The marijuana industry is expected to triple in the next five years and many investors are looking to profit.
As states and entire countries decriminalize or legalize cannabis and/or its components, there are loads of opportunities for entrepreneurs and existing companies.
But as in any nascent industry, there are also loads of risks and bad actors. Whether you’re a first-time investor or a seasoned veteran, it pays to understand all of the moving parts.
This guide will get you up to speed quickly.
How to Invest in Marijuana Stocks
Follow these seven steps if you’re thinking about buying cannabis stocks. The following is a summary, but we encourage you to read the entire article linked below for all the details.
1. Understand the types of marijuana products.
- There are two types of cannabis products: medical marijuana vs. recreational marijuana.
- Cannabidiol (CBD) is a cannabinoid that is different than the psychoactive delta-9 tetrahydrocannabinol (THC).
2. Know the different types of marijuana stocks.
- Marijuana growers like Canopy Growth Corporation (NYSE:CGC)
- Cannabis-focused biotechs like GW Pharmaceuticals (NASDAQ:GWPH)
- Providers of supporting products and services like Scotts Miracle-Gro (NYSE:SMG)
3. Understand the risks of investing in marijuana stocks.
- Legal and political risks
- Supply/demand imbalances
- Risk in those that are over-the-counter stocks
4. Know what to look for in a marijuana stock.
- Normal stock considerations, including:
- Management team
- Growth strategy
- Competitive position
- Financials (ideally either profitability or strong balance sheet)
- Cannabis production costs
- “All-in” cost of sales per gram
- Cash cost per gram
- For Canadian companies, the extent of international operations and distribution
- Dilution risks via warrants and convertible securities
5. Evaluate the top marijuana stocks and exchange-traded funds (ETFs).
- Marijuana growers like Canopy Growth, Aurora Cannabis (NYSE:ACB), Tilray(NASDAQ:TLRY), and Aphria (NYSE:APHA)
- Biotechs like GW Pharmaceuticals, Cara Therapeutics (NASDAQ:CARA), and Insys Therapeutics (NASDAQ:INSY)
- Ancillary providers like Scotts Miracle-Gro
- ETFs like Horizons Marijuana Life Sciences ETF (NASDAQOTH:HMLSF) and ETFMG Alternative Harvest ETF (NYSEMKT:MJ)
6. Invest carefully.
- For many, avoiding individual investments in the marijuana space entirely is the right call.
- For those who buy in, keeping your marijuana exposure to a small percentage of your overall portfolio limits your risk.
- Pure plays are riskier than more diversified plays.
7. Monitor changing industry dynamics closely.
- Laws, regulations, competitive forces, and the business strategies of the companies themselves will all change rapidly over time.
Best Value Marijuana Stocks
Value investing is a factor-based investing strategy in which you pick stocks that you believe are trading for less than what they are intrinsically worth, usually by measuring the ratio of the stock’s price to one or more fundamental business metrics. A widely accepted value metric is the price-to-earnings ratio (P/E Ratio). Value investors believe that if a business is cheap compared to its intrinsic value, in this case as measured by its P/E ratio, the stock price may rise faster than others as the price comes back in line with the worth of the company. These are the marijuana stocks with the lowest 12-month trailing price-to-earnings (P/E) ratio.
|Best Value Marijuana Stocks|
|Price ($)||Market Cap ($B)||12-Month Trailing P/E Ratio|
|Alcanna Inc. ( CLIQ.TO)||CA$7.90||CA$0.3||21.4|
|NIC Inc. ( EGOV)||33.81||2.3||33.5|
|Innovative Industrial Properties Inc. ( IIPR)||172.84||4.1||53.7|
|Village Farms International Inc. ( VFF.TO)||CA$15.96||CA$1.3||61.2|
|Trulieve Cannabis Corp. ( TRUL.CX)||CA$60.21||CA$7.2||85.9|
- Alcanna Inc.: Alcanna is a Canada-based retailer of alcoholic beverages and cannabis. The company operates liquor stores that sell wines, beers, and spirts, and retail cannabis stores. Alcanna employs about 1,800 people and operates 250 liquor and cannabis retail outlets.
