It is no longer a secret that the cannabis industry is one of the fastest growing sectors in the US. This sector is set to have an annual growth of 23% to 27% over the next 5 to 10 years. Additionally, the U.S. market is poised to have an increase of up to $50 billion in legal sales before 2026.
Additionally, the international growth potential of the sector is still enormous. For example, BDS Analytics projects that the global spending on legal cannabis will grow by 230% to hit the $32 billion mark in 2020. Moreover, the US market will contribute $23.4 billion of the global sales.
But despite the industry’s immense growth potential, it is important to note that in 2016 alone, we had more than $ 46 billion of illegal cannabis sales in North America. To a sharp investor, these figures should awaken your senses to something—potential for growth and investment. With the above figures in mind there has been no better time to invest in cannabis stocks. In this article, we will discuss the different types of cannabis stocks worthy of investment, and the five leading listed companies with a market value of over $1 billion. We will also look at important precautions to consider before investing in these stocks to enable interested investors make more informed decisions.
Types of Cannabis Stocks to Invest In
Before examining the top-five stocks one may invest in, I would like to show you the three main types of stocks available on the market. Different companies invest in the cannabis industry differently. This means that the risks and potential benefits of these stocks will vary depending on where each is positioned in the sector.
- Growing and cultivation
The first type of cannabis stocks you may invest in are those of firms engaged in direct cannabis production. These enterprises grow the plant and directly sell its products to customers. Most of the listed growers based in the U.S. have this business model. However, they also have a smaller capital capitalization. Inversely, their Canadian counterparts have a bigger market capitalization because of the friendly legal frameworks there. Understanding where to invest may factor into your strategy and mean better returns on your investment.
- Pharmaceuticals and Biotech
Listed cannabis firms also engage in pharmaceutical and biotech segment of the industry. Unlike their counterparts in the previous subsection, these companies do not grow the plant. However, they focus on developing cannabinoids, or the active compounds in cannabis. When considering investing in such companies, you should know some of the potential risks they may encounter. For instance, possible clinical trial challenges, difficulties in getting regulatory approval, and unsatisfactory launches despite winning government approval.
- Cannabis supplies ventures
Companies that invest in this category do not grow or process cannabis. Instead, they supply tools and services to the firms working directly with the plant. For example, they may supply hydroponics, lighting systems, fertilizers, and transportation. The Scott Miracle-Grow company is an example of a well-known organization in this segment.
The Top 5 Cannabis Stocks
- MedReleaf: First on our list is MedReleaf. This company engages in the basic production level of the cannabis industry by growing the plant. It emphasizes traditional cannabis and other cannabis-related extractions. The firm company has 164 acres of cultivation land on which it can produce up to 140, 000 kg of cannabis annually. It is capitalized at $1.23 billion, and ranks among the top growing stocks in which you can invest your money.
- Aphria: Capitalized at $1.39 billion, this Canadian grower has high prospects of growth for hungry cannabis investors. Since it acquired Nuuvera and became the New Aphira, it seeks to boost its production capacity to 230,000 kilograms of cannabis a year. Even though it does not seek to enhance its production capacity directly using the acquisition, the Canadian firm intends to use it to boost its distribution channels in and outside Canada.
- GW Pharmaceuticals: At number three on our top-five North American stocks we have GW Pharmaceuticals. The firm has a market cap of $3.13 billion. This company focuses on developing and commercializing medical treatments using proprietary cannabinoid technologies. For instance, it has developed its cannabis-based remedy for rare genres categories of epilepsy among children, that has already won the approval of from the FDA. In June 2018, the company announced that it won FDA’s approval of its Epidiolex oral solution for seizures associated with Lennox-Gastaut syndrome and Dravet syndrome. These conditions are severe and difficult to treat in patients above the age of two. The approval was based on the results of clinical trials published in The New England Journal of Medicine and the Lancet.
- Aurora Cannabis: With a market cap of $3.47 billion, the Canadian firm is one of the leading players specializing in growing and selling cannabis. It has also made acquisition history by acquiring CannaMed Therapeutics. The acquisition has positioned it to an annual fully-funded production capacity of 283,000 kg per year. Moreover, the firm also deals in medically-focused CBD products. Most of its annual marijuana productions come from Aurora Sky Project that yields more than 100,000 kg of cannabis per annum. It also has ultra-modern facilities that are famed to have some of the lowest per-gram costs in the cannabis industry.
- Canopy Growth Corp: If you are looking to grow your investment in cannabis, then Canopy Growth Corp is another good place to invest your money. This $4.36 billion stock is the current king of cannabis stocks as it has seven growing facilities that span 665,000 square feet. Moreover, it is erecting more greenhouses on 3.7 million square feet of land in British Columbia. However, the company remains silent regarding its actual annual production capacity, though it is estimated to be around 300,000 kg of dried cannabis per annum. Its expansive and effective distribution channel is one of the things that give it a competitive edge. For example, it has physical outlets that sell cannabis besides its online sales. Moreover, it has partnered with Constellation Brands, an established firm dealing in spirits, to bolster its distribution presence. Also, it has access to foreign markets that have legalized cannabis use. With such a network, it is easy to see why it occupies the number one place. The Toronto-based company also seeks to venture into the recreational market once legal sales go into effect in Canada in October.
Look Before Leaping
But before taking the leap, it is necessary to take the precautions:
- Understand that investing in any of these stocks is not a guarantee that you will become an overnight canna-millionaire. So, remove the hype from the equation and prepare yourself to trade as a real investor.
- You have to know that just like any other stocks, cannabis stocks are subject to threats. For instance, the U.S. cannabis industry faces political risk following the Federal Government’s opposition to legalization. Therefore, be ready to face such challenges until Washington changes its stand on cannabis.
- It is also necessary to approach your investment with realistic prospects. For instance, each of the top-five stocks we have covered in this post has different prospects levels. The Canopy Growth Corp stock trades at 35 times more while MedReleaf trades at 19 times.
- Lastly, you have to invest in these stocks with a long-term mindset. If you are a serious investor, remember and apply the words of Warren Buffet that, “If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes.”
The cannabis industry has immense growth potential for sales and investment. That is why so many companies have gone public. These businesses engage the sector from different angles. For instance, some of them are direct growers and sellers, while others confine themselves to pharmaceutical production or suppliers for industry players. That is why it is important to understand where to invest because different types of cannabis stocks have their unique potential and risks. The aim of our discussion was to explain these facts and give you five leading stocks with an over $1 billion market cap to invest in. The intent of this article was to help investors make the best investment decisions. I hope this article has been helpful to those of you who plan to get your share of North America’s top 5 cannabis stocks!
Pete Asmus is not one to let life idly pass him by. GreenZone 360’s CEO gets things done. From motivational speaking and meeting with new business partners to building ninja courses for his kids and advocating for public education on Alopecia. Whether it’s business or family, you’ll find Pete going to MAKE SOMETHING HAPPEN.