The burgeoning cannabis market, also known as medical marijuana and sometimes cloaked as CBD to evade Federal Law and SEC restrictions in the US, saw a revenue of over $51 billion in 2023 and a consistent growth rate of 14.95% projected until 2028 (Statista Market Insights). Cannabis, like gold pan handlers in the West or investing in Bitcoin, sounds scary but an alluring prospect for investors seeking portfolio diversification. How can you you navigate the dynamic world of cannabis stocks? Lesson #1: don’t invest in cannabis if you like to smoke. It will cloud your judgement.
Decoding Cannabis Stocks:
Investors in the cannabis sector can strategically choose to back medical, therapeutic, or recreational cannabis ventures. Those backing medical ventures listed with the FDA or Health Canada are more protected from restrictions that may be placed on banking or working between states and across borders. Cannabis is legal in Canada but not in all US States.
There are provisions for medical cannabis companies that work with the health authorities. It is also possible to make indirect investment opportunities arise by focusing on ancillary service and product providers rather than traditional growers and biotech companies. You could invest in hydroponic greenhouses or lighting companies, as an example. These companies may derive a majority of their business from cannabis growers, but they themselves are not cannabis companies.
Scotts Miracle-Gro (NASDAQ:SMG), for instance, is not a cannabis business per say, but they own cannabis businesses and have bought companies like General Hydroponics for its nutrient mixes it makes for cannabis growers through Hawthorne. With more than $2 billion in worldwide sales and more than 6,000 associates, The Scotts Miracle-Gro Company, through its wholly-owned subsidiary, The Scotts Company, LLC, is the world’s largest marketer of branded consumer products for lawn and garden care, with products for professional horticulture as well. They also own a lot of liability for distributing Roundup. So consider that. Remember the $10B settlement?
There are also tech companies that do not touch the cannabis in any part of the value chain, such as apps that help you monitor your health or which facilitate reviews and delivery.
Legal Landscape: With a majority of U.S. states legalizing recreational marijuana and an expanding embrace of medical cannabis across the nation in 2023, the cannabis market is gradually shedding regulatory barriers. However, investors are advised to stay vigilant about evolving governmental regulations for compliance.
Mastering the Art of Cannabis Stock Investment:
- Categorically, cannabis products fall into three segments: medical, recreational, and therapeutic. A thorough understanding of the projected revenue for each category is imperative for informed investment decisions.
- The universe of cannabis-focused companies is diverse, encompassing biotech firms specializing in cannabis extraction, ancillary service providers, and vertically integrated growers and retailers. Investors must carefully assess each category to tailor their investment strategy.
- Like any investment, cannabis stocks come with inherent risks, including legal uncertainties, market volatility, potential scams, pricing and taxation fluctuations, tax issues, lack of bank accounts or banks unwilling to support growers and dispensaries, and the dilution of shares. Investors are well-advised to meticulously weigh these risks before making investment decisions.
- Investors should conduct an exhaustive review of disclosure documents, official reports, and industry news provided by prospective companies. Crucial factors for consideration include the competency of the management team, financial stability, market performance, and competitive positioning. Look out for real IP in the form of patents, research at universities, research done as case studies which can be verified by a third party. Some companies are branding plays and have no IP at all. Snoop or Martha Stewart, for instance. These investments may be risky if a brand depends on the whim of a personality like Kanye West and his endorsements of Adidas.
- Pump and dump. Cannabis stocks in Canada and the US may be built on an existing company such as penny stocks. Investing in a penny stock might be risky if the cannabis company is operating on a pump and dump scheme. Pump and dump scams are a type of fraud where the criminals artificially inflate the price of a company’s stock through false and misleading statements and actions in order to sell their own cheaply purchased stock at a much higher price. See SEC risks here for medical marijuana specifically.
Strategically Positioning Your Cannabis Portfolio:
Investors seeking exposure to cannabis stocks can explore platforms that facilitate access to reputable companies. Creating a well-informed, diversified portfolio in this rapidly evolving sector requires due diligence and strategic decision-making. Investing in a cannabis company is no different than any other.
Does it have a great CEO?
Does it have its unique edge in the market?
How does it treat its employees?
What are its reserves?
Does it have a sustainability plan and outlook?
Is it a B Corp?
Ask the same question you would in any other investment.
Frequently Asked Questions about CBD and THC companies:
- Evaluating CBD Stocks: The viability of CBD stocks as a portfolio diversification tool hinges on various factors, including regulatory shifts and the financial performance of individual companies. Investors are urged to assess the legal landscape and consumer demand for cannabidiol. Companies in the US operating at CBD medical companies are usually using the CBD for branding because THC can still put them into legal troubles, even have search engines like Google remove their company from search results, it’s that uncertain. Positioning as a CBD company may be just a ruse. If they truly are a CBD company ook under the hood to be sure of what’s in their pipeline. CBD as a nutraceutical product has been considered by companies such as Coke.
- Dividends in Cannabis Stocks: Cannabis companies typically prioritize investment for expansion and research over dividend payouts, especially in their early growth phases. The cannabis market is still young providing amazing opportunities to gain along with painful risks.