- NIC Inc.: NIC offers services to help governments use the Internet to provide services to citizens and businesses. The company is the nation’s largest provider of digital government services, sites, and secure payment processing. NIC also offers a platform for government licensing and regulation of the cannabis industry. The company serves more than 7,000 federal, state, and local government agencies throughout the U.S. NIC announced on February 10 that it has agreed to be acquired by Tyler Technologies Inc. (TYL) in an all-cash transaction valued at approximately $2.3 billion. Tyler Technologies is a provider of integrated software and technology services to local, state, and federal government entities. The transaction is expected to close in the second quarter of 2021.
- Innovative Industrial Properties Inc.: Innovative Industrial Properties is a real estate investment trust (REIT) that engages in the acquisition, disposition, development, and management of industrial facilities leased to tenants in the medical cannabis industry. The company’s portfolio consists of specialized industrial and greenhouse buildings leased to state-licensed medical-use cannabis cultivators across the U.S.
- Village Farms International Inc.: Village Farms International is a Canada-based agricultural producer. In addition to growing vegetables like tomatoes, bell peppers, and cucumbers, the company also produces cannabis. The company distributes fresh produce from over nine million square feet of Controlled Environment Agriculture (CEA) greenhouses in Canada and the U.S., as well as from partner greenhouses in Canada and Mexico.
- Trulieve Cannabis Corp.: Trulieve Cannabis is a holding company that, through its subsidiaries, engages in the cultivation, possession, sale, and distribution of medical cannabis. Its products are designed to alleviate seizures, muscle spasms, pain, nausea, loss of appetite, and other symptoms associated with serious medical conditions such as cancer. The company operates 83 stores across the U.S., 78 of which are located in Florida, where it serves more than 450,000 patients. Trulieve recently announced that is has agreed to acquire Mountaineer Holding LLC, providing Trulieve with an additional cultivation permit and two additional dispensary permits. Trulieve agreed to acquire Mountaineer for an upfront payment of $6 million. The transaction is expected to close during the second quarter of 2021.
Fastest Growing Marijuana Stocks
These are the top marijuana stocks as ranked by a growth model that scores companies based on a 50/50 weighting of their most recent quarterly year-over-year (YOY) percentage revenue growth and their most recent quarterly YOY earnings-per-share (EPS) growth. Both sales and earnings are critical factors in the success of a company. Therefore ranking companies by only one growth metric makes a ranking susceptible to the accounting anomalies of that quarter (such as changes in tax law or restructuring costs) that may make one or the other figure unrepresentative of the business in general. Companies with quarterly EPS or revenue growth of over 2,500% were excluded as outliers.
|Fastest Growing Marijuana Stocks|
|Price ($)||Market Cap ($B)||EPS Growth (%)||Revenue Growth (%)|
|Cara Therapeutics Inc. ( CARA)||19.44||1.0||N/A||2,380|
|GrowGeneration Corp. ( GRWG)||45.81||2.5||100.0||152.6|
|NIC Inc. (EGOV)||33.81||2.3||73.3%||62.1|
|Jushi Holdings Inc. ( JUSH.CX)||CA$8.23||CA$0.9||N/A||600.0|
|Cresco Labs Inc. ( CL.CX)||CA$16.46||CA$3.6||N/A||314.9|
Marijuana Stocks with the Most Momentum
Momentum investing is a factor-based investing strategy in which you invest in a stock whose price has risen faster than the market as a whole. Momentum investors believe that stocks which have outperformed the market will often continue to do so, because the factors that caused them to outperform will not suddenly disappear. In addition, other investors, seeking to benefit from the stock’s outperformance, will often purchase the stock, further bidding its price higher and pushing the stock higher still. These are the stocks that had the highest total return over the last 12 months.
|Marijuana Stocks with the Most Momentum|
|Price ($)||Market Cap ($B)||12-Month Trailing Total Return (%)|
|GrowGeneration Corp. (GRWG)||45.81||2.5||1,180|
|Amyris Inc. ( AMRS)||18.76||5.0||772.6|
|Jushi Holdings Inc. (JUSH.CX)||CA$8.23||CA$0.9||648.2|
|Aphria Inc. ( APHA)||17.45||5.5||546.3|
|TerrAscend Corp. ( TER.CX)||CA$13.15||CA$2.3||517.4|
|ETFMG Alternative Harvest ETF (MJ)||N/A||N/A||122.1|