Recreational Marijuana Market
Canada will make history on October 17, 2018, when it becomes the first industrialized country to legalize the recreational use of marijuana. And thanks to the country’s insatiable appetite for recreational marijuana, the move is expected to help the best marijuana stocks (including the best marijuana penny stocks) become extremely profitable.
And if projections are correct, growth in the recreational marijuana industry in the U.S. and Canada is projected to outstrip almost every other industry. Just how profitable will the recreational, or adult-use, marijuana market become?
It might be a good idea to look at some precedent-setting numbers first. In 2012, Colorado and Washington became the first states to legalize the use of recreational marijuana in the U.S.
Critics feared it would lead to increased impaired driving and make it too easy for minors to get their hands on the drug. Proponents meanwhile hoped it would lead to an economic boom. For the most part, all three came to pass.
Rocky Mountain High
The Colorado Department of Revenue (CDOR) regularly updates its total marijuana sales. Since recreational marijuana use became legal in 2014, sales have skyrocketed. Medical marijuana was available in Colorado prior to 2014 but the CDOR could not systematically track sales until January 2014. (Source: “Marijuana Sales Report,” Colorado Department of Revenue, last accessed September 13, 2018.)
|Calendar Year||Total Marijuana Sales||Total to Date|
|2018 (Jan. – Jul.)||$880,923,403||$5,374,944,089|
Over the first four years, total marijuana sales in Colorado soared 557%. And by all accounts, 2018 will be a record year, with marijuana sales expected to top $1.6 billion.
The legalization of recreational marijuana use in Canada will, obviously, trounce that total, since the population of Colorado is 5.6 million and the population of Canada is 36.3 million.
Even then, Canada is still a small global market when it comes to marijuana use. Other countries are closely watching how the legalization of pot goes in Canada before making up their own decisions.
Other countries will, no doubt, decriminalize weed in the coming years. Right now, Australia and Germany are two countries that are closing in on legalizing recreational marijuana.
How big will the legal marijuana market get in the near term? By 2025, the recreational marijuana market is expected to be worth $146.5 billion and grow at a compound annual growth rate of 34.6%.
Over the next 13 years, the legal marijuana industry is forecasted to grow at a compound annual growth rate (CAGR) of 19.75%. (Source: “Legal Marijuana Market Worth $146.4 Billion by 2025,” Grand View Research, last accessed September 13, 2018.)
Those are the kinds of numbers that should make any investor sit up and take notice.
Seven years is a long ways away though. And the legal marijuana market is still in its infancy; most of the big players in the marijuana industry have yet to report really big sales or profits. That hasn’t prevented investors from sending their share prices soaring with nosebleed valuations.
That will hopefully start to change in the fourth quarter of 2018.
Until that happens, it will be difficult to know how to value marijuana stocks.
Recreational Marijuana Penny Stocks
Because medicinal marijuana has been legal in Canada for years, most of the biggest marijuana stocks are based in Canada, including Canopy Growth Corp (NYSE:CGC), Tilray Inc (NASDAQ:TLRY), and Cronos Group Inc (NASDAQ:CRON).
While they’re based in Canada, they’re known to most American investors because, in addition to being listed on the Toronto Stock Exchange (ninth-largest in the world based on market capitalization), they also trade in the U.S. Location, location, location.
But there are a lot of other big, well-known marijuana stocks, including Aphria Inc (OTCMKTS:APHQF, TSE:APH), which trades in Canada. It does trade on the over-the-counter (OTC) markets, but most investors tend to shun the Wild West of investing and erroneously conclude that if a stock trades on the OTC markets, it should be avoided.
Not so. There are a large number of solid recreational and medicinal marijuana penny stocks that trade in Canada. While the rising ride has certainly been kind to the marijuana industry in general, not all are worth a second look. But some marijuana penny stocks definitely are.
Where any stock that traded under a dollar per share was called a penny stock, thanks to inflation, that definition has been broadened. For the purpose of this article, a penny stock is defined as any equity trading for under $10.00.
Investors may think marijuana penny stocks are not worth their while, but ignoring a stock simply because of its share price could mean missing out on large gains.
