These seven marijuana stocks are on sale.
Investors had high hopes for the legal marijuana industry after 2020’s presidential election and concurrent Democratic victories in Congress, leading to marijuana stocks peaking in February. Since then, investors have been disappointed with the pace of progress toward federal legalization, and shares have fallen sharply, potentially creating buying opportunities for cannabis investors. The current state of prohibition means higher taxes, cost of capital and compliance costs. An end to prohibition would boost free cash flow, presumably leading to much higher valuations. Leading marijuana companies have certainly been buying up other companies in the industry. Could it be time for you to consider buying cannabis shares? Here are seven of the best marijuana stocks to buy.
Tilray Inc. (ticker: TLRY)
Investing in cannabis is a bet that Congress will legalize the drug, says Jim Higdon, cofounder of Cornbread Hemp. “For investors committed to long-term investments that will pay off upon federal legalization, a company like Tilray is making the right moves to indicate a clear long-term vision for what a post-prohibition cannabis company might look like,” he says. The company recently announced the acquisition of Breckenridge Distillery, saying the purchase will enable it to commercialize non-alcoholic distilled spirits infused with cannabis once such a move is federally permissible. Tilray aims to turn the Colorado-based distillery into a national brand with help from Tilray’s existing SweetWater Brewing Company brand. “Tilray is planting a flag in the growing market of cannabis-infused beverages and plotting for a future when cannabis-infused spirits will be as legal as light beer,” Higdon says.
Trulieve Cannabis Corp. (TCNNF)
Not everyone thinks investing in the cannabis industry has to be predicated on federal legalization. “The key to investing in cannabis for 2022 is to stop waiting for the federal government to do anything and pick companies that can attract capital because they have proven solid management and created a dominant position to operate successfully in a state-by-state environment,” says Michael Sassano, CEO of Somai Pharmaceuticals. He points to Trulieve, which operates in 11 states and has leading market positions in Arizona, Florida and Pennsylvania, as an attractive potential cannabis investment. “They aren’t spread too thin, and when banking does occur, rather than clean up (their) balance sheet like others, they will be expanding,” Sassano says.
Curaleaf Holdings Inc. (CURLF)
Even some of the best marijuana stocks to buy currently operate at a loss. During the third quarter, this consumer cannabis product company brought in more than $317 million in revenue, a year-over-year gain of 74%. But its loss widened from roughly $9 million last year to nearly $57 million this year as higher tax, interest and other expenses outweighed higher operating income. As the largest publicly traded marijuana company, Curaleaf has advantages that smaller players don’t. “Bigger names in the industry are better placed,” says Kunal Sawhney, CEO of Kalkine Group. “One, because their scale can allow them to overcome pandemic-induced supply chain disruptions like closed borders. And two, because in the event of any wider correction, they will bleed less than ones with weaker fundamentals.”
Aurora Cannabis Inc. (ACB)
In its most recent quarterly report, this medical and recreational cannabis company reported its medical cannabis net revenue rose 23% year over year to $41 million, making up roughly 70% of its total sales. Its international medical sales were particularly impressive, rising 146% from the prior-year quarter as the company continued expanding in high-margin medical markets such as Israel. Overall, its medical margin rose to 64%, double that of its consumer division. Although the recreational market is generally faster-growing, Aurora’s strength in higher-margin medical sales allows the company to “capture more growth than many of its competitors,” says Jay Jacobs, head of research and strategy with Global X, which runs the Global X Cannabis ETF (POTX). Also, “the company’s dominance in the medical cannabis space could insulate the company against volatility in the overall cannabis market,” he says.
Canopy Growth Corp. (CGC)
In October, Pittsford, New York-based flavored-water company Karma Culture announced it was launching a cannabidiol (CBD)-infused beverage developed with Canopy Growth. While CBD, one of many cannabinoid compounds found in cannabis plants, doesn’t produce a high, it has become an increasingly popular additive to all sorts of products. Prescription discount company SingleCare found in a 2020 survey that 33% of American adults had used CBD once or more. “With exposure to high-margin cannabis derivative products and strategic partnerships in the U.S., Canopy is well positioned to capitalize on federal legalization,” Jacobs says, pointing to the Karma Culture partnership. Canopy also has an established partnership with Constellation Brands Inc. (STZ), a powerhouse in the alcohol industry. “Continued collaboration with a prominent distributor such as Constellation Brands could allow Canopy growth to corner parts of the highly profitable cannabis derivative market in the U.S. as it evolves,” Jacobs says.
Organigram Holdings Inc. (OGI)
Another company involved in the CBD market is this cannabis producer that has invested in producing the compound via biosynthesis. The process uses yeast strains and enzymes to create cannabinoids without growing them in plants. “This has the potential to create a scalable supply of pure cannabinoids at a fraction of the cost of traditional cultivation,” Jacobs says. In addition to CBD and the high-producing cannabinoid THC, the private biosynthesis company Organigram has invested in has demonstrated and applied for patents for production of “minor cannabinoids” that are too expensive to produce with traditional cultivation because they’re only found in low levels in cannabis plants. “The minor cannabinoids are believed to be the next frontier of cannabis research and novel cannabis product development,” Organigram says.
Cronos Group Inc. (CRON)
Constellation Brands isn’t the only sin stock to invest in the cannabis industry. In 2019, tobacco giant Altria Group Inc. (MO) completed the purchase of a 45% stake in Cronos Group, becoming its largest shareholder with a $1.8 billion investment. That deal came with the right to buy a controlling stake in the company, but there has been speculation that the cigarette company might buy all of the remainder of Cronos. The marijuana company’s shares are down roughly 40% this year. With a price of $4.08 as of the Dec. 14 close, shares are well below the roughly $15 exercise price for the right to acquire additional Cronos shares that was part of the 2019 deal.
Seven best cannabis stocks to buy for 2022:
— Tilray Inc. (TLRY)
— Trulieve Cannabis Corp. (TCNNF)
— Curaleaf Holdings Inc. (CURLF)
— Aurora Cannabis Inc. (ACB)
— Canopy Growth Corp. (CGC)
— Organigram Holdings Inc. (OGI)
— Cronos Group Inc. (CRON)