Marijuana Stocks to Watch in 2022
As states and countries around the world progressively legalize marijuana, a new billion-dollar business is developing, minting many new fortunes.
The legal marijuana business is growing at a breakneck pace, and many companies are finding ways to profit from this promising market.
However, such a high-growth and novel business involves many winners and losers, so buying the right marijuana stocks can be difficult.
Considering buying marijuana stocks today? In this guide, we will highlight some of the marijuana stocks to watch, discuss their past performances and their prospects, and show you how to buy them!
Where To Buy Marijuana Stocks
Before buying marijuana stocks, you first need an account with a licensed online stock broker. Below, we highlight some of the best names in the online broking business.
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How To Buy Marijuana Stocks
Step 1: Search for your preferred marijuana stock
Once you have decided which marijuana stock you want to buy, use the search function to find it (key in the stock name or ticker). Here, we take the example of Canopy Growth, a leading marijuana stock discussed below.
In the search results, you will see both stocks and other user names. Indeed, the ability to browse traders, see what their performances have been and automatically trade alongside them is a critical component of the CopyTrader social trading system.
Step 2: Select “Trade”
When you are ready to buy a marijuana stock, click the “trade” button to open the trading interface. Remember to check whether you’re using your “Virtual Portfolio” (free demo account) or your own money!
Step 3: Choose how much to buy and specify your options.
In the trading window, you will have the option to buy or sell a stock. Buy orders are executed directly if you’re not using leverage, and all other trades are made via CFD. You can choose to specify a limit, or simply to place a market order.
The next step involves choosing how much money or how many shares you’d like to trade. To help you, the trading window displays the dollar amount and the percentage of your equity that the trade involves. This is particularly important when using leverage.
You can then add leverage to your trade, up to 3:1 for stocks, and specify special order types such as stop-loss or take-profit.
Before opening a position, make sure you have done your own research, that you understand the risks and the fees you’re paying, particularly if you trade via CFDs.
Ready to trade? Simply click “Open Trade” to get started!
Background on the Marijuana Business
Since the United States and Canada began partially legalizing marijuana for medical and/or recreational uses, a flurry of companies have appeared to chase this highly profitable opportunity.
In 2018, Canada became the first major country in the world to legalize marijuana for recreational use. Meanwhile, over the past few years, more than 30 states in the US have allowed marijuana to be used for medical purposes.
While the recreational market is still nascent, the medical market is already fairly developed, with marijuana being used as an alternative medicine for chronic pain, Alzheimer’s and mental disorder treatments.
North America is and will likely remain the main market for both medical and recreational cannabis, mainly since the legalization of marijuana seems far on the horizon for major European and Asian countries.
By the end of the decade, some analysts predict that the legal marijuana business could exceed $70 billion, up from virtually zero a decade ago. By some estimates, the industry in the US could employ more people in the next few years than coal mining and steel mills combined.
While marijuana stocks have shown incredible performances over the past few years, they have also been extremely volatile. A lot of companies have come to market by betting on specific regulations (e.g. legalization or approval for certain medicinal uses) that have been slow or altogether failed to materialize. Others have grown so fast that they have found themselves strapped for cash and obliged to tap the financial markets to continue fueling their growth.
The recent coronavirus crisis has also forced dispensaries all over North America to close down, causing severe pain to the marijuana industry. Nevertheless, as weaker companies are forced out of business, those that can weather the crisis are likely to come out much stronger.
In sum, the marijuana business has biotech-like features, with high promises but high volatility. In this environment, picking the winners can mint fortunes, but you must proceed with caution, as every success story will be surrounded by dozens of failures.
Investing in Marijuana Stocks
Deciding which company to invest in is a difficult but worthy exercise.
Buying marijuana stocks is no different than buying other high-growth companies. However, there are several key additional factors to consider before making a decision. To help you guide your analysis, we reviewed the main ones below.
- Business Model
The legal marijuana business is vast and expanding, offering many profitable avenues for marijuana companies. Business models can vary quite a lot, but generally can be narrowed to three fields: marijuana growers who primarily grow and sell cannabis, biotechs exploring cannabis as a treatment for specific diseases such as Alzheimer’s, and related product & services firms including those that focus on infrastructure and vaporizers.
- Target Market
As mentioned above, the marijuana market is split between two major segments: medical and recreational. The medical market is more developed, albeit still experiencing tremendous growth, while the recreational market is still in its infancy as states and countries slowly legalize recreational marijuana. In addition, it is important to draw a clear distinction between the two main commercially relevant cannabinoids: delta-9 tetrahydrocannabinol (THC) and cannabidiol (CBD). The former is psychoactive, more applications in the recreational field, while the latter is not more suited for medical purposes.
- Regulatory Issues
Needless to say, the nascent legal marijuana business is extremely sensitive to change in regulations. Many of the spectacular rises and falls in marijuana stock prices can be attributed to expectations of particular favourable policies that may or may not materialize. The prudent marijuana stock investor should thus keep an eye out for relevant public discourse on marijuana, and watch for any change in tone or rhetoric on the future of the legal marijuana business.
