NEW YORK, NY – OCTOBER 11: Traders and financial professionals work ahead of the closing bell on the floor of the New York Stock Exchange (NYSE), October 11, 2018 in New York City. (Photo by Drew Angerer
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Many are saying now’s the time to invest in the cannabis industry. But with so many factors to consider, which company you should take your chances on? We spoke to three experts on the best weed stocks to buy.
Cannabis is legal in Canada. And with the first G7 nation to fully regulate the sale of weed, comes big opportunities to invest in legal herb. We spoke with three cannabis investment experts to learn how to choose the best pot stock and who the top players are in the market today.
Although less than ten years ago investing in pot on the stock market was unheard of, these days there’s a number of weed stocks to buy.
When shopping, Debra Borchardt, Co-Founder and Editor-in-Chief of the Green Market Report, recommends starting with these questions: “Does the company make any profits or have a realistic chance of making profits? Does it disclose all the critical information in an earnings press release? Who are the insiders and management team?”
Cynthia Salarizadeh, Co-Founder of the Green Market Report, echoed a similar sentiment. Salarizadeh told Herb the top three most important things to consider when looking at weed stocks to buy are: “The team, business model and revenue, and company history.”
As far as cannabis-specific considerations, you may also want to look at a company’s “production capabilities,” which refers to how much dry cannabis they’re able to produce per year. Borchardt warns that this also can, however, lead to overvalued stocks, especially in the first few months of legalization.
“Investors should keep in mind that the market has rallied considerably,” says Alan Brochstein, CFA, partner at New Cannabis Ventures and Analyst and Portfolio Manager at 420Investor of the Canadian market. “Legalization is a process, not a day, and it will be sloppy at first, in my view. Not enough supply or points of distribution.”
Borchardt reiterated this point to Herb over the phone. She also said that after Canadian companies report their Q1 earnings early next year, in her opinion, the market will stabilize.
Although there are cannabis stocks traded on both American and Canadian exchanges, the Canadian market is much stronger than its southern counterpart. That’s because, as of October 17, cannabis is legal for anyone over 18 or 19 in Canada, depending on the province, and so licensed producers with lots of capital have already been trading on the Toronto Stock Exchange (TSX) and the Canadian Securities Exchange (CSX) for a couple years.
In the U.S., on the other hand, cannabis is still illegal on a federal level and considered a Schedule I substance, a drug with “no medical use” and “high potential for abuse.”
Therefore, it’s very difficult for American cannabis companies to go public, although some have on the “Over-the-Counter” (OTC) market or on the Canadian market. Plus, as of the writing of this piece, there are a handful of cannabis companies traded on NASDAQ and the NYSE. But, because of the current administration’s wishy-washy and conservative stance on cannabis, investing in American cannabis brands is still risky.
Therefore, not only is the Canadian cannabis market more secure and legal, it has more investment from huge corporations and more international agreements. It’s been Canadian cannabis brands, like Canopy Growth, receiving billion-dollar investments from big, well-established corporations, like Constellation Brands, makers of Corona and other popular alcoholic beverages. Other Canadian companies have also had investments from corporate powerhouses, like Big Pharma, and interest from international brands such as Coca-Cola.
With more money comes more power, and possibly more problems, so let’s take a look at some of the biggest names in pot stocks, to help you decide which are the best ones to invest in.
When considering which weed stocks to buy, know that many are calling Canopy the “king of pot stocks.” That’s because their production capacity is huge; they operate ten licensed cannabis production sites with over 4.3 million square feet of production capacity. Plus, according to their website, they operate in 12 countries across five continents. “[Canopy] holds an incredible amount of licenses [in Canada] and they received a $4.35 billion valuation, which is by far the highest among pure-play cannabis stocks,” says Borchardt.
Aurora is the next heavy hitting Canadian cannabis stock and one of the largest licensed producers in the country. They recently announced they’ll begin trading on the NYSE on October 23 under the ticker ACB, the same ticker they trade under on the TSE. Aurora is a vertically integrated company with a production capacity of over 500,000 kilograms of weed per year. According to their investor site, they’re one of the world’s largest and leading cannabis companies, and they operate in 18 countries worldwide.
Aphria is another major Canadian grower and as of May 2018 is estimated to produce about 230,000 kilos of cured bud per year. In May, Aphria was worth an estimated $1.39 billion and is often a top pick for investment experts when considering which weed stocks to buy. That’s because it was the first publicly licensed medical cannabis producer to report positive cash flow from operations and the first to report positive earnings in consecutive quarters. Plus, this Ontario-based LP also operates internationally in 10 countries across five continents.
Tilray is another giant licensed producer in Canada but sets itself apart by having a strong pharmaceutical background. In fact, Tilray may have an advantage due to its licensing agreement with the pharmaceutical giant, the Novartis Group. Like the other giant licensed producers on this list, Tilray also operates internationally and has successfully exported cannabis oil to 10 countries worldwide, including Australia, the U.K., Germany, Chile, and South Africa.
Brochstein says Tilray has been the best performing stock since its initial public offering (IPO).
If we were ranking the top five Canadian licensed producers, the four aforementioned companies would be on the list, as well as The Cronos Group. It’s another gigantic, vertically integrated Canadian cannabis producer with operations in five continents. Brochstein says Cronos is one of the best stocks “in terms of return since 12/31” because it, along with TerrAscend, Canopy, HEXO Corp, and Organigram, has been up more than 50 percent YTD.
