As marijuana becomes increasingly legal in both the U.S. and Canada, it makes sense for growth-oriented investors to pay attention to marijuana stocks.
Up in Canada, in fact, the medical marijuana market has been gaining traction since 2001, with national laws generally more lenient than provincial laws (unlike in the U.S.). As of the end of 2016, there are 36 authorized producers (typically growers) in Canada and over 100,000 registered patients. But as the U.S. market grows increasingly legal, there’s little doubt that the industry will boom.
Some analysts see a $6 billion market in legal marijuana in the U.S. by 2021, as current users switch from underground to legal sources, with some alarmists predicting a supply shortage as legalization kicks in, with resulting price spikes. But others are more sanguine, reasoning that if legal prices spike, users will continue to buy from underground sources and/or the supply will quickly grow to meet demand.
The bottom line is, no one knows exactly how the industry will evolve.
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Furthermore, investing in marijuana stocks right now reminds me a bit of investing in China, in that the rules can be changed anytime by politicians. For example, here in Massachusetts, citizens voted in November to legalize marijuana, approving a bill that would see legal stores opened by January 2018. But in the quiet period between Christmas and New Year’s—with no public notice—half a dozen legislators quietly passed a measure to delay the openings for six months, until July 2018. And our anti-marijuana governor signed it.
Nevertheless, the trend toward legalization is real, and the opportunities for investors are growing. However, there are real risks with marijuana stocks.
The Risk of Investing in Low-Priced Stocks
Most marijuana stocks are low-priced, and low-priced stocks tend to be riskier, for several common reasons. In the case of marijuana stocks, it’s because most of the businesses are young, have little or no institutional sponsorship, have little or no revenue, and in many cases, are thinly traded. Every one of these factors raises the risk profile of these stocks. (A very rough rule of thumb is that the lower the price, the bigger the risk.)
On the other hand, if you get on board one of the companies early and it becomes one of the leaders of the industry years down the road, the profits could be huge—and that’s why the industry is worth a look, even at this early stage.
So, here we go, with profiles of 15 marijuana stocks. I begin with the company that has the highest market capitalization—meaning investors in general perceive it as the best investment—and work my way down the list from there. Note: I only show the stock charts of those that have “better” charts.
- Canopy Growth (TWMJF)
Formerly known as Tweed Marijuana, Canopy Growth was the first marijuana company to go public and it remains in the forefront of the industry, not least because its financial strength has enabled strategic acquisitions. Canopy is located in Smiths Falls, Ontario, and uses more than 550,000 square feet of indoor growing space to supply the Canadian medical marijuana market with product derived from the strains that have been standardized in the Netherlands. It also grows and markets product for the Tweed brand, using the former Hershey Chocolate factory. Latest 12 months revenues were $18.4 million, while the company’s market capitalization is about $1.5 billion. The stock is currently trading around 9.5.
- Aurora Cannabis (ACBFF)
Aurora is the only Canadian producer of medical marijuana located in Alberta, so it boasts that its plants are raised on fresh Rocky Mountain water. The very rural operation means Aurora may be the lowest-cost producer in Canada, which might eventually translate into higher margins. In the quarter ended September 30, the company sold 435,720 grams (960 pounds) of marijuana to its roster of more than 10,000 registered patients. Latest 12 months revenues were $3.4 million, while the company’s market capitalization is about $520 million. The stock is currently trading a bit under 2.
- Medical Marijuana (MJNA)
Located in Poway, California, Medical Marijuana sells hemp oil, liquids, tinctures and chewing gum with CBD (cannabidiol) as the active ingredient. All products are legal in all 50 states. In 2015, revenues topped $9 million, but cash on hand at the end of the year was only $241,000. Latest 12 months revenues were $9 million, while the company’s market capitalization is about $412 million. The stock is currently trading for a mere 14 cents.
- Aphria (APHQF)
Aphria is another Canadian producer that markets both marijuana and cannabis oil. Latest 12 months revenues were $11.6 million, while the company’s market capitalization is about $472 million. The stock is currently trading just over 4.
- Turning Point Brands (TPB)
Based in Louisville, Kentucky, Turning Point is the outlier here for several reasons. First, it’s mainly a tobacco company, selling Red Cap pipe tobacco, Stoker’s snuff and chewing tobacco and Beech-Nut, Trophy, Havana Blossom and Durango chewing tobacco. Second, it had revenues of $199 million last year—though it’s not really growing. And third, it made a profit.
But what qualifies Turning Point for this survey is its Zig-Zag brand, which includes not only cigarette papers and cigar wraps, but also Zig-Zag branded Vaporizers, which accounted for 7% of revenues in the third quarter. Trouble is, retail activity in the vaping market is rapidly shifting from traditional tobacco outlets, where Turning Point is strong, to alternative channels, where Turning Point is weak. Latest 12 months revenues were $199 million, while the company’s market capitalization is about $240 million. The stock is currently trading at around 13.
