Pot Stocks for Long-Term Investors
For many investors, the best marijuana stocks are the ones that make the fastest gains in the shortest time. In this day and age, it’s not unusual to see weed stocks making double-digit moves in a single trading session. But can investors also own pot stocks for the long term?
I believe the answer is yes.
Of course, it cannot be denied that there is a lot of hype surrounding marijuana stocks right now. And valuations seem to be bloated compared to almost every other industry. The thing is, though, some of the solid weed stocks have sustainable business models in place.
People have been using cannabis as a medicine for a long time. And following the October 17 legalization of recreational marijuana in Canada, the pot market is set to grow at an unprecedented pace.
Companies that can capitalize on this rapidly expanding industry are expected to deliver growing profits, and shareholders could be rewarded in the long run.
Why Are Pot Stocks Crashing Now?
After producing some of the highest-flying tickers in the stock market, the marijuana industry is now experiencing a major pullback.
On October 22, the ETFMG Alternative Harvest ETF (NYSEARCA:MJ)—the biggest marijuana exchange-traded fund (ETF) in the U.S.—plunged more than nine percent. In the past month, the ETF lost over 16% of its value.
The fund has 39 holdings, including some of the hottest tickers in the legal cannabis sector like Tilray Inc (NASDAQ:TLRY) and Canopy Growth Corp (NYSE:CGC).
A correction in a stock is defined as a drop of at least 10% from its recent high.
So, if your question is “Is the pot market in a correction?” the answer is “Yes” for many cannabis stocks. For instance, Tilray stock tumbled 21.3% over the last five trading sessions, while Canopy Growth stock lost 20.7% of its value during that period.
One of the reasons for the marijuana stock correction is the pullback in the overall stock market. In the past month, the S&P 500 dropped 7.3%, the Dow Jones Industrial Average slipped almost six percent, and the Nasdaq Composite fell more than nine percent.
It’s hard for a stock to do well—regardless of which industry it is in—when most market participants are turning bearish.
When the market enters panic mode, there’s a tendency for investors to first sell the stocks that had gone up the most. Since marijuana stocks were some of the biggest gainers earlier this year, it’s no surprise that they are taking a huge hit during the current market-wide sell-off. The bloated valuations in the cannabis industry only made things more dramatic.
At the same time, there was likely some “buy the rumor, sell the news” activity going on with weed stocks. Many companies in the industry had huge bull runs in anticipation of Canada legalizing recreational marijuana. But when the October 17 legalization arrived, cannabis stocks started experiencing a sell-off.
Marijuana Stocks to Consider for the Long Term
The latest marijuana market crash isn’t the end of the world. Thanks to this correction, valuations look less bloated. For many marijuana companies, the drop in their share prices did not stop them from growing their business.
For those who still have faith in the industry, here are three weed stocks worth considering for the long term.
List of 3 Marijuana Stocks
|Company Name||Stock Exchange||Ticker Symbol|
|Canopy Growth Corp||NYSE||CGC|
|Youngevity International Inc||NASDAQ||YGYI|
1. Canopy Growth Corp
In my opinion, you can’t have a discussion of cannabis stocks without mentioning Canopy Growth Corp. The company is one of the earliest movers in the industry, and now offers a diversified brand portfolio and curated cannabis products in dried, oil, and capsule form.
Commanding a market cap of more than $9.0 billion, Canopy Growth is one of the biggest names in the marijuana industry. It’s known for having some of the most popular brands, such as “Tweed.”
Headquartered in Smiths Falls, Ontario, Canada, Canopy Growth has a whopping 4.3 million square feet of licensed growing space.
The fact that Constellation Brands, Inc. (NYSE:STZ)—the maker of “Corona” and other popular alcoholic beverages—recently boosted its stake in Canopy Growth to 38% is the latest sign of strength for the weed company. CGC’s partnership with the prominent alcohol maker could bring some serious collaboration opportunities.
Canopy Growth has operations in 12 countries across five continents. For long-term investors, the growth potential of the cannabis industry internationally should not be ignored.
2. Aphria Inc
Aphria Inc (OTCMKTS:APHQF, TSE:APH) is another marijuana company based in Canada. U.S. investors can already purchase the stock over the counter (OTC), but Aphria has also filed for a listing on the New York Stock Exchange (NYSE). Once completed, that NYSE listing will likely bring more liquidity and exposure to the company.
Aphria brands itself as a low-cost producer of pharmaceutical-grade cannabis at scale. Notably, the company has entered into a supply agreement with Shoppers Drug Mart Corporation, the largest pharmacy chain in Canada.
At the same time, Aphria has built strategic partnerships around the globe, with a presence in more than 10 countries on five continents. If the company can keep growing its business while maintaining its low-cost advantage, it could deliver oversized returns for shareholders.
3. Youngevity International Inc
Compared to the previous two marijuana stocks, Youngevity International Inc (NASDAQ:YGYI) is a very different player. Not only is it much smaller (it has a market cap of around $166.0 million), but it is also not a weed company in the traditional sense.
Youngevity is a lifestyle company that has been around since 1996, but recently the company announced its entrance into the fast-growing market of cannabidiol (CBD).
For those not in the know, CBD is a substance found in cannabis. By itself, CBD does not produce a “high” or psychoactive effect. The substance, however, can treat pain and anxiety.
Back in August, Youngevity introduced a new product line with three proprietary blends of hemp-derived cannabinoid products. Earlier this month, the company added two CBD-infused beverages to the lineup. (Source: “Youngevity Announces the Release of Two New Hemp-derived Cannabidiol Products Which Leverages YGYI’s Y-DR8+ Beverage Technology,” Youngevity International Inc, October 4, 2018.)
Entering the CBD market is a big deal for Youngevity, but I like the company for the long term because it already has an established business in place. In the second quarter of 2018, Youngevity’s revenue grew 6.6% year-over-year to $44.3 million. (Source: “Youngevity International Announces Second Quarter 2018 Results,” Youngevity International Inc, August 14, 2018.)
After shooting through the roof earlier on, many marijuana stocks are now experiencing a serious pullback.
For investors willing to bet on the cannabis industry for the long haul, however, the three companies discussed above are a good starting point for research.