As New York State becomes the latest state to announce it will legalize recreational marijuana, the New York Times
claimed it "paves the way for a potential $4.2 billion industry
Federal law entirely banned the use of marijuana, regardless of whether it was THC or CBD, until the House of Representatives voted in favor of releasing the federal ban in a historic December 2020 appeal.
Still, marijuana laws vary by state. But the number of states legalizing it is increasing. Only six states outlaw marijuana use completely: Alabama, South Carolina, Tennessee, Kansas, Wyoming and Idaho. The other states 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, paved the way for fully legalized recreational sales and usage.
Interest in legalizing recreational marijuana in the United States is on the rise. Before New York's announcement, 21 states had legalized marijuana and 36 allowed for medicinal usage. (You can see a map
of the ever-changing states, courtesy of DISA.)
No matter if your state has legalized marijuana or not, marijuana is becoming big business. Marijuana Business Daily estimates the industry may reach $22 billion by 2022
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. Some states that allow for medicinal usage only allow it in CBD oil form.
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 wasn'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 with federally legalized cannabis 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 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:
- The companies are international, which means access to financial data could be more limited than those in the U.S.
- 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 bottom line
The revenues of companies selling marijuana products are showing there is growth but rather than seeing spikes in marijuana stock after legalization announcements, the opposite has been the case. When four states voted to legalize it in November 2020, stocks dropped, with the largest company's shares falling 10%.
Investing in marijuana will require you to pay attention to the market and the news and be cautious, but the potential is there.
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