Despite a devastated economy, pot stocks remain a hot commodity. With marijuana declared essential during the Covid pandemic product sales have soared. Is it time to cash in by investing?
The Canadian Effect
Marijuana was legalized in Canada in 2017 and a year later sales began across the country. This quickly turned into a boom with large cannabis companies springing up in the provinces. Tilray, Canopy Growth, Aurora Cannabis, Cronos Group and Aphria, all licensed medical-marijuana producers, were the beneficiaries of the initial Green Rush. But as Canadian legalization ran into snags and didn’t produce expected revenues, stock prices began to slide. Over the last 18 months, it’s been a rocky ride for many of these companies.
In March 2019, Tilray’s stock price (NASDAQ: TRLY) was $79.50; now, it’s $13.35.
Canopy Growth (NASDAQ: CGC) declined from $47.10 to $32.43.
Cronos Group (NASDAQ: CRON) went from $21.75 to $9.76.
Green Organic Dutchman Holdings (OTCMKTS: TGODF) dropped from $3.29 to $0.24.
Three positives were Aurora Cannabis (NYSE: ACB, $7.30 to $11.28), HEXO (NYSE: HEXO, $5.67 to $6.36) and Aphria (NASQAQ: APHA, $10.31 to $10.02). In November, Aphria purchased U.S.-based SweetWater Brewery.
The American Effect
While legalization continues to move slowly in Canada, U.S. companies have been ramping up, especially the Multi-State Organizations (MSOs) like Curaleaf Holdings, Trulieve Cannabis, Green Thumb Industries and Cresco Labs, all of whom have been snapping up licenses in legal states.
Since 2019, Curaleaf’s stock price (OTCMKTS: CURLF) has doubled from $7.60 to $14.10. During that same period, Acreage Holdings (OTCMKTS: ACRHF, $19.10 to $6.23) and MedMen Enterprises (OTCMKTS: MMNFF, $2.96 to $0.17) took dives.
The newer MSOs are charging ahead with Trulieve (OTCMKTS: TCNNF, $44.22) and Green Thumb Industries (OTCMKTS: GTBIF, $29.76) leading the way. Others deserving investor attention are Cresco (OTCMKTS: CRLBF, $12.41), Harvest Health & Recreation (OTCMKTS: HRVSF, $3.14), Harborside (OTCMKTS: HBORF, $2.22), Organigram Holdings (NASDAQ: OGI, $1.64) and 4Front Ventures (OTCMKTS: FFNTF, $1.05).
More American canna-stocks to watch include GrowGeneration (NASDAQ: GRWG, $47.66), TerrAscend (OTCMKTS: TRSSF, $11.95), Jushi Holdings (OTCMKTS: JUSHF, $6.02), Charlotte’s Web Holdings (OTCMKTS: CWBHF, $4.63) and KushCo Holdings (OTCMKTS: KSHB, $1.12).
Three Big Buys
Two years ago, the best pot-stock buy was Scotts Miracle-Gro (NYSE: SMG) at $81.80. The price has since nearly tripled to $225.97. It’s pricey but a proven winner.
While its price went down from $177.49 to the current $133.08, the British-based GW Pharmaceuticals (NASDAQ: GWPH) remains the only company to have cannabis drugs approved by countries around the world (not including the U.S.).
A real-estate investment trust, Innovative Industrial Properties (NYSE: IIPR, $191.59) leases and sells properties to state-licensed companies.
"The surge in prices in pot stocks reflects four major forces at work:
"One, stocks are a way to make money when savings accounts and government bonds offer very low interest rates.
"Two, people want to invest in a nascent industry with huge growth potential.
"Three, you have to look at some of the individual stories of each company. Scotts Miracle-Gro, for example, represents a way to play in the building material and not the retail side of legal as a seller of fertilizer. It's also invested in equipment providers for growers.
"Four, you have to look at the increasingly favorable regulatory picture for pot as more states such as New Jersey allow adult use and even the U.S. House of Representatives OK'ing a legalization measure, the MORE Act. The challenge is finding a stock that may be overlooked or undervalued and that's harder to find.
"Yes, the business will grow, but that growth may already be more than reflected in a lofty stock price. The safer route for individuals would be buying into an exchange traded fund or mutual fund with exposure to the sector. Individual stocks may offer greater returns but also greater risk. For a bit, MedMen was a high-flying stock, but then it weakened after a series of issues with the company. But until the current bull market ends, pot stocks will probably remain in vogue even after the lofty gains that some have posted.