Big question: is pot part of your stock portfolio? With the legalization of marijuana sales rising around the globe and across the United States, investing in marijuana stocks can be a sound financial move. In 2016, more than $475 million was spent within the legal cannabis industry, and legal marijuana sales are projected to produce $23 billion by 2025 in the United States alone.
Thanks to this thriving revenue stream and rapid expansion across a growing number of states, allied with diversified product offerings and industries, marijuana now provides an attractive opportunity which investors would be foolish to ignore. In this article, we dive into the legal cannabis industry and share some insights on the state of the market and some of the top marijuana stocks to consider.
A Slowly Modernizing Marijuana Policy
While the possession and use of cannabis are both still illegal in the United States under federal law, an increasing number of states have legalized marijuana for both medical and recreational purposes.
The first steps toward this legalization began with the Cole Memorandum of 2013, which served as the basis for a legal marijuana industry as it rescinded federal prosecution for marijuana possession in states where the use of cannabis had been legalized. While the enactment of the Cole Memo had little immediate impact on marijuana stocks, any positives that it could have rendered for the industry were eliminated in 2018, when Attorney General Jeff Sessions rescinded it. Immediately following strong critique from groups such as the Brookings Institute, who noted the general trend among Americans to legalize marijuana and aim for reform.
Perhaps it was such responses that encouraged the drafting of the 2019 Sensible Enforcement of Cannabis Act, which aimed to safeguard much of what the Cole Memo provided, however, this act has yet to be put in force. Nevertheless, for a large number of investors already working in the industry, the end of any Cole Memo protections did not impact those investing in marijuana stock. Furthermore, since Session’s dismantling, it is clear that the marijuana industry is beginning to boom in those states where the legal sale is permitted.
The United States Comes Close to Canada’s Legal Sales
Several years ago, Canada was primed to become the world leader in legal marijuana sales, with stock in Canadian marijuana companies soaring sky high in 2018. Canada’s early success in the legal weed trade is owed in part to the fact that the country made medical marijuana legal long before the United States, with the country allowing medical weed to be sold legally, with oversight from Health Canada, as early as 2001.
Also influential is the overall difference of political opinion: Canadian governmental officials are predominantly progressives, and many of these figures supported the expansion of both recreational and medical marijuana early on. In comparison, the United States government leans conservative and thus were less prone to usher in marijuana’s legalization so many years ago.
Sentiment is slowly changing: a 2017 Gallup Poll among members of the United States government revealed more than 60% supported legalizing cannabis. The Canadian government also keeps the tax rates on cannabis sales low, while ensuring provinces take responsibility for front-line regulation of the industry and receive a sizable portion of the revenue, allowing recreational marijuana to thrive.
Since these early days of legal cannabis sales, though, the rapid legalization of medical and recreational cannabis use in states across the country has resulted in United States’ companies heading up the pack of major marijuana retail. The growth of the United States industry has been hampered, admittedly, due to the overarching federal restrictions that mean producers in that country cannot build a global reach through export sales. Because of this, Canada continues to be a major player in the field. As The Washington Post has noted, however, the quality of American marijuana cannot be beaten, so if you can envision a future in which the prohibitive federal restrictions on cannabis are lifted, then you can see why investing in marijuana stocks might be a lucrative decision.
The Story of the Stocks
What, though, do the actual marijuana stocks tell us? The picture from the last year might be disconcerting at first, but a closer look reveals the promise such stocks hold. According to the MJIC North American Marijuana Index, the top marijuana stocks topped out around 247 points in June of 2019; in March of 2020, though, the index dropped to a mere 44 points, a precipitous decline no doubt brought on by the outbreak of the COVID-19 pandemic. The good news is that, since March 2020, the index is back on the rise having more than doubled to reach 107 points in early June. While many experts will rightly point out the significant risk involved in the marijuana trade, as such dramatic changes might suggest, it also has the potential for equally high rewards.
Another good indicator is the ever-expanding acceptance and use of marijuana across the United States. The opening of new dispensaries in the state of California in 2018, for example, resulted in $2 billion in sales, and in 2019 medical marijuana saw great gains in usage in new markets including Florida and Pennsylvania. These gains suggest that the market for marijuana is only going to grow, making now a great time to invest in marijuana stocks.
