The Green Rush: Exploring Corporate Interests In Marijuana

Marijuana stocks have been underperforming in recent years, but the industry is still relatively healthy, and there are plenty of positives for the U.S. marijuana industry. The global cannabis market is projected to reach nearly $200 billion by 2028, up from $28 billion in 2021. This expected growth has investors interested in cannabis stocks.

There are several types of companies in the marijuana industry, including cannabis growers and retailers, cannabis-focused biotechnology companies, and ancillary product and service providers.

Some of the top marijuana stocks to watch include Curaleaf Holdings, Trulieve Cannabis, Green Thumb Industries, Canopy Growth Corporation, Tilray, Cresco Labs, and Cronos Group.

For investors interested in adding marijuana stocks to their portfolios, it is important to understand the risks, including legal and political risks, supply and demand imbalances, and financial constraints.

The best marijuana stocks to buy

The marijuana industry is expected to grow rapidly, with a minimum compound annual growth rate of 25% through to 2030. As of May 2023, the ETFMG Alternative Harvest ETF (a proxy for cannabis stock performance) had slid 53% in the previous year. Despite this, the sector offers investors significant growth potential.

Green Thumb Industries (OTC: GTBIF)

Green Thumb Industries is one of the largest US multi-state cannabis operators, owning more than 80 retail cannabis stores in 15 states and operating 18 manufacturing facilities. The company has been profitable on an annual basis since 2020 and continues to deliver revenue growth. Its shares can currently only be bought and sold on over-the-counter (OTC) markets in the US, but if federal restrictions are lifted, the stock could be listed on major US stock exchanges.

Cresco Labs (OTC: CRLBF)

Cresco Labs is a cannabis grower, manufacturer, and distributor, operating in 10 states. Its brands include Cresco, Remedi, High Supply, and Sunnyside. The company ranks as the top wholesaler of branded cannabis products in the US and markets the number one cannabis flower and concentrates portfolios. Its shares can currently only be traded on OTC markets in the US.

Innovative Industrial Properties (NYSE: IIPR)

Innovative Industrial Properties (IIP) helps US medical cannabis operators secure capital by buying their properties and leasing them back to them, providing much-needed cash. IIP has grown significantly in recent years, now owning properties in 19 states. Because it's organised as a real estate investment trust (REIT), it returns at least 90% of its taxable income to shareholders.

Scotts Miracle-Gro (NYSE: SMG)

Scotts Miracle-Gro is a leading supplier of hydroponic gardening products to the cannabis industry through its Hawthorne Gardening subsidiary. The company still generates the majority of its total revenue from consumer lawn and garden products, which provide a steady counterbalance to its cannabis supply unit.

Jazz Pharmaceuticals (NASDAQ: JAZZ)

Ireland-based Jazz Pharmaceuticals acquired the cannabis-focused biotech company GW Pharmaceuticals in 2021. GW's drug Epidiolex is the first cannabis-based medicine to be approved by the US Food and Drug Administration (FDA). Jazz's pipeline also features other cannabis drugs in phase 2 testing, targeting autism spectrum disorders and related issues.

Curaleaf Holdings (OTC: CURLF)

Curaleaf produces cannabis products for retail and wholesale distribution and provides professional services. Its revenue for the final quarter of 2022 increased by 14% as the company opened eight new retail dispensaries.

Cronos Group (NASDAQ: CRON)

Cronos is a Canadian cannabis company that sells brands including Spinach, Lord Jones, and PEACE+. The company reported increased savings in sales, marketing, general and administrative, and research and development costs.

Tilray Brands (NASDAQ: TLRY)

Tilray cultivates, processes, and distributes cannabis for medical use with operations around the world. The company recently merged with Aphria and also owns a hemp-granola maker, a craft brewer, and a distiller.

Canopy Growth (NASDAQ: CGC)

Canopy Growth is a Canadian medical cannabis producer whose brands include Tweed, DOJA, Deep Space, and Ace Valley.