- Assessing the Cannabis Market: While the cannabis market presents lucrative opportunities, the potential impact of regulatory uncertainties on industry growth necessitates thorough research and risk assessment before entering this dynamic market. This is especially true in the US. Cannabis is legal in Canada recreationally but Health Canada is harder to crack than the FDA if you are looking for regulatory advice. Canada’s medical doctors are flocking to medical cannabis which may explain the doctor shortage there.
- Anticipated to surpass $100 billion USD by 2030, or as little as $444 billion, the cannabis industry is just starting and poised for significant growth, making it an attractive prospect for investors compared to the estimated $51.27 billion in revenue in 2023.
Leading cannabis stocks on the NASDAQ
Canopy Growth (NASDAQ:CDG) has been expressing interest in the US market over an extended period. Back in 2019, the company revealed plans to acquire Acreage Holdings, a multi-state operator (MSO). However, the deal has yet to be finalized. In response, Canopy Growth recently introduced a special purpose vehicle, Canopy USA, to manage its US-based investments. Unfortunately, the Nasdaq has raised objections to this strategy. While Canopy Growth may consolidate its investments in various UScompanies, such as Wana and Acreage, these entities must technically remain distinct. Consequently, Canopy Growth cannot integrate their results into its own, and the company’s growth is still heavily dependent on the legalization of marijuana in the US.
Tilray Brands (NASADQ:TLRY) finds itself in a comparable situation after acquiring the senior convertible notes of MSO MedMen Enterprises. The expectation is that the two companies will eventually merge when it becomes permissible to do so. However, Tilray is not idly waiting for this to happen. The company has been actively diversifying its portfolio by entering the alcohol industry. In August, Tilray announced the acquisition of eight brands from Anheuser-Busch InBev, positioning itself as one of the largest craft brewers in the U.S. market. This strategic move not only broadens its business scope but also allows Tilray to expand its operations in the U.S. without solely relying on the marijuana sector.
SNDL (NASADQ: SNDL) has been pursuing expansion through acquisitions in recent years, with a primary focus on the Canadian market. In 2021, the company acquired Inner Spirit Holdings, a cannabis retailer, making SNDL one of the largest operators of pot shops in Canada. A year later, SNDL expanded its reach by acquiring Alcanna, an alcohol retailer with a majority stake in cannabis retailer Nova Cannabis. In January, SNDL further announced the acquisition of Valens, a cannabis extraction company. Acquisitions have played a pivotal role in SNDL’s remarkable growth, evident in the reported net sales of 712.2 million Canadian dollars ($525 million) last year, reflecting an astonishing 1,170% increase from the previous year.
An overview of cannabis stocks to consider. This isn’t a full list (and it never will because of the reasons we mentioned above) and includes only marijuana stocks with market caps of at least $200 million.
Marijuana Company Type | Marijuana Company Name | Market Capitalization |
---|---|---|
Cannabis growers and retailers | Curaleaf Holdings (OTC:CURLF) | $3.5 billion |
Cannabis growers and retailers | Trulieve Cannabis (OTC:TCNNF) | $1.65 billion |
Cannabis growers and retailers | Green Thumb Industries (OTC:GTBIF) | $2.3 billion |
Cannabis growers and retailers | Canopy Growth Corporation (NASDAQ:CGC) | $1.3 billion |
Cannabis growers and retailers | Tilray (NASDAQ:TLRY) | $2.0 billion |
Cannabis growers and retailers | Cresco Labs (OTC:CRLBF) | $751 million |
Cannabis growers and retailers | Cronos Group (NASDAQ:CRON) | $1.1 billion |
Cannabis growers and retailers | Aurora Cannabis (NASDAQ:ACB) | $324 million |
Cannabis growers and retailers | Sundial Growers (NASDAQ:SNDL) | $535 million |
Cannabis growers and retailers | Ayr Wellness (OTC:AYRW.F) | $122 million |
Cannabis growers and retailers | Jushi Holdings (OTC:JUSHF) | $257 million |
Cannabis growers and retailers | Planet 13 Holdings (OTC:PLNH.F) | $236 million |
Cannabis growers and retailers | Village Farms International (NASDAQ:VFF) | $559 million |
Cannabis growers and retailers | OrganiGram (NASDAQ:OGI) | $136 million |
Cannabis growers and retailers | HEXO (NASDAQ:HEXO) (TSX:HEXO) | $68 million |
Biotechnology companies | Jazz Pharmaceuticals (NASDAQ:JAZZ) | $9.7 billion |
Biotechnology companies | Cara Therapeutics (NASDAQ:CARA) | $604 million |
Ancillary providers | Scotts Miracle-Gro (NYSE:SMG) | $2.7 billion |
Ancillary providers | Innovative Industrial Properties (NYSE:IIPR) | $3.1 billion |
Ancillary providers | GrowGeneration (NASDAQ:GRWG) | $308 million |
Ancillary providers | WM Technology (NASDAQ:MAPS) | $181 million |
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