Marijuana stocks are in demand again after Colorado and Illinois legalize recreational marijuana. While the federal government classified cannabis as a Schedule I substance, states have a more relaxed approach to cannabis possession and use. As of June 2019, a doctor’s recommendation can let users use cannabis for medical purposes in 33 states, four permanently inhabited US territories and the District of Columbia. Recreational marijuana is legal in 10 states.
Washington raked about $319 million in revenue from recreational marijuana in 2018. The largest cannabis market in the US, California, netted about $300 million while Colorado earned $266.6 million. As states realize the possibility of earning massive revenue from marijuana use, they are working towards creating favorable regulations.
The excitement around marijuana use is pushing stocks across North America. Growth-oriented small and medium-sized companies are looking for investor support to expand their businesses. This presents a wonderful opportunity for proactive investors to tap into a growing trend. In today’s article, we look at the top three stocks in which an investor can invest this month. While these stocks looked like a small niche market a couple of years ago, they have given exponential rise to an ever-expanding and highly growth-oriented industry.
Aphria Inc. (NYSE:APHA) is one of the popular marijuana stock. Jefferies gave a BUY rating with a target of CAD$15. In the three months ending February 2019, the company earned CAD$73 million in net revenue of which CAD$17 million was earned from cannabis production while CAD$57 million was distribution revenue. It also held over 12,000 kgs of cannabis inventory with CAD$131 million working capital with another CAD$135 million in cash and near cash positions.
Aphria has a strong presence in every Canadian province alongside Germany, Italy, Malta, Colombia, Argentina, Jamaica, Paraguay, and Australia. It has a strong cannabis derivative product market, including soft gels, concentrates, vapes, edibles, cosmetics, and beverages. It is working with a partner to develop tongue strips and develop cannabis patches too. Aphria has the largest production footprint in the industry, with 255,000 kg of production in Canada alone.
The company is listed on the Toronto Stock Exchange as well. The total market capitalization of the company, which was founded by John Cervini and Cole Cacciavillani in 2014, is over $3 billion. The firm is now being led by its talented CEO Irwin D. Simon who joined the firm in March 2019. The company currently has four subsidiaries, ASG Pharma Ltd. ARA- Avanti Rx Analytics Inc., FL Group s.r.l and Avalon Pharmaceuticals Inc.
Canopy Growth Corporation
Canopy Growth Corporation is a de facto leader of the cannabis revolution in North America. It is also significantly larger than Aphria. The company (WEED) was founded by Bruce Linton in 2013 (then known as Tweed) and trades on the Toronto Stock Exchange. It has operations spread in 12 countries via numerous subsidiaries like Tokyo Smoke, Tweed Inc., Mettrum Health Corp, Canopy Health Innovations Inc, etc.
The firm has 90 patents to its name, and over 240 patents are still pending approval. Canopy’s growth is fueled because of its focus on medical marijuana. Its recreational cannabis business grows via Tweed and Tokyo Smoke retail outlets. This market brought $83.3 million in revenue for Q3 FY2019. It is expanding into the US market, piggybacking industrial hemp legalization.
Canopy has also been on an acquisition spree lately. It acquired Europe’s largest cannabinoid-based pharma manufacturer, C3. It also acquired This Works, a leading maker of natural skincare and sleep solutions. It plans to bring a new line of sleep solutions and skincare products based on cannabis soon. Its 5 approved therapies brought sales of $41 million in 2018 alone, and the company plans to expand on therapeutic products in the future.
Another well-known name in the cannabis business is Aurora Cannabis. Trading on the NYSE as ACB, it is a smaller competitor to Canopy because of its extensive focus on medical cannabis. The company’s focus on overseas growth is a move made in the nick of time as Canadian cannabis supply is expected to outshine demand in the next two years. It is active in 24 countries and has a strong presence in Europe and Latin America. 3 of its 15 global production facilities are EU GMP certified.
Aurora is currently working on 40 clinical studies and has made 18 strategic acquisitions in the past 2 years. Its presence is concentrated on both sides of the Atlantic, but there Asia remains an impenetrable fortress for the company, at least for now. The production capacity of Aurora was 150,000 kg in early 2019, which is expected to grow to over 625,000 kg. The company depends on its mass, low-cost production to provide cannabis for the medical and pharma industries.
Aurora netted CAD$65.5 million in Q3 FY2019, moving up by 20% from the previous quarter’s net revenue of CAD$54.4 million. The numbers are 305% higher compared to the same quarter in 2018 when the company earned only CAD$16.1 million. Aurora’s next goal is to increase its production scale further and protect its business against eventual margin compression.
Should you be careful while buying Cannabis stock?
One should be aware of the risks while investing in cannabis stocks. The SEC has warned investors against frauds who are duping investors, taking advantage of the marijuana acceptance wave. There are several regulatory concerns about the legal and medical use of marijuana, and only some states have legalized it. Though it is expected that cannabis acceptance will only improve with time, investors need to use their due diligence on focus only on those companies that are well-known, have great management teams and serious upside potential.
Several marijuana stocks are tempting low-priced investors even more. However, we would suggest you depend solely on research while selecting a stock. Also, check if the chances of supply overtaking demand in a handful of states where cannabis is legal a real possibility. If yes, then wait for some time to see how the companies prepare themselves for upcoming challenges before investing your money with them.
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