Trulieve Cannabis (OTC: TCNNF)

Trulieve is a vertically integrated cannabis company with operations in several parts of the US. Its brands include Cultivar Collection, Muse, Roll One, Sweet Talk, and Momenta.

TerrAscend (OTCQX: TRSSF)

TerrAscend is a vertically integrated cannabis company that operates in the US and Canada, with brands including The Apothecarium, Ilera Healthcare, and Kind Tree.

Verano Holdings (OTCQX: VRNOF)

Verano is a multistate retail distributor of cannabis-related products under the brands Encore, Avexia, and MUV. The company's revenue grew in the latest quarter due to strong adult-use sales in New Jersey and retail contributions from Florida store openings.

Marijuana stocks and legislative reform

Marijuana stocks have been on a wild ride over the past few years, with legislative reform efforts at the state and federal levels creating a highly dynamic investment landscape. While the prospects of legislative reform have generally been positive for marijuana stocks, the specific nature of the reforms and their likelihood of passage are critical factors in the market's response.

At the federal level, the Drug Enforcement Agency (DEA) has been asked to soften its stance on cannabis, with the Department of Health and Human Services (HHS) recommending that it be downgraded from Schedule I to Schedule III under the Controlled Substances Act. This reclassification would have significant implications for the industry, including a boost in cash flow for cannabis companies due to an exemption from certain IRS rules. The HHS proposal is particularly notable given the polarizing nature of cannabis in U.S. culture and politics. However, the proposed reform has also raised concerns among some investors due to the new standard for assessing the medical use of cannabis, which may open the door to legal challenges by opponents.

In terms of specific legislative initiatives, the SAFE Banking Act stands out as a near-term and highly important piece of legislation for the industry. By addressing the financial constraints faced by cannabis companies due to federal illegality, the SAFE Banking Act would begin the process of capital flow into the industry and remove structural profitability impediments. Another key piece of legislation is the States Reform Act, led by Republican Rep. Nancy Mace, which aims to federally decriminalize cannabis and enable states to regulate their own markets. This bill has generated excitement among investors, with cannabis stocks soaring initially, but the prospects for its passage remain uncertain.

While federal legislative reform efforts have been ongoing, it's important to note that the majority of cannabis reform efforts have been taking place at the state level. As of 2024, only 24 states have legalized cannabis for adults, and 12 states do not even have a medical cannabis law. This dynamic creates a complex patchwork of laws that licensed retailers must navigate, impacting their operations and sales.

Despite the challenges and uncertainties, the marijuana industry offers significant growth potential for investors. According to industry analysis, U.S. cannabis sales are projected to surpass $33 billion in 2023 and reach nearly $57 billion by the end of 2028. Globally, the cannabis market is expected to expand even further, with estimates reaching close to $200 billion by 2028.

Marijuana stocks and ETFs

Marijuana stocks have been underperforming in recent years, but the industry is relatively healthy, and there are some good investment opportunities.

