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The 5-Minute Guide on How to Invest in Marijuana Stocks

For those wondering how to profit from the nearly $7 billion marijuana business, a fine place to look is the stock exchange. Even at this early stage of the cannabis industry, several companies in the sector are already on our markets, and their shares can be purchased as easily as those of more traditional enterprises.

As with any class of stocks, there is quite a bit of variety in pot-related stocks. Here's a quick read on a handful of publicly traded marijuana businesses you can buy shares in at the moment.

Image source: Getty Images

Oh. Canada!

The first group of marijuana stocks is comprised of the growers/suppliers. This isn't surprising, given that the legal pot business is in its infancy; like many early-stage industries, weed is populated by entities that directly provide the good.

This is a thriving business in Canada, which legalized medical marijuana throughout the country in 2001. On top of that, the federal government is currently drafting laws that would legalize recreational use on a nationwide level. This might pass into law as soon as July 2018.

Several companies have sprouted up to handle the supply, and a handful of these are on the stock exchange. The largest in terms of market capitalization is Canopy Growth (NASDAQOTH: TWMJF), which has expanded rapidly due in no small part to strategic acquisitions. Several of these have been of peer companies abroad, as Canopy Growth has a license from the Canadian government to export some of its product.

Canopy Growth's latest quarterly revenue figure was 15.9 million Canadian dollars ($12.7 million), which was more than double what the company made in the same period the previous year. Acquisition expenditures have kept the company in the red lately, though.

Lining up behind Canopy Growth are fellow suppliers Aphria, Aurora Cannabis, and MedReleaf. All three have seen impressive top-line growth thanks to expansion, although profitability has been spotty.

Green medicine

Cannabinoids, the chemical compounds in marijuana, appear to have medicinal properties. So it's no surprise that a number of biotech companies are developing treatments utilizing them.

The leader of this gang is GW Pharmaceuticals (NASDAQ: GWPH). Based in the U.K., GW Pharma is largely a development-stage biotech. The one product it has on shelves is Sativex, a spray medication that treats spasticity in patients suffering from multiple sclerosis. GW Pharma has received approval in 16 markets for the drug, and the company's application is pending in another 12 (the U.S., however, is not among either group).

A treatment currently under development, Epidiolex, is promising. Clinical trials indicated that it can effectively fight two types of childhood-onset epilepsy. GW Pharma's stock has been a bit of a see-saw lately, but it has potential to skyrocket if Epidiolex fulfills its promise.

Other biotechs that concentrate exclusively or partially on pot chemical-based treatments are Zynerba Pharmaceuticals, Axim BiotechnologiesCorbus Pharmaceuticals, Arena Pharmaceuticals, Cara Therapeutics, and Insys Therapeutics.

Picks, shovels, and funds

The third, and smallest, category of pot stocks is varied enough to label "miscellaneous." The leading stock in this little grab bag is Scotts Miracle-Gro (NYSE: SMG), the veteran supplier of lawn and garden care products.

Scotts Miracle-Gro is rolled up with marijuana stocks not only because its goods help the plant grow better. The company also owns Hawthorne Gardening, a collection of brands that service the market for hydroponics (growing plants in water, a classic method of pot cultivation).

Scotts Miracle-Gro's CEO Jim Hagedorn said that Hawthorne's results have "significantly exceeded expectations." The subsidiary saw 21% growth in organic sales in its parent's Q3, and new acquisitions for Hawthorne are almost certainly in the cards.

Outside of Scotts Miracle-Gro, Medical Marijuana, Inc. (NASDAQOTH: MJNA) is essentially a fund comprised of marijuana-related companies. These are both publicly traded (Axim Biotechnologies) and not (marketing/sales specialist HempMeds and MPS International, described by its owner as "an all-inclusive security solution for cannabis businesses").

Finally, Canada-based Cronos Group also goes the collection-of-assets route, owning three smallish businesses outright, and holding strategic stakes in another trio. All companies are producers and sellers.

Pot boom... or bust?

The big caveat to investing in any aspect of the marijuana business is the drug's legal status. In the U.S., although marijuana has been legalized for recreational use in eight states, and for medicinal purposes in 28, it is still technically illegal at the Federal level. Attorney General Jeff Sessions has indicated that he will get tougher on pot, although no concrete steps have yet been taken.

And as previously mentioned, although Canada aims to go the full recreational route, marijuana is still not yet legal there for this purpose.

Potential investors in the sector need to bear these legal points fully in mind and realize that any marijuana stock carries a higher degree of risk than many other types of companies they might buy into. 

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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