Conversely, paying attention to a stock simply because it is big isn’t a sure thing either. Just ask those who invested their retirement savings in higher-priced, so-called safe stocks like Lehman Brothers Holdings Inc., Nortel Networks Corporation, and Enron Corporation.
The point is, investing in penny stocks doesn’t have to be any riskier than mid- or large-cap stocks. There is no safe bet when it comes to investing, you have to do your research.
Below are seven recreational marijuana penny stocks you should have on your radar.
|Aurora Cannabis Inc||OTCMKTS:ACBFF, TSE:ACB|
|Hexo Corp||OTCMKTS:HYYDF, TSE:HEXO|
|Green Organic Dutchman Holdings Ltd||OTCMKTS: TGODF, TSE:TGOD|
|CannaRoyalty Corp||OTCMKTS:CNNRF, CNSX:CRZ|
|Liberty Health Sciences Inc||OTCMKTS:LHSIF, CNSX:LHS|
|MPX Bioceutical Corp||OTCMKTS:MPXEF, CNSX:MPX|
|Supreme Cannabis Company Inc||OTCMKTS:SPRWF, CVE:FIRE|
Top Recreational Marijuana Penny Stocks
Aurora Cannabis Inc
Aurora Cannabis is one of the best marijuana penny stocks, but it might not be a penny stock for much longer. One of the world’s largest and fastest-growing cannabis companies, Aurora has a current funded capacity of 430,000 kilograms per year (947,987 pounds), increasing to over 570,000 kilograms per year (1,256,634 pounds) once it completes the acquisition of MedReleaf.
The company is aggressively looking for ways to expand its global empire and currently has operations and/or sales and participants in Germany, Denmark, Italy, and Australia.
To that end, on September 12, Aurora announced it acquired Agropro UAB, Europe’s largest producer, processor, and supplier of certified organic hemp and hemp products. (Source: “Aurora Cannabis Acquires Europe’s Largest Organic Hemp Company,” Cision, September 12, 2018.)
Agropro currently has 1,600 hectares (4,000 acres) under contract, potentially yielding more than 1,000,000 kilograms (2,204,622 pounds) of organic hemp with additional contracts available to expand to more than 3,000 hectares across Lithuania, Latvia, Estonia, and Poland.
Up next on this marijuana penny stocks list is Hexo Corp, which produces and distributes medical marijuana products. One of Canada’s lowest-cost producers, Hexo is rapidly increasing its production capacity, ensuring it can be a leader in the use of recreational marijuana.
The company currently operates with over 310,000 square feet of production capacity with construction on another 1,000,000-square-foot expansion set to be complete by the end of 2018.
On September 10, 2018, Hexo announced it acquired an interest in a 2,004,000-square-foot facility in Belleville, Ontario. This is the company’s first facility established outside of its native Quebec. (Source: “HEXO acquires interest in 2M sq. ft. facility in Belleville, Ontario to create R&D and manufacturing centre of excellence,” GlobeNewswire, September 10, 2018.)
Green Organic Dutchman Holdings Ltd
Mississauga, Ontario-based Green Organic Dutchman Holdings Ltd (TGOD) is a research development marijuana penny stock licensed under the Access to Cannabis for Medical Purposes Regulations (ACMPR) to cultivate medical cannabis.
The company grows high-quality, organic cannabis with a funded capacity of 170,000 kilograms (374,785 pounds) and is building 1,382,000 square feet of cultivation facilities in Ontario, Quebec, and Jamaica.
TGOD has developed a strategic partnership with Aurora Cannabis Inc with Aurora investing approximately CA$78.1 million (US$60.11 million) for a 20% off-take agreement on Canadian production. The company has raised approximately CA$350.0 million (US$270.0 million) and has over 20,000 shareholders.
On September 12, 2018, TGOD announced the launch of its premium, certified organic cannabis brand. This is, the company says, a pivotal step for it becoming the largest organic cannabis brand in the world. (Source: “The Green Organic Dutchman Launches Its Premier Certified Organic Cannabis Brand,” The Green Organic Dutchman Holdings Ltd, September 12, 2018.)