Marijuana Stocks

• Curaleaf Holdings (CURLF): Operates in 17 states, including Arizona, Florida, Illinois and Massachusetts. It owns and operates 145 dispensaries and 21 cultivation sites.
• Trulieve Cannabis (TCNNF): A vertically integrated cannabis company with operations in several parts of the US. Its brands include Cultivar Collection, Muse, Roll One, Sweet Talk, and Momenta.
• Green Thumb Industries (GTBIF): Manufactures, processes, and distributes cannabis products such as concentrates, vapes, pre-rolls, edibles, and topicals. The company also owns retail locations throughout the US.
• Canopy Growth (CGC): A Canadian medical cannabis producer whose brands include Tweed, DOJA, Deep Space, and Ace Valley.
• Tilray Brands (TLRY): Cultivates, processes, and distributes cannabis for medical use with operations around the world.
• Cresco Labs (CRLBF): Grows, manufactures, and distributes cannabis products, operating in 10 states. Its brands include Cresco, Remedi, High Supply, Wonder Wellness Co., Mindy's, Good News, Sunnyside, and FloraCal Farms.
• Cronos Group (CRON): A Canadian cannabis company that sells brands including Spinach, Lord Jones, and PEACE+.
• Sundial Growers (SNDL): Cultivates, processes, and sells cannabis through its own outlets and also sells alcoholic beverages. Its brands include Sundial, Top Leaf, Palmetto, and Grasslands.
• Innovative Industrial Properties (IIPR): A real estate investment trust (REIT) that invests in greenhouses and industrial facilities for the medical cannabis industry.
• Scotts Miracle-Gro (SMG): Provides nutrients, lighting, and other materials used by indoor and hydroponic growers, including the cannabis industry.
• Ayr Wellness (AYRW.F): A cannabis grower and retailer.
• Jushi Holdings (JUSHF): A cannabis grower and retailer.
• Planet 13 Holdings (PLNH.F): A cannabis grower and retailer.
• Village Farms International (VFF): A cannabis grower and retailer.
• OrganiGram (OGI): A cannabis grower and retailer.
• HEXO (HEXO): A cannabis grower and retailer.
• Jazz Pharmaceuticals (JAZZ): A biotechnology company that participates in the cannabis industry.
• Cara Therapeutics (CARA): A biotechnology company that participates in the cannabis industry.
• GrowGeneration (GRWG): A company that provides hydroponics products, lighting systems, packaging materials, and management services to the marijuana industry.
• WM Technology (MAPS): A company that provides hydroponics products, lighting systems, packaging materials, and management services to the marijuana industry.

Marijuana ETFs

• ETFMG Alternative Harvest ETF (MJ): A proxy for cannabis stock performance.
• AdvisorShares Pure Cannabis ETF (YOLO): A marijuana-focused ETF.
• Cambria Cannabis ETF (TOKE): A marijuana-focused ETF.
• AdvisorShares Pure US Cannabis ETF (MSOS): Offers investors exposure to US multistate operators, which analysts say are on a sturdier path to profitability.
• Roundhill Cannabis ETF (WEED): A new option for investing in marijuana ETFs.

Marijuana stocks and investment risks

The marijuana industry is growing, with legalisation and decriminalisation spreading across US states and countries worldwide. However, investing in marijuana stocks comes with significant risks. Here are some of the key considerations for investors:

Legal and Political Risks

Selling marijuana remains illegal at the federal level in the US. This creates difficulties for US cannabis businesses in accessing critical financial services. While political support for federal legalisation or decriminalisation is growing, there is no guarantee this will occur. As a result, companies face highly disparate sets of regulations depending on their location.

Supply and Demand Imbalances

As a burgeoning industry, marijuana is prone to irregularities in supply and demand. Canadian marijuana growers, for example, initially expanded production to meet recreational demand, but later had to cut back due to oversupply, causing revenue to suffer.

Over-the-Counter (OTC) Stock Risks

Many cannabis companies trade on OTC markets, meaning they are not required to regularly file financial statements. This lack of transparency makes it difficult for investors to assess the risk of these stocks. OTC stocks can also have low liquidity, making them difficult to trade.

Financial Constraints

Many cannabis companies are unprofitable and face the risk of running out of cash. They often raise capital by issuing new shares, diluting the value of existing shares. Even with this dilution, these companies may still struggle to obtain enough capital to operate successfully.

Company Valuations

The marijuana industry is relatively new and untested, and it is unclear whether current market valuations will be sustained. If investors overestimate the potential of the legal cannabis industry, company valuations could drop.

Competition and Market Position

The legal cannabis industry is highly competitive, with hundreds of companies vying for market dominance. It is difficult to predict which companies will become major players and which will fail.

Volatility and Scams

Marijuana stocks are incredibly volatile and susceptible to wide price swings. The industry's newness and the product's legal status also create opportunities for scams and market manipulation.

