Canada Recreational Marijuana Legalization
It has almost arrived.
In Canada, recreational marijuana legalization will officially hit on October 17. With marijuana retail sales projected in the billions of dollars, the industry is expected to see massive growth in the next few months.
Consider the current marijuana market value.
Just last year, roughly 4.9 million Canadians (well over one in 10 of that country’s population) aged 15 to 64 spent an estimated CA$5.7 billion on cannabis. That equates to about CA$1,200 per cannabis consumer that year. (Source: “Cannabis Economic Account, 1961 to 2017,” Statistics Canada, January 25, 2018.)
While a large portion of that revenue was generated via the black market, we’ll still likely see legal cannabis sales reaching 10 figures.
Canada’s recreational marijuana legalization represents the biggest step forward for the sector to date.
While it has not been an easy journey—filled with political jockeying, delays, policy back-and-forths—the process is likely going to yield one of the strongest boom times for marijuana.
Considering how strong the pot market has been in the past few years, that’s saying a lot.
The projected multi-billion-dollar industry is going to have to face one further challenge, however: marijuana market capacity.
While the cannabis sector is currently in a fervor over the good news about legalization—with many pot stocks surging by double-digits last week—there are still concerns about overvaluation.
Those concerns stem from the fact that, while there is a lot of money to be made in the cannabis market, there are many companies currently crowding said market.
The market caps of the biggest marijuana companies are frankly unjustifiable when looking at Canada’s recreational marijuana market alone.
Instead, in order to understand why the companies are receiving such high valuations, you need to consider the global marijuana market.
Marijuana stock surges will only be sustained by the Canadian market alone for so long. Eventually, another shoe has to drop in order to keep growth high.
But for now, with Canada’s recreational marijuana legalization on the way and strong marijuana retail sales projections, it’s a good time to be a pot stock bull—even if troubled times may rest ahead, should other countries lag behind Canada’s example.
Best Marijuana Stocks
Now I’m going to round up three of the best marijuana stocks in the current market.
There’s a number of factors that make these particular marijuana stocks so enticing. I’ll describe each stock and explain which strengths it has to offer that its competitors may not.
Canopy Growth Stock
Canopy Growth Corp (NYSE:CGC) is the undisputed heavyweight champion of the marijuana industry.
While other companies are gunning for the leading spot in the cannabis sector, there’s really no other pot stock that can compare to CGC stock at the moment.
Canopy Growth currently maintains the highest market cap in the marijuana industry while also seeing massive growth. It also isn’t plagued by the volatility that has dragged down rival stocks.
Chart courtesy of StockCharts.com
CGC stock has jumped by nearly 45% since the beginning of this year. That figure is made all the more impressive when you consider that the stock did all this during one of the harshest corrections we’ve seen in the marijuana industry.
Canopy Growth stock was not only able to stave off the declines that harmed so many rivals, but it was able to make significant gains in that time period.
Larger companies are often subject to less volatility, but that usually cuts both ways; they have higher floors but also lower ceilings.
That hasn’t been the case for CGC stock, however.
Canopy Growth has angled itself internationally to take advantage of emerging markets. This sets up the company as one of the best situated to not only profit in the short term, but also in the long term.
Aurora Cannabis Stock
One of CGC stock’s chief rivals, Aurora Cannabis Inc (OTCMKTS:ACBFF, TSE:ACB) is desperate to become the top dog in the marijuana sector. Perhaps too desperate, skeptics would argue, but there is a lot of potential in Aurora Cannabis stock.
In terms of marijuana production capacity, Aurora Cannabis is among the most powerful companies in the market.
After a series of high-profile acquisitions, culminating in the $3.2-billion buyout of MedReleaf Corp (OTCMKTS:MEDFF, TSE:LEAF)—the largest acquisition yet in the marijuana industry—Aurora Cannabis is looking to assert itself as the top company in the sector by market cap.
Chart courtesy of StockCharts.com
While the MedReleaf deal is still being finalized, after its completion, Aurora will likely assume that leading spot.
While some investors had trouble with that hefty price tag, the major benefit of Aurora’s aggressive acquisitions in 2018 is that the company is going to have a robust marijuana production capacity.
Top Stocks by Marijuana Supply
|Company Name||Production*||Stock Ticker|
|Canopy Growth Corp||7,961 kg||NYSE:CGC|
|OrganiGram Holdings Inc||2,691 kg||OTCMKTS:OGRMF|
|Aurora Cannabis Inc||1,204 kg||OTCMKTS:ACBFF|
*Production figures taken from the most recent financial filings. They do not include projections for Aurora’s capacity following its MedReleaf acquisition
The company was already among the largest producers in the world. Its acquisitions have only bolstered Aurora’s already impressive output. That means, as the global market expands, Aurora will likely be one of the companies that’s best situated to provide the supply that these new markets need.
Aurora Cannabis stock was hit hard by the correction, but the recent surge brought on by Canada’s recreational marijuana legalization announcement has put the company back in the positive for the first time since April.
One of the best performers, OrganiGram Holdings Inc (OTCMKTS:OGRMF, CVE:OGI) is one of the most intriguing companies in the marijuana sector.
Up about 33% on the year, OrganiGram stock benefits from having one of the better price-earnings (P/E) ratios in the cannabis industry.
Chart courtesy of StockCharts.com
Considering how the charges of overvaluation are levied freely by skeptics, having a strong P/E ratio helps deter that label from falling on OrganiGram stock and, therefore, positions it as being correctly or, ideally, undervalued.
OrganiGram also benefits from being the smallest addition to our best marijuana stocks list, meaning that the company has higher potential than the other two stocks on this list in terms of immediate growth, at least in the short term.
With Canadian marijuana legalization on the way, marijuana stocks are going to see massive growth across the board.
While a chunk of that growth will be stymied by corrections as investors grow bold and skittish by equal measure, ultimately the industry as a whole is going to benefit immensely from this move.
The companies listed above have the production capacity, market placement, and appropriate partnerships in place to see them benefit from marijuana legalization both in the near term and further down the road.