Major Players in the Industry
Today, the top cannabis companies are spread between Canada and the United States, with each carving out their own niche as they battle for greater market share. Let’s take a brief look at some of the key players of the marijuana trade:
Canopy Growth Corporation (NYSE: CGC)
Holding the title of the first publicly traded cannabis company in North America and also noted as the largest legal cannabis company in the world, according to US News and World Report, Canada-based Canopy Growth Corporation was formed in 2013 with a merger of Tweed Marijuana Inc. and Bedrocan Canada. Since going public – and joining the S&P/TSX Composite Index, Canopy Growth has been a consistent leader in innovation. As a result, Canopy Growth stock has achieved an impressive high mark of $43.94 per share. At the beginning of June 2020, the per-share price had slipped to a third of that high point, but given the company’s commitment to ongoing growth it seems sure that the price will ascend again soon (making it potentially a good time to invest).
Trulieve Cannabis Corporation (OTCMKTS: TCNNF)
Generating more than %96 million in revenue, Trulieve is one of the United States’ biggest medical marijuana multistate operators (MSOs). Its commitment to client reach and its desire to continue to grow the business – beyond its already massive 2 million square feet of cultivation in the state of Florida – makes Trulieve a true industry leader, and its margins are impressive. According to QuoteMedia and the Marijuana Stock Index, Trulieve recently reported more than $250 million in sales with only $75 million of operating expenses. This combination makes Trulieve one to watch.
Valens Corporation (OTCQX: VLNCF)
A leading Canadian extraction company, Valens is putting stock in developing its derivatives line, which many indicators suggest will be a soon-to-boom market in Canada. Some indices suggest modest growth in stock share price yet this year – many marijuana companies will spend the remainder of 2020 recouping losses from the pandemic – but the fact that the company typically engages in long-term contracts suggests the real potential of consistent, enduring growth.
Cronos Group Inc. (NASDAQ: CRON)
Established in 2012 in Toronto, Cronos boasts a network of subsidiaries and brands with an overarching goal of taking the global cannabis market by storm. It is perhaps thanks to this diversification of goals that Cronos has enjoyed both a relatively consistent share price even amidst the turmoil of the global pandemic and a strikingly good performance record: according to Yahoo Finance, Cronos stock far outperformed its competitors in the medical marijuana field so far this year.
Cresco Labs (OTCMKTS: CRLBF)
Consistently consuming more ground within the American cannabis market, Chicago-based Cresco Labs is a multi-state operation – its facilities span nine states, to be exact – that tailors its business model to the needs of the customer while also keeping a corporate growth mindset paramount. One of their most recent acquisitions -and a sign of the overall health of the company – was Origin House in January 2020, which in essence solidified Cresco’s presence along the western coast of the country.
Green Thumb Industries (OTCMKTS: GTBIF)
A rising star MSO also headquartered in Chicago, Green Thumb Industries was launched in 2014 and today services retail locations across the country. Anchored by their client focus and an overarching drive to grow, Green Thumb is poised to expand their client reach given their strong reputation and quality products. Stock prices for Green Thumb currently hover around $9, but the odds they will increase are strong.
Aphria Inc (OTCMKTS:APHQF)
Considered one of the most striking success stories in the history of the legal cannabis industry, Canadian company Aphria has consistently impressed investors and shareholders alike with its potential for growth. Its stocks have stayed generally on an upward trend in recent years, and the fact alone that the company recently boosted its net cash balance suggests that Aphria might be eying a move into the booming CBD market in the United States. To break into this market would be a boon for business, and a potential windfall for stockholders.
Is Pot Worth the Investment?
There is still a long road ahead for universally legalized marijuana use in countries like the United States. While advances have been made, the cannabis market will nevertheless be restricted by the federal limitations imposed on their business.
Still, as the old saying goes, the only constant is change. Changing marijuana legislation could come at any point soon, and when the widespread legalization of marijuana occurs, companies like those noted here are positioned to become even more powerful and profitable within the realm of cannabis sales.
The industry can keep fighting to gain more universally legalized marijuana. Before they succeed might be a prime time to buy your shares before these companies begin to accelerate their profits. The Financial Times projects the marijuana industry in the United States might near $25 billion in legal spending by 2022. With those sales in mind, it seems like these cannabis companies - and their shareholders - are poised to ride high into the coming years.