Investors that shun traditional sin stocks (gambling, tobacco, alcohol, porn) will probably not be interested in marijuana stocks. Those that have no issues with making money on sin stocks may want to keep an eye on marijuana stocks in 2016, especially with more and more states permitting medical and recreational marijuana use.
Recreational Marijuana Sales Soar
Pot stocks became popular after Colorado allowed the recreational sale of marijuana on January 1, 2014 and Washington State on June 1, 2014. Marijuana popped back up on Wall Street’s radar last week when Oregon became the third state to allow the sale of it.
Today, roughly 25 states have legalized medical marijuana and voters in Alaska and the District of Columbia have approved pot for recreational use. But that number could soon balloon. Legalization measures will be on the ballot in Ohio this November and in more than 10 states in 2016.
With cash-strapped states looking to generate revenues, pot’s appeal is glowing. In Colorado, marijuana sales generate more tax than alcohol. In the fiscal 2014-2015 year, Colorado raised about $70.0 million from the sale of weed compared to less than $42.0 million from alcohol sales. (Source: csbj.com, September 15, 2015.)
In Colorado, medical marijuana is subject to a 2.9% state sales tax. So too is recreational marijuana but it is subject to an additional 10% tax. Those who produce marijuana are subject to a 15% excise tax on wholesale transfers.
High taxes have not stymied sales. In fact, 2015 is going to be even stronger. After topping $50.0 million for the first time in June, recreational sales of marijuana topped $55.0 million in July. Medical marijuana sales also hit a record in July of $39.8 million. In total, more than $96.0 million worth of marijuana was sold in Colorado in July.
Those are pretty heady numbers. And they make the idea of legalizing pot pretty tempting. With an election just around the corner, I’ve yet to meet a politician who hasn’t seen a tax dollar they aren’t willing to spend.
3 Marijuana Stocks to Watch in 2016
The number of publicly-traded marijuana-related stocks have been growing like bad weeds. At last count, there were more than 80 marijuana stocks out there. But most trade on the OTCBB, for under $1.00; have no momentum; and are thinly traded, illiquid, and volatile. The vast majority also have terrible fundamentals. They’re not for the faint of heart.
On top of that, marijuana use remains illegal for any reason under federal law. Under President Obama, the U.S. Justice Department has, for the most part, refrained from enforcing current laws. The next elected president might be keener on enforcing federal drug laws. This could seriously undermine the industry.
Until there is a federal law legalizing recreational pot use, the industry is going to stay in a holding pattern. This may be why it’s difficult to find a pure marijuana play worth investing in, and why it might be better to keep an eye out for marijuana-related stocks that are a little more diversified.
3 Top Marijuana Stocks to Watch in 2016
GW Pharmaceuticals plc(NASDAQ:GWPH)
GW Pharmaceuticals plc (NASDAQ:GWPH) is a pharmaceutical company that is developing a portfolio of cannabinoid medicines, including Sativex to treat MS and cancer pain and Epidiolex to treat childhood epilepsy.
On September 15th, the company announced positive top-line results from an exploratory Phase 2a placebo-controlled clinical trial of Cannabidiol in patients with schizophrenia who had previously failed to respond adequately to first line antipsychotic medications. (Source: Gwpharm.com, September 15, 2015.)
The company has a market cap of $1.91 billion, total cash of $385 million, and total debt of just $2.54 million. Best of all, the company’s share price is up 33.85% year-to-date.
Cara Therapeutics Inc. (NASDAQ:CARA) is an emerging biotechnology company focused on developing novel drugs to treat diseases associated with pain, inflammation, and pruritus.
Pain medication CR845 is the company’s lead candidate. But its other pain drug, CR701, which studies the effect of marijuana (cannabis), has shown considerable promise in pre-clinical testing. The company is looking to move the drug into a phase I clinical study. (Source: caratherapeutics.com, last accessed October 2, 2015.)
The company has a market cap of $390 million, $43.2 million in cash, and no long-term debt. Trading near $14.40, the company’s share price is up 43.8% year-to-date. Before Black Monday and ongoing global economic fears, Cara’s share price was actually trading up 118% year-to-date near $22.00 per share.
22nd Century Group, Inc. (NYSE:XXII)
Again, this is not a pure-play marijuana stock, but one that has significant exposure. 22nd Century Group, Inc. (NYSE:XXII) is a plant biotechnology company focused on tobacco harm reduction and smoking cessation products.
The company’s genetic engineering technology and plant breeding expertise allow it to regulate the level of nicotine (and other nicotinic alkaloids) in the tobacco plant. It is able to grow tobacco with up to 97% less nicotine than conventional tobacco, as well as other plants with relatively high nicotine levels.
In September 2014, the company’s wholly-owned subsidiary, Botanical Genetics, LLC, entered into a worldwide license agreement with Anandia Laboratories Inc., a plant biotechnology company, granting 22nd Century Group exclusive rights in the U.S. to one U.S. patent and 20 patent applications relating to four genes required for cannabinoid production in the cannabis plant. (Source: xxiicentury.com, last accessed October 2, 2015.)
On September 9, 2015, the company announced that its wholly-owned subsidiary, Goodrich Tobacco Company, received a purchase order for 4.95 million
SPECTRUM U.S. government research cigarettes. SPECTRUM cigarettes are not sold commercially; they are produced by 22nd Century from its proprietary and patented technology for exclusive use in independent clinical research. (Source: xxiicentury.com, September 9, 2015.)
Using the results from independent clinical research studies with Very Low Nicotine cigarettes, 22nd Century intends to become the first company in the world authorized by the FDA to market reduced exposure combustible cigarettes.