Financial Services Industry Reluctance

Due to the product's illegal status at the federal level, many banks and financial services companies are reluctant to engage with the industry. This may limit investors' access to investment advice and brokerage services.

Final Thoughts

Marijuana stocks can be an attractive investment opportunity, but they are high-risk and speculative. Investors should conduct thorough research, understand the industry dynamics, and carefully assess their risk tolerance before investing. Diversification is key, and marijuana stocks should not make up a large proportion of a portfolio.

Marijuana stocks and investment research

Overview

The marijuana industry has faced numerous challenges in recent years, including inflation, overproduction, lack of capital, job losses, and declining stock prices. However, the industry remains relatively healthy, with U.S. cannabis sales on the rise and a growing number of states legalizing recreational marijuana use. As of May 2024, legal cannabis sales in the U.S. were projected to reach $31.4 billion for the year, a 9.1% increase over 2023.

Key Companies

Some of the key companies in the marijuana industry that investors may want to consider include:

• Innovative Industrial Properties (IIPR): A real estate investment trust (REIT) that invests in greenhouses and industrial facilities for the medical cannabis industry. It has a diversified portfolio spanning 19 states and has seen steady revenue growth.
• Scotts Miracle-Gro (SMG): This company provides nutrients, lighting, and other materials used by indoor and hydroponic growers, including the cannabis industry. While its share price has been on a roller coaster ride, it is currently trading at an attractive valuation.
• Cresco Labs (CRLBF): A multi-state operator with operations in eight states, 64 retail licenses, 13 production facilities, and 71 operational dispensaries. The company has been expanding through organic and acquisitive growth and is a favourite among Wall Street analysts.
• Curaleaf Holdings (CURLF): A pure-play cannabis company operating in 17 states with 145 dispensaries and 21 cultivation sites. Curaleaf is using science to enhance the customer experience and has a strong footprint in the industry. However, it is important to note that Curaleaf trades over the counter, which may make it more volatile.
• Tilray Brands (TLRY): Tilray has faced headwinds due to the lack of federal legalization in the U.S. and has pivoted to the beer and spirits industry to fill the gap in revenues. The company has made several acquisitions to strengthen its position in the beverage alcohol space.

Exchange-Traded Funds (ETFs)

For investors who want to gain exposure to the marijuana industry but want to hedge their bets, exchange-traded funds (ETFs) that provide exposure to multiple companies under one ticker symbol may be a good option. Here are some ETFs to consider:

• AdvisorShares Pure US Cannabis ETF (MSOS): This ETF stands out for its U.S.-specific focus, holding several multi-state operators such as Curaleaf and Cresco. It is actively managed and has performed well in recent months, ending 2023 flat and up 60% in 2024 as of April.
• ETFMG Alternative Harvest ETF (MJ): A passively managed fund that tracks an index of globally listed cannabis companies that could benefit from medicinal and recreational marijuana legalization initiatives.
• Roundhill Cannabis ETF (WEED): A new option that came online in April 2024.

Risks and Considerations

Investing in marijuana stocks comes with specific risks that investors should be aware of:

• Legal and Political Risks: Marijuana remains illegal at the federal level in the U.S., and there is no guarantee that legalization or decriminalization will occur. This creates difficulties for cannabis businesses in accessing financial services and restricts their operations.
• Supply and Demand Imbalances: The marijuana industry is prone to irregularities in supply and demand, which can lead to oversupply and declining prices.
• Over-the-Counter (OTC) Stock Risks: Many cannabis companies trade on OTC markets, which means they are not required to regularly file financial statements, making it challenging for investors to assess the risk.
• Financial Constraints: Many cannabis companies are unprofitable and face the risk of running out of cash. They often dilute the value of existing shares by issuing new ones to raise capital.

Final Thoughts

While the marijuana industry has faced challenges, the potential for federal legalization and the growing number of states legalizing recreational use present opportunities for investors. However, due diligence and a thorough understanding of the industry's dynamics are crucial before investing in this sector.

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