In May 2018, Borchardt told Herb: “They [Cronos] currently claim a market cap of around $1 billion and rank 5th largest as a Canadian grower. They are the first Canadian grower listing on the NASDAQ. Although they have been up and down, their numbers are amazing, showing a 274 percent year-over-year increase and revenue of $2.9 million Canadian dollars as of May 15, 2018. Cronos ended the first quarter with cash on hand totaling nearly CA $32.4 million, compared to a cash position of CA $9.2 million at the end of 2017. The company also raised another CA $100 million through a bought-deal offering in April that wasn’t reflected in its first-quarter results.”
“All is not perfect, however,” Borchardt warns. “On the bad side, the company posted a net loss in Q1 of CA $1.05 million, worse than the loss of CA $844,000 in the prior period the year before. Overall, Cronos has a lot to offer and listing on the NASDAQ provided huge opportunity for the group.”
HEXO Corp is another giant licensed producer that makes medical brands in Canada you may recognize, like The Apothecary. According to HEXO’s investor site, they’re “one of the country’s lowest-cost producers,” plus, they started rampantly increasing production in preparation for October 17, Canada’s adult use legalization day. They plan to start selling adult use cannabis under “HEXO brand” and to continue serving the medical market with the Apothecary brand.
At the time of writing this piece, HEXO was reportedly operating a 310,000-square-foot facility and building another 1,000,000-square-foot expansion, planned to be complete before 2019.
Borchardt recommends them as a brand to watch in Canada, and Brochstein considers HEXO one of the best stocks “in terms of return since 12/31.”
Although MedMen is based in Los Angeles, it’s still traded on the Canadian Securities Exchange, as well as the OTC market in the U.S. If you’re not familiar with MedMen, that’s surprising because they’re one of the most branded cannabis dispensaries in North America. Their dispensaries are sometimes called the “Apple Store” of pot shops, and they’re famous for the marketing campaign “Forget Stoner.”
While MedMen’s focus is on retail, they recently acquired Chicago-based PharmaCann LLC, a vertically integrated cannabis producer with a presence in the medical markets of Illinois, Maryland, Massachusetts and New York. While MedMen recently released its own brand of cannabis products, this purchase of PharmaCann signals MedMen plans to expand its line as well as expand into new territory.
“MedMen is definitely worth watching,” says Brochstein, “great access to capital, a focus on retail, [and a] strong footprint.”
Another thing to consider when deciding which weed stocks to buy is auxiliary brands that don’t grow weed at all. Companies that make smoking devices, cultivation equipment, nutrients, weed apps, and even cannabis publications are publicly traded. While auxiliary brands are big in the U.S. because brands that grow actual weed are rarely allowed to trade on the big exchanges, like the NASDAQ, Borchardt says the market isn’t nearly as big in Canada.
Brochstein agrees. “Ancillary is lacking big-time in Canada,” he says. “Canopy Rivers and Auxly provide capital and advice to LPs, which qualifies them. Radient is another that merits attention.”
KushCo Holdings Inc. is a great example of a multi-million dollar public company that doesn’t actually touch the cannabis plant. Instead, KushCo Holdings is the parent company to many auxiliary brands, including a cannabis and CBD packaging company, design agency, and other equipment to grow, process, and legally sell cannabis in dispensaries. KushCo is also on New Cannabis Ventures’ list of top American cannabis companies in terms of revenue.
Another rapidly growing market you can invest in is hemp. “I think hemp is a good investment for the long term,” says Borchardt. “There are many experts who believe the hemp market will ultimately be larger than the marijuana market.”
Hemp cultivation has become extremely popular in recent years due to the CBD-wellness boom, but hemp may have a much broader impact than CBD oil. As the world tries to reduce its carbon footprint, hemp may play a crucial role in providing alternative and eco-friendly plastic, fuel, and even building materials. That’s because hemp fibers are biodegradable. The hemp plant also takes a fraction of the time and energy necessary to grow wood and requires fewer pesticides than cotton. Hemp could play a crucial role in reducing humans’ carbon footprint and so companies getting in on the ground floor today may have an advantage in the future.
One Canadian hemp company to keep an eye on is Isodiol International Inc. Although they don’t cultivate the plant, they do specialize in “development, marketing, distribution, and sale of hemp-based consumer products and solutions in Canada, Latin America, Asia, and Europe.” Isodiol is one of Canada’s top five most profitable cannabis companies, according to New Cannabis Ventures.
Charlotte’s Web Holding was founded by the Stanley brothers, the original cultivators of the Charlotte’s Web strain that helped young Charlotte Figi with her seizure disorder. Now, this maker of hemp-derived CBD products is one of New Cannabis Ventures top-ranked American brands by revenue. Although based in Boulder, Colorado, this company trades on both the CSX and the OTC market in the U.S.
Although penny cannabis stocks are certainly a thing both in the U.S. and Canada, both Borchardt and Brochstein told me there were none worth following that they were aware of.
“I think that right now you have to be in the middle of the pack to be an acquisition target,” says Borchardt. “And I think the little ones are the ones that have not managed to have any success and will probably just end up either going out of business or just never really amounting to much.”
Playing the stock market is a risk. Period. However, because cannabis is still federally illegal and research in the U.S. is extremely limited, the market can be very volatile. For example, in January 2018 when Attorney General Jeff Sessions rescinded the Cole Memo, which protected state-legal cannabusinesses, weed stocks fell drastically.
“[Cannabis] is still federally illegal in the United States so investing in cannabis can place your stock portfolio at risk,” warns Salarizadeh. Until cannabis becomes federally legalized and regulated in the U.S., it’s going to remain a risky investment. In Canada, however, cannabis is much less threatened by the federal government. The problem is, the new adult use regulations are very new and some kinks are still being worked out. So pot stocks are likely to remain volatile until the transitionary period from prohibition to fully legal ends.
When it comes to which weed stocks to buy, the ultimate decision will be up to you. But keep an eye on these cannabis stock giants and you’ll be one step ahead of the rest.