How to invest in cannabis stocks

The short version

• It's been rocky for the cannabis industry recently but upcoming legislation at the federal level might smooth things out.
• There are many companies for investors to choose from, including companies involved with medicinal and recreational cannabis.
• Besides stocks, you can also invest in cannabis ETFs and cryptocurrencies.
• Because marijuana is still illegal on the federal level, there is a greater level of risk.

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Medical vs. recreational cannabis stock

When it comes to the marijuana industry, there are generally two different markets: medical marijuana (MMJ) and recreational marijuana (RMJ).

Medical marijuana stock

Medical marijuana first became legal in California in 1996. But today MMJ is legal in 37 states, the District of Columbia and three U.S. territories. Because it's so widely legalized — and has been for quite a few years — there are plenty of opportunities to invest in MMJ stocks. The categories of companies whose stock you can purchase when it comes to medical marijuana are:

• Growers
• Extraction service providers
• Drug developers
• Distributors and dispensaries
• Ancillary product and service providers

Recreational marijuana stock

Recreational marijuana (RMJ) is legal in 19 states, the District of Columbia and two territories. Colorado and Washington became the first states to legalize the recreational use of marijuana in 2012. Legalization for RMJ hasn't gained traction as quickly as it has for MMJ, but this use caters to a significantly wider audience. Marijuana companies you can invest in for recreational marijuana include cannabis growers, retailers, and ancillary product and service providers.

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Why investors should buy cannabis stocks

As marijuana legalization becomes more widespread, it's going to become more common to find marijuana stocks in investors' portfolios. You may find yourself wondering whether you should be joining in.

The main benefit of considering getting into marijuana stocks right now is that the prices have fallen sharply due to oversupply and the marijuana bubble bursting, causing cannabis stocks to be at bottom-level prices. That said, there are signs that the cannabis industry could see signs of growth shortly.

Senate Majority Leader Chuck Schumer announced that Congress is “very close” to passing a bill for marijuana banking and expungements. The recent comments from Senator Schumer about a pending marijuana banking bill led to shares of US and Canadian cannabis companies rallying for a few days. If the bill gets passed, then that would open up banking services for all companies that legally sell cannabis, and it would erase the criminal records of folks with cannabis convictions.

This is significant news for the cannabis industry, which has been waiting for federal legalization to happen in the US. This also comes after President Biden's announcement about marijuana reform.

Another excellent reason to invest in MJ stocks is the large number of companies to choose from, some of which carry less risk than others. One of the reasons people are hesitant to invest in marijuana stocks is that these companies may have a more difficult time getting financing through traditional means. But plenty of companies offer ancillary products and services that don't hit these same roadblocks.

For example, Scotts Miracle-Gro is a company that's been around since long before the current cannabis industry. But as more states started to legalize both medical and recreational use, Scotts embraced cannabis as another part of the gardening industry. Scotts stands out as having one of the largest market capitalizations among cannabis companies without actually producing or selling cannabis.

That being said, because of the nature of cannabis products, there may be an increased risk to investors. And it's important to understand those risks and weigh them alongside the benefits.

Related: What are sin stocks?

Top marijuana stocks

(prices as of closing Jan 18th 2023)

Tilray brands, Inc. (TLRY)

Current Price: $3.06

• 12-Month High: $9.08
• 12-Month Low: $2.52
• 1-Year Target: $4.39
• Market Capitalization: $1.89B

Tilray Brands merged with Aphria back in May of 2021 to become the world’s biggest cannabis company based on revenue. Tilray Brands is a global cannabis-lifestyle and consumer packaged goods company. They have four business segments: cannabis business, distribution business, beverage alcohol business, and wellness business. The cannabis business segment focused on selling medical and adult-use cannabis products.

Tilray is one of the top cannabis stocks because they have a competitive advantage in European markets like Germany. The company also recently announced a new deal with Charlotte’s Web to facilitate the sales of CBD products through Tilray’s distribution channel. As Tilray continues to increase its presence in the cannabis space, there’s still a long way for the company to go as they plan on reaching $ billion in annual revenue. There are still many risks involved with investing in Tilray because the company posted an annual net loss of $509 million.