For investors who don’t want to get their hands dirty, there’s CannaRoyalty Corp, a private equity firm that specializes in acquisitions in the U.S. and Canada. The marijuana penny stock invests in the legal cannabis sector in exchange for royalty on their revenue. The amount of capital provided determines the percentage royalty charged and the number of years for which the royalty is paid. (Source: “About Us,” CannaRoyalty Corp, last accessed September 12, 2018.)
CannaRoyalty Corp focuses on three segments of the cannabis market: research and intellectual property, consumer brands, and industry infrastructure.
Its holdings include Anandia Labs, Bodhi Research, Bas Research, GreenRock Botanicals, DermaLeaf Skincare, Soul Sugar Kitchen, Best Buds Animal Health, Freya Intimacy Spray, and others.
Liberty Health Sciences Inc
Toronto-based Liberty Health Sciences Inc is engaged in the production and distribution of medical marijuana in the growing U.S. cannabis market. Right now, however, it primarily serves Florida. (Source: “Investor Relations,” Liberty Health Sciences Inc, last accessed September 12, 2018.)
It has a strategic partnership with Veterans Cannabis Project to support various research projects focused on the treatment of service-related trauma with cannabis-derived products.
It has also entered into an exclusive Management Agreement with Chestnut Hill Tree Farm LLC, a Florida nursery authorized by the Florida Department of Health, Office of Compassionate Use, as a dispensing organization of medical cannabis to patients in need in the State of Florida.
Chestnut holds one of eight licenses granted in Florida, which currently represents approximately 14% of the U.S. medical cannabis market with a total estimated market size at maturity of over $1.1 billion.
MPX Bioceutical Corp
MPX Bioceutical Corp produces medical marijuana and pharma-grade products in North America.
The company’s foundation is built on its profitable operations in Arizona, where it has three fully operational Health for Life and The Holistic Center dispensaries. In Nevada, it operates GreenMart, a fully licensed cultivation production and wholesale cannabis business. (Source: “Overview,” MPX Bioceutical Corp, last accessed September 12, 2018.)
In Massachusetts, the construction of the first of three dispensaries is underway as is construction of a cultivation and processing facility in Falls Rivers. MPX is also managing three dispensaries and one production facility in Maryland (which are not yet operational) and has options to acquire each facility.
MPX has also applied for a license in Canada, with plans to operate a 74,343-square-foot cultivation and production facility in Owen Sound, Ontario.
Supreme Cannabis Company Inc
Last on our list of marijuana penny stocks is Supreme Cannabis Company Inc. It engages in the production of medical cannabis in Canada and is preparing for the legalization of recreational marijuana. The company’s portfolio includes its wholly-owned subsidiary and flagship brand, 7ACRES.
7ACRES is a federally licensed cannabis producer operating a 342,000-square-foot facility on the shores of Lake Huron in Kincardine, Ontario.
7ACRES has provincial supply agreements with the provinces of Ontario, British Columbia, Alberta, Manitoba, Nova Scotia, and Prince Edward Island.
The company’s growing portfolio also includes an equity investment and long-term global distribution partnership with Lesotho-based Medigrow for the exporting of medical-grade cannabis oil.
On September 10, Supreme announced that 7ACRES entered into a supply agreement to provide dried cannabis to Tilray Canada Ltd., a subsidiary of Tilray Inc. The value of this initial supply agreement is estimated to be in excess of CA$2.0 million (US$1.5 million). (Source: “Supreme Cannabis Signs Cannabis Supply Agreement With Tilray,” Supreme Cannabis Company Inc, September 10, 2018.)
Marijuana stocks, both recreational and medicinal, are on a tear, mainly because the use of recreational marijuana will be legal in Canada on October 17, 2018.
An industry that was essentially non-existent five-years ago is now on virtually everyone’s radar. And for good reason; many of the big players in the marijuana industry have seen their share prices double in recent weeks.
But while much of the focus is on the top four recreational marijuana stocks, a large number of undervalued—some would say cheap—medical and recreational marijuana penny stocks like the ones listed above are worth a second, and even first, look.