Are Pot Stocks a Good Long-Term Investment?
When it comes to identifying the best marijuana stocks, I’ve always held to the belief that long-term investments are the way to go.
While there is a vast potential to make strong gains in shorter-term plays, I believe that the safest and surest bet in the marijuana stock market is the long game.
Before we delve into the specifics, I’d like to lay out what I believe separates a long-term marijuana stock play from a short-term one.
For me, the best long-term marijuana stocks are those that take an international approach.
You see, the reason for the correction in the legal marijuana industry that we’ve experienced in 2018 has to do with overvaluation.
With so much hype and interest surrounding the industry, investors were eager to pour in capital. That led to huge surges in stock prices at the end of 2017.
The result is that you had an emergent industry with many companies hosting huge market caps, despite the numbers not quite evening out.
The perfect example is the comparison of the top Canada pot stocks’ market caps versus how much the Canadian market is likely to support when that country legalizes recreational marijuana.
Much of the industry hype has been spurred on by the upcoming Canadian marijuana legalization. But that’s a myopic strategy.
While Canada will open the door to a huge new market, it will not sustain the industry long-term. That’s why the companies that have begun expanding internationally while also maintaining a strong presence in Canada are the best long-term marijuana stocks.
Consider that a country like Germany has well over double the population of Canada and—should Germany legalize recreational marijuana—it would instantly become the largest legal market for the drug.
While the future of U.S. marijuana legalization is still up in the air, countries like Germany (and Italy, Australia, Spain, etc.) have begun making moves toward laxer laws regarding cannabis.
As such, there is huge untapped potential for legal marijuana, with the only consideration being timing.
It’s becoming more and more apparent that marijuana legalization is going to come to most western countries eventually. “Eventually” being the key word.
Long-term projections for the industry are very strong, no matter what the doomsayers predict in the short run.
So for those planning to make long-term cannabis investments, look for companies that have taken on an international focus. They will be in a position to not only exploit Canadian legalization, but also the next domino to fall, whether that’s Germany, the U.S., or another huge, untapped market.
Companies that are simply trying to parlay the hype of Canadian legalization into growth are the ones I would be more wary of. The numbers reveal that Canada alone cannot support the valuations we’re seeing from these companies.
Best Long-Term Marijuana Stocks
At the moment, the best long-term marijuana stocks are the Canada pot stocks.
That’s because the U.S. companies, some of which cater to markets far larger than Canada, are not publicly traded and have to contend with the ambiguous legal position they hold in the U.S.
There are two companies that I believe are the best situated to take advantage of the marijuana market long-term.
The first is Canopy Growth Corp (OTCMKTS:TWMJF, TSE:WEED).
Canopy Growth stock is the industry leader, with a market cap of over $4.0 billion.
It has long been at the head of the industry, and it has a good deal more resilience to the volatility of the market, due to its size.
Usually the trade-off for buying into the larger players is that growth tends to be slower, but that has not been the case with Canopy Growth stock.
The company has shot up 84% over the past six months, and that includes during the industry-wide downturn that has taken effect in 2018.
Quite simply, Canopy Growth stock offers the best of both worlds, with strong potential for gains while also being less prone to massive swings.
The company has taken on an international focus, with expansions planned in Australia and Europe.
Chart courtesy of StockCharts.com
Another of my best long-term marijuana stocks is Aurora Cannabis Inc (OTCMKTS:ACBFF, TSE:ACB).
This is a company I’ve been high on for a while.
To prove my thesis on the long-term viability of these stocks, consider that, since the time I began recommending Aurora Cannabis stock, the company has climbed well over 300%.
That’s a massive return on investment in a pretty short period of time. I only expect those gains to grow in the next few years.
Aurora Cannabis stock, like Canopy, has an international focus.
In fact, Aurora has confirmed that it was in preliminary discussions to acquire Cann Group Limited, the first Australian company licensed to conduct research on cannabis—as well as cultivate medical cannabis.
Aurora already holds a 22.9% stake in Cann Group, and it has been very aggressive in acquiring other companies in late 2017 and 2018. (Source: “Aurora Cannabis Set to Challenge Canopy Growth in Australia?,” SmallCapPower, May 2, 2018.)
This may even lead to increased competition between Canopy and Aurora because Canopy has long sought to establish a foothold in Australia.
That’s precisely what makes these companies some of the best long-term marijuana stocks: ambition, strong business sense, established foundations, and an eye toward the future of the market.
The best long-term marijuana stocks have the potential to be some of the greatest performers in your portfolio.
The key is to be able to wait out the volatile swings that the emergent industry will have to struggle with in the first few years. When the international markets eventually open up, the companies that are established early will be the best situated to take advantage of the opportunities.