We can’t emphasize enough how much these stocks are relying on marijuana legalization to take place across the US to increase sales.

Canopy growth corporation (CGC)

• Current Price: $2.68
• 12-Month High: $9.61
• 12-Month Low: $2.09
• 1-Year Target: $5.28
• Market Capitalization: $1.302B

Canopy Growth Corporation is a Canadian-based company focused on cannabis, hemp, and cannabis device with a variety of products for recreational and medical purposes. The company has two distinct business segments: Global Cannabis and Other Consumer Products. The company has been focused on becoming profitable by cutting costs with layoffs, leaving some international markets, and store closures. They posted a revenue of C$117.9 million with a loss of C$78.1 million.

Canopy has stated that they will create a holding company to expedite the process of entering the US market. However, there’s still uncertainty as to when this will happen.

Aurora cannabis Inc. (ACB)

• Current Price: $0.987
• 12-Month High: $5.11
• 12-Month Low: $0.82
• 1-Year Target: $3.07
• Market Capitalization: $319.68M

Aurora has been around for many years now, and the company was even a leader in the cannabis industry. This Canadian-based medical cannabis company is focused on the production, distribution, and sale of cannabis and cannabis-related products in Canada and globally. Even though it has been over four years since Canada legalized the sales of recreational marijuana, the US market is still awaiting federal legalization.

While the stock has dropped significantly in the past year, there are hopes the recent financial results could bring them back to life. Aurora reported that they had hit their the annualized savings goal of $170 million for 2022. Total cannabis net revenue dropped 24% year-over-year to $46 million. The company also announced that it would focus on premium brands with a higher margin instead of the discounted brands that they’ve been selling in higher volumes. Aurora even confirmed that certain supply chain and distribution issues were resolved recently that would no longer impact Canadian and European sales.

Green Thumb Industries Inc. (GTBIF)

• Current Price: $8.38
• 12-Month High: $22.46
• 12-Month Low: $7.49
• 1-Year Target: $21.94
• Market Capitalization: $1.96B

Green Thumb Industries is one of the top multi-state operators nationwide. The company spent a total of $225.3 million on investments in infrastructure in two major cannabis states, New Jersey and New York. With sales in New York expected to begin in the near future, the company is in a position to take advantage of these investments.

Sales for Green Thumb were up 12% year-over-year, coming in at $261 million. This was also the ninth consecutive period where net income for the company was positive. With many marijuana retailers struggling to turn a profit, this record revenue can’t be ignored as the industry becomes more competitive. To make these figures even more impressive, we have to factor in the current macroeconomic environment with soaring inflation and many companies reporting lower sales.

The Scotts Miracle-Gro Company (SMG)

• Current Price: $60.61
• 12-Month High: $162.34
• 12-Month Low: $39.06
• 1-Year Target: $57.13
• Market Capitalization: $2.962B

The Scotts Miracle-Gro Company manufactures, markets, and sells products for lawn, garden care, and indoor/hydroponic gardening in the US and globally. The Hawthorne Gardening division is the leading supplier of hydroponic gardening products for the cannabis industry. The established company isn’t a traditional cannabis stock like the others on this list, but they’re worth mentioning because they’ve become a major player in the cannabis industry.

Since marijuana is still federally illegal, Scotts couldn’t jump into this industry, so they decided to focus on the needed tools. The marijuana-focused growing products became a profitable segment for the company during the initial start of the pandemic. However, it was reported a few months ago that sales for the Hawthorne division declined 63% year-over-year as there’s a sentiment of there being an oversupply in the marijuana industry.

It’s worth mentioning that despite the fact that they barely generate revenue from the marijuana segment, the company was still impacted by the marijuana bubble that took many stocks down. In positive news, if the legal status of marijuana changes in the near future, the company will be in a position to capitalize on this due to the investments made.

