Marijuana stocks are one of the most popular stocks among investors today. Before putting money in marijuana stocks, read about the most important things to consider, including some marijuana stocks to watch, here.
In this article:
- Are Marijuana Stocks Good Investments?
- Things to Consider Before Investing in the Stock Market in Marijuana Stocks
- Stocks to Watch | Some of the Best Marijuana Stocks to Buy
Marijuana Stocks: Things You Need to Know Before Investing
Are Marijuana Stocks Good Investments?
In a Statistica-published report, analysts estimate that marijuana-related products can increase to more than $24 billion in six years’ time. That’s a very substantial leap from only $6.7 billion in 2016.
As of June 2019, 11 states and the District of Columbia have legalized recreational marijuana use. On the other hand, 33 states, plus the District of Columbia, have legalized medical marijuana.
Marijuana stocks’ growth potential also caught the attention of business leaders.
On the legal side, more and more politicians are joining the bandwagon with the legalization of marijuana, despite their parties’ resistance to it. This is evident in the growing number of states that have already legalized marijuana.
How will marijuana legalization affect the market?
As social and legal acceptance of marijuana-based products continues to grow with legalization, so will the market for such products to expand. And when it happens, the marijuana industry can provide more job opportunities for Americans and tax revenues for the government.
While all of these reasons point to marijuana stocks being a good investment, not all of them are created equal. That’s why, before you invest in marijuana stocks, exercise due diligence and research the company’s financials first.
Things to Consider Before Investing in the Stock Market in Marijuana Stocks
Before investing in marijuana stocks, investors should keep in mind that they’re investing for the future and for today. Otherwise, they run the risk of being swayed to and fro by the developments that seesaw from very positive to very negative.
That’s why it’s important for investors to invest amounts they’re comfortable losing. With potentially high returns on marijuana stocks come high risks for potential losses, too.
Investing in marijuana stocks is a long-term game, and as such, a good strategy is buy-and-hold.
Investors also need to be aware that most marijuana stocks aren’t making money as of the moment. This is expected because the green industry is still in a relatively infant stage, with sub-optimal production and sales.
Consider two of the most promising marijuana stocks, Canopy Growth and Aurora Cannabis.
Canopy lost 670 million CAD for its fiscal year ending March 2019. On the other hand, Aurora Cannabis lost 296 million Canadian dollars within its 2019 fiscal year’s first nine months alone.
It can take a while for even the most promising marijuana stocks to start registering profits. This is why it’s important to keep a long-term perspective when investing in marijuana stocks.
Another thing investors must consider when choosing marijuana stocks is that the production level isn’t the most important indicator. While it’s important, other important considerations include capitalization, cash levels, and deals with marijuana farm suppliers, among others.
For example, Aurora Cannabis is the top marijuana stock in terms of annual production but its market capitalization is nearly half of Canopy Growth’s. This is because Canopy Growth has a $3.4 billion cash balance and supply deals with marijuana suppliers worth up to 70 thousand kilos.
Lastly, investors should consider that as a relatively young industry, it will go through growing pains.
Stocks to Watch | Some of the Best Marijuana Stocks to Buy
1. Tilray (TLRY)
It has a market capitalization of $2.20 billion, as of October 17, 2019, with a net loss of $67 million in 2018.
Despite the losses, one of the world’s premier financial institutions, Barclays, upped its investments in the green industry in 2018. One of its beneficiaries was Tilray, Inc., which can be viewed as validation of the long-term potential for this marijuana stock.
2. Canopy Growth Corporation (CGC)
CGC has a market capitalization of $7.21 billion as of October 17, 2019. During its last fiscal year, however, it lost $670 million.
One of the bright prospects for this company is its innovativeness both in terms of product development and in business. An example of this is its recent partnership with Constellation Brands, the company that makes Corona beer.
3. Cronos Group Incorporated (CRON)
CRON has a market capitalization of $2.96 billion as of October 17, 2019. And while it lost $18.72 million in 2018, it has made more than $600 million in the first 9 ½ months of 2019.
Aside from its financial performance relative to most marijuana stocks, another thing going for CRON is the Altria Group’s entry into the company. The Altria Group includes, among other top international brands, Philip Morris USA, Inc.
The Altria Group’s $1.8 billion cash infusion into Cronos gives it the ability to scale up its production capacity. This potential for increased capacity can be Cronos’ main growth driver over the medium to long term.
4. Aurora Cannabis Incorporated (ACB)
Aurora Cannabis has a market capitalization of $3.93 billion as of October 17, 2019, but lost $291 during its last fiscal year, which ended on June 30, 2019.
Despite losses, it continues to be one of the top players in the green industry. This is because Aurora Cannabis is the world’s top producer, with an estimated 570,000 kilograms worth of annual production.
Further establishing its dominance in the green industry are its tie-ups with international food brands that allow it to have product diversification.
5. KushCo Holdings (KSHB)
KSHB has a market capitalization of $120.47 million as of October 17, 2019. During its last fiscal year, it lost $12.38 million.
KushCo is a premiere packaging services and supplies company that caters to medical marijuana companies. As its clients’ sales continue to grow over the years, KushCo is expected to grow as well, especially as more European countries legalize medical marijuana use.
6. Liberty Health Sciences (LHSIF)
LHSIF has a market capitalization of $104.06 million as of October 17, 2019, with losses of $22.29 million during the last fiscal year.
One of the bright spots for LHSIF is analysts’ expectations that Florida may become a top marijuana market by 2022. Being a Florida-based marijuana company, Liberty is in the best position to benefit from this.
And while it’s a Florida-based company, Liberty is also spreading its wings to other states.
7. MariMed (MRMD)
MRMD has a market capitalization of $152.39 million as of October 17, 2019. In the last fiscal year, it lost $13.60 million.
MariMed is a marijuana-focused service provider. It provides consultation and management services to marijuana brands like Kalm Fusion, Betty’s Eddies, and Nature’s Heritage, among others.
As with KushCo, the expected long term growth of the green industry means MRMD’s clients’ businesses will also grow. And as its clients’ business continues to grow, so will MRMD’s business.
Despite current losses for most marijuana companies, marijuana stocks have good long-term investment potential. The key to successfully investing in them is due diligence in research, a long-term investment approach, and prudent risk management.
Do you think marijuana stocks are a good investment? Let us know in the comments section below.
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