- Cannabis Science (CBIS)
Possibly the most scientific of these companies, Cannabis Science, located in Irvine California, is working to discover and develop clinical uses for marijuana-based products to treat a variety of medical conditions, from nausea to pain relief to muscle spasm treatment—and thus aiming to be viewed as a bio-pharmaceutical company. The firm has developed a transdermal adhesive patch containing CBD that is intended for sufferers of pain associated with Diabetic Neuropathy and Fibromyalgia. The firm has no cash flow, while the company’s market capitalization is about $280 million. The stock is currently trading at around 12 cents.
- Cannabis Sativa (CBDS)
Based in Mesquite, Nevada, Cannabis Sativa is notable for the fact that its CEO is Mike Gravel, who represented Alaska in the U.S. Senate from 1969 to 1981. Also on the Board of Directors is Stephen Downing, who served as a member of the LAPD for 20 years, and Judge Jim Gray, who currently presides over the civil trial calendar for the Superior Court of Orange County. But what does Cannabis Sativa sell? Not much yet, but it has patented an Ecuadorian strain of marijuana and it has an agreement to buy a commercial hemp farm in California. Latest 12 months revenues were $27,000, while the company’s market capitalization is about $105 million. The stock is currently trading under 6.
- mCig (MCIG)
This Henderson, Nevada company has transitioned from a vaporizer manufacturer to a construction company serving the emerging cannabis cultivation construction industry. Latest 12 months revenues were $1.4 million, while the company’s market capitalization is about $130 million. The stock is currently trading under 40 cents.
- General Cannabis (CANN)
Based in Denver, General Cannabis aims to be an all-in-one resource for the marijuana-growing industry, with divisions in real estate, consulting, security, financing and distribution. Latest 12 months revenues were $2.9 million, while the company’s market capitalization is about $36 million. The stock is currently trading around 2.
- American Cannabis Company (AMMJ)
This Denver, Colorado company provides consulting services for companies entering the cannabis industry, offering services from licensing and construction to cultivation, processing and dispensing. It has also assisted companies in Canada. Latest 12 months revenues were $2.8 million, while the company’s market capitalization is about $33 million. The stock is currently trading around 70 cents.
- Rocky Mountain High Brands (RMHB)
Forty years ago when I was a ski bum in Jackson Hole, Wyoming, I worked for a brief time for a company called Mountain High Construction. This company not only has no relation to that one, it’s based in Dallas Texas! The company develops, markets and distributes food and beverage products that are infused with hemp and CBD. Latest 12 months revenues were $1.1 million, while the company’s market capitalization is about $74 million. The stock is currently trading at around 11 cents.
- Vape Holdings (VAPE)
Vape, of Agoura Hills, California, makes ceramic elements that are the heart of vaporizers, and supposedly superior to traditional titanium or quartz vaporization materials. VAPE had a market cap of $400 million back in 2014, despite the fact that revenues had never exceeded $3 million. Today, the market cap is about $5 million, which seems about right for a company that had $1.2 million in revenue in the past 12 months and is on its third CEO in 14 months. VAPE is trading for just a penny.
- CannaMark Brands (UBQU)
Previously known as Ubiquitech Software, this Denver, Colorado company is focused on marketing hemp oil. But it has no revenue yet and the company’s market capitalization is just shy of $1 million. The stock is currently trading for about two cents.
- Green Energy Management Services (GRMS)
Headquartered in New York, New York, Green Energy aims to provide consulting and other services to the legal marijuana industry in the U.S. Twelve-month revenues were $384,000, its market capitalization is about $1.2 million, and as I write, its stock is available for a couple pennies.
- THC BioMed International (THCBF)
Located in beautiful Kelowna, British Columbia, this company aims to sell propagated starting material and horticultural equipment to authorized licensed producers and registered patients. Also, it is prepared to sell 29 strains of dried marijuana, once permission has been granted. But right now, there are no revenues, and the stock is trading at around 80 cents.
Which Marijuana Stocks Would I Buy?
The bottom line is that because none of these marijuana stocks have been recommended by any of the Cabot analysts, I wouldn’t buy any of them. Not only are the majority of the stocks too low-priced and too thin, they’re also a bit inflated now, thanks to the recent U.S. elections.
I do, however, recommend keeping an eye on the leading contenders, because as the industry grows up, leaders will emerge. But it’s still the Wild West out there, and many pioneering investors are going to get hurt.
Eventually, I expect to see a marijuana stock recommended by one of the Cabot experts, and the odds are it will be Tyler Laundon of Cabot Small Cap Confidential, who has a knack for digging up undervalued small cap stocks. Right now, for example, his recommended portfolio has 12 holdings. Nine of the recommendations are showing profits. And the average profit is 36%. If you’re looking for low-priced stocks, it’s definitely worth a look. Click here.
Timothy Lutts heads one of America’s most respected independent investment advisory services. Each week, Tim personally picks the single best stock in his exclusive Cabot Stock of the Week advisory. Build your wealth and reduce your risk with the top stock each week for current market conditionsLearn More