreational marijuana use. While GrowGeneration may experience some turbulence, look for demand to stay steady going forward.
YTD: +9.97% vs. MJ +47.6%
Last up, we have Curaleaf, the only stock on this list that’s currently traded over-the-counter (OTC).
Curaleaf is the largest player in New York’s medicinal marijuana market, which should put it in a favorable position to eventually reap the rewards of the state’s recreational market.
The company isn’t present in just New York, as it has a solid market share in a number of other states as well. However, it’s not just the U.S. that Curaleaf is looking to expand in.
Thanks to its recent acquisition of EMMAC, the company now has inroads to Europe. EMMAC is the continent’s “largest vertically integrated independent cannabis company.”
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.