Curaleaf holdings, Inc. (CURLF)

• Current Price: $4.10
• 12-Month High: $9.28
• 12-Month Low: $3.57
• 1-Year Target: $8.39
• Market Capitalization: $2.938B

Curaleaf Holdings, Inc. is a leading international supplier of consumer cannabis products. They just announced the opening of the 54th store in Miami. Curaleaf presently operates in 21 states with 144 dispensaries and 6,000 team members.

They recently announced that they would be eliminating several positions as the company is going through cost-cutting measures. Curaleaf is yet to announce that they’re profitable as investors hope that the company can announce a profitable quarter in 2023. Curaleaf reported third-quarter earnings 2022 of $340 million in revenue, up from $317 million year-over-year. Gross profit was $153 million, while net loss reached $54.7 million. The company is expected to see savings of $40 million in 2023 while increasing sales growth in high-margin states like New Jersey where adult-use sales have finally commenced.

Trulieve Cannabis Corp (TCNNF)

As of Nov 1, 2023

• Current Price: $4.40
• 12-Month High: $14.45
• 12-Month Low: $3.56
• 1-Year Target: $9.20
• Market Capitalization: $823.34M

Trulieve Cannabis entered the cannabis industry by winning the first medical marijuana application in Florida in 2015. Today, it has 100 stores in the Sunshine State, and around 180 operated and affiliated dispensaries nationwide.

The company claims that it has leading market positions not just in Florida, but also in Arizona and Pennsylvania.

Trulieve’s financials have grown tremendously, and even the COVID-19 pandemic couldn’t stop the momentum. In 2020, revenue rose 106% from the 2019 level to $521.5 million.

In 2021, revenue surged another 80% to $938.4 million.

According to the latest earnings report, Trulieve earned $300.8 million of revenue in Q3 of 2022, up 34% year over year.

The stock, however, has plunged nearly 70% over the last 12 months.

Canaccord analyst Derek Dley sees a rebound on the horizon. The analyst has a ‘buy’ rating on Trulieve and a price target of C$50 on its Canada-listed shares — implying a potential upside of 488%.

Top marijuana ETFs

If you aren't ready to pick a marijuana stock you can choose an ETF instead. This allows you more diversification over the cannabis industry. Here are a few of the largest in the market today.

ETFMG alternative harvest (MJ)

• Current Price: $4.52
• 12-Month High: $11.45
• 12-Month Low: $4.02
• AUM: $690.5M
• Net Expense Ratio: 0.75%

This ETF invests in the global market. It's main holdings make up 55% of of the holdings and are ETFMG US Alternative Harvest ETF, Canopy Growth Corp, Tilray Inc, SNDL Inc Ordinary Shares, and Tilray Brands.

Even though this fund includes the global market, almost 20% of it's holdings are in a US marijuana EFT.

AdvisorShares pure cannabis ETF (YOLO)

• Current Price: $3.80
• 12-Month High: $12.00
• 12-Month Low: $3.29
• AUM:$147.8M
• Net Expense Ratio: 0.76%

This ETF invests in the global market, however, it's main holding is BlackRock Liquidity Treasury which comprises 27.59% of the fund. Individual stocks include Village Farms International, Innovative Industrial Properties, GrowGeneration Corp, and Tilray. These comprise another 38.7%.

Another Cannabis ETF that has a global market but still keeps nearly 30% of it's funds in the US, only this time it's basically in cash, at least at the time of this writing.

Global X cannabis ETF (POTX)

• Current Price: $12.46
• 12-Month High: $ 37.32
• 12-Month Low: 10.50
• AUM: $78.1M
• Net Expense Ratio: 0.51%

As the name suggests, this fund invests globally. It's top holdings make up 45% of the fund and are Canopy Growth Group, Innovated Industrial Properties, Tilray Brands, SNDL Inc, and Cronos Group.

Summary

As you might expect, there are a lot of ups and downs in the marijuana industry as the market and regulators figure out how it's all going to work. However, there is also a lot of potential for gains if you pick the right marijuana stocks or EFT to invest in.

With files from Jing Pan