Top Canadian Marijuana Stocks for 2018
In case you needed more evidence of just how wild the marijuana industry can be, Monday was quite a ride for some of the biggest weed companies. While many investors were concerned about marijuana stocks crashing since mid-January, some of the most well-known companies started off the day dropping value by as much as five percent.
But by late morning, that had all changed, with Aurora Cannabis Inc (OTCMKTS:ACBFF), (TSE:ACB) making a double-digit swing from being down about four percent to being up by seven percent at day’s end, perfectly encapsulating the volatility of the market.
And while the day-to-day moves can be nerve-racking at times, when you get down the to the numbers, it’s easy to see why so many investors are big on pot. Marijuana sales in 2017, for instance, offer a glimpse of the true potential that this budding industry contains.
With Canada’s marijuana legalization right around the corner (currently slated to be passed sometime this summer), now is as good a time as ever to evaluate the numbers in the run-up to legalization, and see which companies are truly poised to take advantage.
The estimated size of the cannabis-producing industry in Canada was $3.0 billion in 2017, according to Statistics Canada. This is far larger than both the tobacco industry and the brewery industry, mostly as a result of alcohol and tobacco being largely imported. (“Cannabis Economic Account, 1961 to 2017,” Statistics Canada, January 25, 2018.)
About 4.9 million Canadians aged 15 to 64 spent an estimated $5.7 billion on the drug last year, which amounts to about a quarter of the alcohol market and about a third of the tobacco market. It’s important to note that these are all pre-legalization numbers. Expect marijuana sales to catapult when the drug is totally free of restrictions.
Consider this: 45- to 64-year-olds accounted for only about four percent of household spending on marijuana. In 2017, that number shot up to 23%.
And consider that law-breaking, even if smoking marijuana in Canada barely registers as a minor offence anymore, is usually a young person’s game. Mature people tend to prefer not to sneak around. This means that this untapped market of potential marijuana users is about to be opened wide come legalization.
When you look at the marijuana sales numbers, as well as the potential for growth in the market that legalization will naturally prompt, it helps explain why the industry is so frothy right now.
Investors want to get in on the ground floor before marijuana companies start truly fulfilling their potential.
As such, it’s important to identify which companies are most likely to be truly prepared for the coming of legalization. Which is to say, which companies have substance behind them versus which ones are just profiting from the hype.
Some of the companies I most believe in are Aurora, Canopy Growth Corp (OTCMKTS:TWMJF), (TSE:WEED) and Aphria Inc (OTCMKTS:APHQF), (TSE:APH).
These are some of the largest players in the market, the heaviest hitters, so they are some of the most reliable names out there.
All three companies have the proper infrastructure, connections, and personnel in place to be ready when Canadian marijuana legalization hits.
While all three companies are currently experiencing a slump in the market right now, that follows several months culminating in triple-digit gains for each of them. Obviously, you don’t want to see these marijuana stocks lose value, but dropping 20–30% after gaining hundreds of percentage points isn’t too bad a trade-off. Consider the slump a speeding ticket, a result of massive growth that will often encounter these types of hiccups.
But these companies have all been featured in Profit Confidential for a reason. They are impressive organizations with staying power, strength in the market, and the ability to grow to even newer heights.
They offer a good balance of stability and dependability while still allowing investors to take advantage of volatility and make those double- or triple-digit gains.
I fully expect each of these three stocks to recover to their January highs by late fall or early summer.
Companies by Market Share
Much of the Canadian marijuana stock news is centered on legalization, and rightfully so. But a very necessary ancillary discussion taking place is whether these companies have actual substance and value to them, or are simply taking advantage of hype.
As such, many have pointed out what they believe to be overvalued marijuana companies in the market. The belief that these companies are overvalued played a large part in the recent slump, prompting minor marijuana panic selling in January.
But, as you can see, it has since stabilized and, if Monday was any indication, things may be getting back on track for marijuana stocks sooner than I had anticipated.
The companies listed below have the market cap to weather these types of storms.
Market Cap (Billions)
|Canopy Growth Corp||OTCMKTS:TWMJF||
Aurora Cannabis Inc
While it may not be the best of times in the marijuana market, now is not the time to panic. Slumps like this are a natural occurrence, and are a direct result of the massive gains made in the months leading up to the drop.
Companies with strong market shares like the ones mentioned above are the most able to take these hits in stride, which makes them ideal stock picks for long-term investors.