- Growth & Cash
In such a fast-expanding business, many markets may have a bit of a “winner takes all” dynamic. Particularly in the domain of the recreational product, differentiation is very difficult to achieve and building strong brands can yield significant benefits. Consequently, growth is key, however not at all costs: as companies spend massive amounts of cash to race their competitors, many of them fail to build profitable businesses, a mistake that can cost investors dearly. Investors, therefore, need to monitor not only a company’s growth pace but also its ability to generate cash flows, without which success can quickly turn into failure.
Marijuana Stocks to Watch in 2022
Now that we covered the essentials on the industry and marijuana stock investing, here is our list marijuana stocks to watch in 2022.
1. Cronos Group
The Cronos Group is a Canadian marijuana producer listed on the NASDAQ, with a current market capitalization above $2 billion. It produces and distributes cannabinoid products including dried cannabis, vaporizers, supplements, cosmetics and cannabis tinctures under the PEACE NATURALS, COVE and Spinach brands, among others.
The company has experienced incredible top-line growth over the past years, with revenues up 106% year-on-year.
Thanks to a massive investment from tobacco giant Altria Group, Cronos Group reported a $1.5 billion cash pile on its balance sheet at the end of 2019. The Altria investment will also allow Cronos to expand its distribution and its global reach, thanks to the massive distribution network of the maker of Marlboro.
Cronos Group shares have fallen significantly (~70%) from their all-time high of $29 CAD in early 2019 which was the peak of the marijuana stock rush.
2. Canopy Growth
Canopy Growth is one of the largest and most well-known marijuana stocks, listed on the Toronto Stock Exchange and on the NYSE with a market capitalization of almost $6 billion. A Canadian company, it is mainly involved in the Canadian medical marijuana market but also participates in the recreational market via its cannabis derivative products (sparkling waters, chocolates, etc.). Canopy Growth also has a global presence and is developing and marketing products in many other countries, including the US, Spain, Australia, Denmark, Chile, Jamaica etc.
The company boasts some of the largest revenues among publicly listed peers, with just under $400 million in 2019 revenues, up almost 5x in two years. Most importantly, it is sitting on $1.5 billion in cash with just over $500 million in debt.
Recently, Constellation Brands, a leading international beer, wine & spirits company and the maker of Corona, Modelo and Svedka, 2upped its stake in Canopy Growth through warrants worth around $200 million. The investment follows Constellation Brands’ previous investment in Canopy Growth and shows a clear vote of confidence in the company’s future.
3. Innovative Industrial Properties
Innovative Industrial Properties is a real estate investment trust specialized in sales leasebacks for US medical marijuana companies. Simply put, it purchases properties in US states that legalized medical marijuana and leases them back to marijuana companies via long-term leases. IIP owns over 50 properties in 15 states and generated $45 million in revenues in 2019, tripling its previous-year revenues. At the time of writing, its market cap totalled $1.3 billion with a stock price roughly flat since the beginning of 2020, a remarkable feat given the market conditions.
IIP is a rarity in that it is actually profitable as it quadrupled its net income in a year and pays a fast-growing dividend, with a dividend yield of over 5%. Note that given their special tax status, REITs are required by law to payout at least 90% of their yearly taxable income as dividends.
Its business model is based on long-term, profitable leases with major legal marijuana clients such as Green Thumb Industries and Cresco Labs. The company also generates significant cash flows.
4. Curaleaf Holdings
Curaleaf Holdings is an American marijuana company that operates over 50 dispensaries in 12 states. With over a dozen cultivation sites and over $220 million in revenues that are currently up 3x year-on-year, Curaleaf is growing very fast and building a strong footprint on the US market. It is listed on the Canadian Securities Exchange and has a market capitalization of around $2 billion.
Curaleaf is one of the first US multi-state operators and owns more retail store licenses and dispensaries than any other peer in the US. In the past months, Curaleaf has been frantically acquiring dispensaries to continue growing its presence in the US. Some analysts project that Curaleaf may be the first US MSO to clear $1 billion in annual revenues. While the US regulatory landscape is difficult to navigate, Curaleaf could be one of the main beneficiaries of further statewide (or nationwide) legalization of recreational marijuana.
In this guide, we reviewed some of the marijuana stocks to watch in 2022 and delved into the industry and the specificities of investing in marijuana stocks. Much like biotech companies, legal marijuana stocks are extremely volatile, with the power of minting fortunes and to take them away. Nevertheless, the industry’s growth and promise suggest that those who can pick the winners will be handsomely rewarded.
We cannot, however, provide investment advice, and deciding whether to buy marijuana stocks and which ones to pick is ultimately yours. Like any other stock, you should read a company’s financial statements carefully, press coverage and expert commentary to make well-informed choices.
What are the main types of marijuana companies?Generally speaking, there are three business models: growing & selling marijuana, developing medical applications for marijuana and selling marijuana-related products & services (vaporizers, foodstuffs, infrastructure etc.).
Are marijuana stocks safe?The short answer is it depends. Some of the billion-dollar companies have been around for long enough to build a reputation, although they are still subject to high volatility. Meanwhile, the sector is rife with upstarts that may be difficult to evaluate, so we generally advise to use caution when reviewing marijuana stocks.
Can I buy North American marijuana stocks if I am not a US or Canadian citizen?Of course! You simply need to use an online broker that lets you access the relevant stock exchanges. A lot of the most popular marijuana stocks are listed on major stock exchanges such as the NASDAQ, NYSE and TSX, making them easy to trade.
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