5 Marijuana Stocks to Consider Buying
No matter if your state has legalized marijuana or not, marijuana is big business.
Marijuana Business Daily estimates the industry may reach $22 billion by 2022.
Now Kamala Harris touted decriminalization and marijuana stocks have surged.
Are you considering making the investment? Here's what you need to know about buying marijuana stock.
What is marijuana?
Before you invest in a product and company, you should know what what the industry is about.
Marijuana, or cannabis, has two main chemicals: Delta-9 tetrahydrocannabinol (THC) and cannabidiol (CBD).
THC produces mind-altering effects and is often smoked to "get high." CBD is not mind-altering and has been found to have therapeutic effects. It is being sold in lotions and oils.
Federal law entirely bans the use of marijuana, regardless of whether it is THC or CBD.
However, marijuana laws also vary by state. Eight states outlaw marijuana use completely, while the other 42 allow some type of legalized use or have decriminalized it. Most legalized usage is for medicinal purposes and requires a doctor's prescription while Colorado, for example, has fully legalized even THC sales and usage.
Interest in legalizing recreational marijuana in the United States is only increasing. In November 2020, voters in 14 states will decide on some form of legalized marijuana, possibly leaving only three states where it is completely illegal.
The House of Representatives planned to vote on releasing the federal ban, but the vote was delayed due to the pandemic. Even if the federal ban isn’t removed anytime soon, marijuana is still an interesting investment and one that can be worthwhile.
Harris' push before elections is a further indication of the industry's potential growth.
Marijuana stocks to consider buying
If you are thinking now is the time to invest, take a look at five marijuana stocks worth considering, listed by their name and ticker symbol.
1. Aphria Inc. (APHA)
Aphria, based in Leamington, Canada, cultivates, processes, produces, markets, distributes, and sells medical cannabis. The company went public on April 4, 2014, becoming the first company to sell stock in pot.
By 2019, its stock rose 2,139%.
In 2020, the company ended its fiscal year with $543.3 million Canadian dollars in revenue and is the leader in the cannabis marketplace.
2. Aurora Cannabis (ACB)
Based in Edmonton, Canada, Aurora Cannabis produces and distributes medical cannabis products worldwide. It went public in 2018 and has been struggling.
For fiscal 2020, the net revenue reported was $67.6 million, a mere fraction of Aphria. The stock also took a hit in late September when billionaire investor Nelson Peltz resigned as an advisor after 18 months helping it with strategy.
However, the company recently unveiled a plan to shift toward premium cannabis in a bid to achieve profitability by the second quarter of 2021.
3. Canopy Growth (CGC)
Canopy Growth, based on Smith Falls, Canada, is the largest legal cannabis company in the world by sales and market cap. However, because cannabis isn't legal in the U.S., it is not operating in the country in order to keep its stock exchange listing.
For its fiscal year, 2020, the company reported a net revenue of $399 million. This was a 76% increase over 2019.
The Motley Fool recently chose Canopy as a company to benefit the most if cannabis is legalized federally in the U.S.
4. Cronos Group (CRON)
Toronto-based Cronos reported 180% year-over-year revenue growth in May 2020 after large increases in operating losses.
Oversupply was a problem, as it was for Aurora, with $8 million in inventory write-off and more charges projected.
But Cronos acquired Lord Jones for $300 million in 2019. The company, which offers a luxury hemp-derived CBD product line that was responsible for nearly all of Cronos’ revenue growth in 2020.
A large investment by Altria has left Cronos with $1.3 billion in cash, cash equivalents, and short-term investments. And analysts think Cronos could be the fastest-growing marijuana stock over the next four years.
5. GW Pharmaceuticals (GWPH)
This biopharmaceutical company based in Cambridge, U.K., specializes in cannabinoid-based drugs such as its federally approved epilepsy drug Epidiolex that went on the market in 2018.
This seizure medication is the only cannabis-based drug that U.S. Food and Drug Administration has approved and is under review by the European Commission.
In late September, The Motley Fool suggested buying on the dip after the stock fell more than 20% in just three months. Before the drop, GW reported sales of $121 million for its second quarter, up 68% year-over-year. Ninety-seven percent of that revenue was driven by Epidiolex.
Because the company is targeting specific conditions, it is considered a solid longterm stock.
A word of caution
As a new industry, advisors have raised flags on early investing, including:
- Because the product isn't legal it is considered a "sin stock." Even Warren Buffett turned down investing in tobacco.
- The companies are international, which means access to financial data could be more limited than those in the U.S.
- If the government doesn't legalize marijuana, many of the companies are in jeopardy of losing sales.
- A number of fraud investments have appeared in an effort to capitalize on the interest in marijuana stocks. The Securities and Exchange Commission has issued a warning about investment fraud and market manipulation.
The revenues of companies selling marijuana products are showing there is growth but experts do worry that if the federal government doesn't legalize it, the companies will not be able to maintain their growth.
Investing in marijuana will require you to pay attention to the market and the news and be cautious, but the potential is there.
To help you keep an eye on marijuana stock, consider enrolling in Motley Fool's Stock Advisor.