Weed stocks have had a topsy-turvy 12 months. The election of President Joe Biden raised hopes of ending the federal prohibition of pot through a Congressional bill. However, in the months since the inauguration, it has become clear that the road to federal legalization will be a long and arduous one.
That said, there are a few bright spots as well. For example, states like New Mexico, New York and Virginia have legalized marijuana recently, leading to a resurgence in marijuana stocks once again. Plus, several other states are looking into legalization as well. As such, we have had good news and some bad news in equal measure when it comes to pot.
So, what is an investor to do?
Well, when all else fails, look toward the fundamentals to provide you clues. Most weed stocks spike on news releases or industry-wide initiatives. However, a few companies out there are operating successfully and have better business models than their peers.
With the first quarter done and dusted, now is the ideal time to take a look at some of the best performers out there.
- Aphria (NASDAQ:APHA)
- AdvisorShares Pure US Cannabis ETF (NYSEARCA:MSOS)
- Curaleaf Holdings (OTCMKTS:CURLF)
- Organigram (NASDAQ:OGI)
- Cara Therapeutics (NASDAQ:CARA)
- Cresco Labs (OTCMKTS:CRLBF)
- GW Pharmaceuticals (NASDAQ:GWPH)
Weed Stocks to Buy: Aphria (APHA)
It’s tough to make any list of weed stocks these days without including Aphria or Tilray (NASDAQ:TLRY). Back in December, these two Canadian pot stocks agreed to merge and form the world’s biggest cannabis company.
Since that time, both of these stocks are on a tear, outperforming everyone in their peer group. Aphria has done quite well in particular. Year-to-date (YTD), the stock is up 99.7%. Part of this has to do with the merger. The combined company will keep Tilray’s name and trade under the ticker symbol TLRY.
However, investors in APHA stock will be the ones in the box seat after the merger finalizes. According to the terms of the deal combination, Aphria shareholders will own 62% of the surviving entity.
Hence, at the heart of the deal is a merger arbitrage opportunity. As we get closer to the deal close, there is money to be made by buying Aphria and shorting Tilray.
Most recently, stockholders from both companies gave the nod to go ahead with the merger. So, only the bells and whistles are left here.
And if you are bullish on this merger post-combination, you can hold the stock as a long-term investment as well. After the merge, the company’s size and scale will make it a top contender among weed stocks.
AdvisorShares Pure US Cannabis ETF (MSOS)
I am always partial to exchange-traded funds (ETFs). After all, they’re pretty safe because the majority of them are indexed funds. That’s why MSOS stock gets top marks from me.
Under normal circumstances, the U.S.-focused ETF invests “80% of its net assets in securities of companies that derive […] at least 50% of their net revenue from the marijuana and hemp business in the United States,” according to Marketwatch. For me, that is another reason I believe this stock is an excellent investment.
Most companies in the cannabis space are headquartered in Canada due to the lack of federal legalization in the States. However, in terms of profits, these companies are some of the weakest in the space.
This is because the Canadian market doesn’t hold a candle to the Californian market — much less the U.S. — in terms of scale and revenue.
This gives MSOS a unique edge. It has a nice helping of both U.S. and Canadian weed stocks as well as more than $1 billion in assets under management (AUM).
Weed Stocks to Buy: Curaleaf (CURLF)
Our next entry on this list of weed stocks is an interesting one. This company stands to benefit the most from New York’s legalization of recreational marijuana since it has a market share of over 25% in the state.
Currently, shares of CURLF stock are up 234% for the past one year, having done very well thus far.
It’s pretty easy to see why. Total revenues for 2020 increased by 184% year-over-year (YOY). Plus, in its most recent quarter, Curaleaf’s top-line grew by 205% YOY. The gross margin also increased to 47% for fiscal year 2020.
Last year, legal sales across the U.S. reached a record $17.5 billion, a 46% jump from 2019. With a number like that, you can see why I’m in favor of loading up on weed stocks with exposure to the U.S. market.
The next name on this list of weed stocks is a bit of a wildcard entry here due to its inherent volatility. However, OGI stock is an interesting small-cap stock in the cannabis space.
Fundamentals for this one leave a lot to be desired. The company has not beaten Wall Street analysts’ consensus earnings estimates in the last four quarters, according to CNBC. What’s more, sales have been weak in the last year and it has operating metrics in the red.
In fact, the only piece of good news the company received in recent weeks is that British American Tobacco (NYSE:BTI) has taken a 19.9% equity stake in OGI. This is giving it a credibility boost, as my InvestorPlace colleague Josh Enomoto notes.
Out of all the weed stocks on this list, OGI stock is perhaps the riskiest. Hence, if you decide to go ahead and initiate a position in this name, make sure it’s a small one in a diversified portfolio.
Weed Stocks to Buy: Cara Therapeutics (CARA)
From an iffy performer to a bona fide rock star, Cara Therapeutics is in many ways one of the best weed stocks out there today. Its fundamentals are excellent in an otherwise ailing industry. Part of that has to do with the fact the company is not a pure-play cannabis producer.
Cara is a biotech company developing medicines to treat inflammation, pain and more. Its products also use cannabis, the reason why it’s on this list. For instance, CR701 is Cara Therapeutics’ cannabis-derived formulation that is being developed to treat neuropathic pain.
Considering this factor, CARA stock makes for a much safer pick because recreational cannabis is definitely riskier. Recreational cannabis stocks, especially in Canada, have to contend with an efficient black market and a lot of rules and regulations, making them slow performers.
For this pick of the weed stocks, though, revenue grew over 580% last year, from $19.9 million in 2019 to $135.1 million in 2020. Moreover, its last three quarters have offered positive earnings beats according to CNBC.
Right now, the stock is up over 83% YTD.
Cresco Labs (CRLBF)
Cresco Labs is another multi-state cannabis operator that is an excellent play in the medical cannabis space.
Much like Curaleaf, this company is concentrated in New York, having four medical dispensaries under its Sunnyside brand in the state. However, its recent acquisition of Bluma Wellness will change that. This decision gives the company access to the Florida market, expanding its overall reach into 10 states.
On top of that, the revenues for this name are growing at a decent clip, increasing significantly last year. Now, shares of CRLBF stock are up 200% over the same period. However, I believe the biggest hits are yet to come for this pick of the weed stocks as the company looks to build a greater national footprint.
Weed Stocks to Buy: GW Pharmaceuticals (GWPH)
Closing out this list of weed stocks is another medical cannabis company.
GW Pharmaceuticals is a biopharmaceutical company that uses its proprietary cannabinoid product platform, Epidiolex, to develop medicines that can treat various ailments. Additionally, one of the company’s other notable offerings is Sativex, a spray-based compound for spasticity treatment of multiple sclerosis.
For GW, top-line growth is excellent — sales increased by 69% last year. The company’s gross margin is a whopping 93%. Finally, in its last six quarters, the company surpassed analyst expectations four times.
Right now, shares of GWPH stock are up over 89% YTD. That has made them a bit expensive, trading at a price-to-sales (P/S) ratio of 12.97 times. As such, I suggest you wait for a price correction before loading up on this name.
On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence.