Best Marijuana Dispensary Stocks
“Undervalued marijuana stocks” is a bit of an oxymoron right now. The fact of the matter is, marijuana stocks are hot, leading many to think the sector is in a bubble. And investors are expected to send valuations even higher the closer we get to the legalization of recreational marijuana dispensaries in Canada on October 17, 2018.
This has made it that much harder to find the best marijuana dispensary stocks and top retail pot stocks. Despite being under the bright glare of a hydroponics spotlight, there are some amazing retail marijuana stocks out there that will shine brighter than others over the coming months and quarters.
Legalization of Recreational Marijuana
Our affable neighbors to the north are known for being laid back and polite. And now we know why. After years of puffing away in the shadows, Canadians will soon be able to spark it up in the daylight.
On October 17, 2018, Canada will make history, becoming the first industrialized country in the world to legalize the recreational use of marijuana. That will be a major boon to marijuana stocks.
The legal marijuana market is expected to grow at a compound annual growth rate (CAGR) of 34.6% over the next seven years. Another study has the legal marijuana industry expanding at a CAGR of 19.75% over the next 13 years. (Source: “Legal Marijuana Market Worth $146.4 Billion by 2025 | CAGR: 34.6%,” Grand View Research, last accessed September 6, 2018.)
No matter how you look at it, the legal marijuana industry is going to be one of the fastest-growing areas of the global economy.
It’s not just Canada that is helping fuel the recreational marijuana dispensary market. A number of other countries, including Australia, Israel, and Germany, and a growing number of U.S. states are also embracing recreational and medical dispensary marijuana.
But because Canada legalized medical marijuana way back in 2001, the industry has developed a lot more than in other countries. Especially when compared to the U.S. where different states have different rules and laws, making it virtually impossible to standardize anything.
And while many closeted recreational pot users in the U.S. are hoping the legalization of marijuana in Canada will lead to changes in the U.S., the future doesn’t exactly look any brighter.
Attorney General Jeff Sessions overturned an Obama-era law that protected states wanting to liberalize legal marijuana laws. Suffice it to say that there are a large number of marijuana users in the U.S. who would not be saddened to see Sessions leave office…whether on his own or by force.
Marijuana Supply Partnerships
The October 17 legalization of recreational marijuana dispensaries will be a banner day for weed stocks. But the best performers in an already crowded sector will be those with developed operations, production, and supply partnerships.
Investing in a marijuana company that has a three-million-acre property and no greenhouses, or 700 million pounds of marijuana but no one to sell it to, or is limited to the Canadian market doesn’t make much sense.
When looking at marijuana stocks, make sure to zero in on those that have a viable infrastructure or have announced supply deals or partnerships. Also, look for marijuana stocks that are thinking outside of the small weed market that is Canada and focusing on global expansion.
The Great White North may be the first industrialized country to legalize the recreational use of marijuana, but it’s safe to say that other nations are watching to see how it plays out in Canada.
Case in point, Toronto-based Cronos Group Inc (NASDAQ:CRON), one of the largest publicly traded medical marijuana companies, recently announced a partnership deal with Boston-based Ginkgo Bioworks Inc. Under the $122.0-million deal, Cronos will work with Ginkgo Bioworks to produce genetically cultured cannabinoids. (Source: “A Landmark Partnership To Produce Cultured Cannabinoids,” Cronos Group Inc, September 4, 2018.)
Canopy Growth Corp (NYSE:CGC), meanwhile, harvested approximately 10,000 kilograms of marijuana and has more than 19,720 kilograms of dry cannabis, around 14,900 liters of cannabis oil, and 1,055 kilograms of softgel capsules in its inventory. (Source: “Canopy Growth Corporation Reports First Quarter Fiscal 2019 Financial Results,” Canopy Growth Corp, August 14, 2018.)
Canopy has signed a number of multi-year deals resulting in the sale of over 67,000 kilograms of weed, or 36% of its total capacity. The rest will be sold through storefronts.
The company has made moves into the German and South American markets. It also announced in August a $4.0-billion deal with Constellation Brands, Inc. (NYSE:STZ), the name behind the “Corona” and “Modelo” beer brands, to build or acquire key assets in nearly 30 countries. (Source: “Constellation Brands to Invest $5 Billion CAD ($4 Billion USD) in Canopy Growth to Establish Transformative Global Position and Alignment,” Canopy Growth Corp, August 15, 2018.)
National Access Cannabis Corp (OTCMKTS:NACNF, CVE:META), a network of medical marijuana dispensary clinics, and its supply partner, The Second Cup Ltd (TSE:SCU), a Canadian coffee chain, announced plans to convert some Second Cup locations into Meta Cannabis Supply Co.-branded recreational pot dispensaries. Second Cup has more than 130 locations across Ontario. (Source: “National Access Cannabis and Second Cup announce updated plans to build retail META stores across Ontario,” Second Cup, August 20, 2018.)
Are Marijuana Stocks in a Bubble?
With Canada set to become the first industrialized country in the world to legalize recreational marijuana, investors are rushing in to capitalize on an industry expected to add billions of dollars in annual revenue.
But has the run-up to the October 17 legalization of pot in Canada sent marijuana shares high a little too prematurely? Is the anticipation of increased sales already baked into marijuana share prices?
Some think marijuana stocks are in a bubble.
The North American Marijuana Index, which tracks the largest growers and players in the North American weed market, is up 187% over the last year and roughly 340% over the last two years. (Source: “North American Marijuana Index,” The Marijuana Index, September 5, 2018.)
Investors, afraid of missing out on the next big thing, are piling into marijuana stocks and pushing valuations to nosebleed levels. Aurora Cannabis Inc (OTCMKTS:ACBFF, TSE:ACB) has a forward price-to-earnings (P/E) ratio of 145 and Canopy Growth has a forward P/E ratio of 251.
While those valuations are certainly lofty—and some will say difficult to maintain—the real test will come in the fourth quarter, when recreational weed becomes legal. Another test will come in 2019, when cannabis companies need to prove that their production numbers and sales projections are in the right ballpark.
Investors are a forgiving bunch and will give marijuana stocks time to prove themselves. If history is any indicator, investors won’t run for the hills if their numbers are off in the early days/years. The industry needs time to mature and investors can, if profit projections are juicy enough, be patient.
Outside of the anticipation for Aurora and Canopy Growth, valuations for other major marijuana stocks are actually pretty reasonable. While it may be tempting, you can’t judge an entire sector on the two largest companies.
At the very least, investors need to wait and see how the industry does once it actually becomes legal.
Top Retail Pot Stocks
Recreational marijuana will not be legal in the U.S for quite some time. That does not mean that investors cannot get a piece of the action; Canadian marijuana stocks trade in the U.S. in the over-the-counter (OTC) markets. Through some brokers, you can even buy directly from the TSE, the TSE Venture, and the Canadian Securities Exchange.
Because the industry is still in its infancy and marijuana is considered a “sin stock,” many recreational and medical marijuana dispensary stocks are considered penny stocks. So investors certainly need to do their due diligence…just like they would with any other stock.
Those interested in the top retail marijuana and hemp-focused stocks expected to benefit from the legalization of pot in Canada, and eventual legalization in other countries, should consider researching the following companies.
|Company Name||Stock Ticker|
|Canopy Growth Corp||NYSE:CGC|
|Aurora Cannabis Inc||OTCMKTS:ACBFF, TSE:ACB|
|Cronos Group Inc||NASDAQ:CRON|
|Aphria Inc||OTCMKTS:APHQF, TSE:APH|
|CannTrust Holdings Inc||OTCMKTS:CNTTF, TSE:TRST|
|Green Organic Dutchman Holdings Ltd||OTCMKTS: TGODF, TSE:TGOD|
|OrganiGram Holdings Inc||OTCMKTS:OGRMF, CVE:OGI|
|CannaRoyalty Corp||OTCMKTS:CNNRF, CSE:CRZ|
|MedMen Enterprises Inc||OTCMKTS:MMNFF, CNSX:MMEN|
|Friday Night Inc||OTCMKTS:TGIFF, CNSX:TGIF|
After a quiet few weeks of trading in August, the marijuana sector took off. In fact, most of the heavy hitters have posted solid gains since mid-August, fueled in large part by news that Constellation Brands was increasing its stake in Canopy Growth.
The multi-billion-dollar investment was seen as further proof that the marijuana industry is going to be big in Canada, the U.S., and around the world, including in countries like Australia and Germany, which appear to be following Canada’s lead.
Chances are good that retail marijuana stocks are going to remain hot in the lead-up to the October 17 legalization of recreational marijuana in Canada. After that, it’s up to recreational marijuana stocks to prove their mettle.
In the face of short-term volatility, it would behoove investors to be selective when looking for buying opportunities. It’s also important to know your pain threshold; there’s no shame in taking profits.
Regardless of what happens in the short to medium term, with market forecasts of a $200.0-billion-a-year industry, cannabis is here to stay.