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Are You Interested In Cannabis Stocks?

June 21, 2018

Are You Interested In Cannabis Stocks?
 

 Image: Seekingalpha.com

 

Growers Of Marijuana

If you want to invest directly into marijuana stocks in 2018, then the stocks of growers of marijuana are your shortest route. While you're doing this, it's best to turn north and look in that direction. That's because the brightest opportunities are all north of the border in Canada.

A number of Canadian growers of medical marijuana wound up having terrific returns on their marijuana penny stocks in 2017. Three reasons were central to this success. First, the medical marijuana market is booming in Canada and other nations. Second, some serious deal-making was happening. Third, there was anticipation of recreational marijuana seeing legalization across Canada. I personally believe that these three factors are going to keep driving the stocks of Canadian growers of marijuana to new highs this year, pun intended.

One approach you can use to invest in the stocks of marijuana growers is to buy shares in the companies who are best positioned to wind up capturing substantial shares of the market for recreational marijuana in Canada. Projections for this market fall between $4 and $9 billion per year, although some analysts quietly think the market size will be much larger.

Canopy Growth is one big stock that would stand to benefit. Traded under NYSE:CGC, it's already the largest marijuana stock just by its market cap. This business, at the time of writing, is already Canada's largest source of medical marijuana. Additionally, Canopy got a big vote of confidence back in October, which was when Constellation Brands bought almost 10 percent of the company for over a quarter billion dollars. Traded under NYSE:STZ, this company is an alcoholic beverage company listed on the Fortune 500.

One other way you can invest in the stocks of marijuana growers is to identify companies and business that might be bought up entirely by the bigger players. That's a harder route to follow, though, given that buyouts aren't guaranteed to materialize.

You can also use a hybrid option that takes the middle path by investing in stocks that might gain larger market shares by actually making acquisitions. Aurora Cannabis seems to me to be the most obvious choice if you decide on this particular strategy. At the time of writing, CanniMed Therapeutics was the target of a hostile takeover attempt by Aurora Cannabis. Should the deal actually happen, then Aurora would tremendously boost its capacity for production, likely enabling it to seize a bigger slice of Canada's recreational marijuana market.

 

 Image: Marijuanastocks.com


Biotechs

Growers of marijuana aren't the only investment path open to you. A number of biotechs are currently focused on the development and marketing of cannabinoid drugs. You can't just throw money at any old marijuana biotech, however. You need to figure out which ones have clear 2018 catalysts that are likely to fuel the stocks to go higher.

Traded on the NASDAQ under GWPH, GW Pharmaceuticals definitely falls into this category. This biotech is expecting a U.S. FDA approval decision by 6/27/2018 for its cannabinoid drug Epidiolex which is intended to treat Dravet syndrome and Lennox-Gastaut syndrome, or LGS. GW has also applied for the same drug to be used for that pair of conditions in the European market, with a decision anticipated in the first three months of 2019.

Neither approval is a sure bet, but the chances of one of the two greenlighting the drug look good. GW went through robust clinical testing for this drug in treating both conditions. The research demonstrated notable efficacy with an acceptable safety profile.

Listed on the NASDAQ as INSY, I think that Insys Therapeutics is another marijuana biotech stock that could prove to win big. 2017 was generally rough for the company, as sales tanked for Subsys, its opioid painkiller. Also, the U.S. DoJ was investigating the marketing practices behind the drug.

Despite all this, I made an October prediction that Insys would prove to be 2018's biggest comeback story. I admit my timing was not quite accurate, as the comeback was in full force in December of 2017. Prior to writing this, Insys stock had lifted off in excess of 150 percent in just the previous month. Will it continue to do so? I believe so. Insys does predict stabilization in the sales of Subsys with a chance for some growth given that a number of formularies now include it. Also, in August, they launched a cannabinoid drug called Syndros, which they expect to also see sales growth.

Peripheral Possibilities

There is also a far less direct way to invest in the marijuana industry. A number of publicly traded corporations provide services and products to growers of marijuana, and as such, stand to benefit from any expansion in the industry.

The best possible stock here is like Scotts Miracle-Gro. Traded on the NYSE under SMG, this company sells lighting systems, hydroponics, and fertilizers that prove crucial for the cultivation and growth of marijuana plants. The company has gone through multiple acquisitions in the last few years in order to strengthen its presence across the cannabis industry. One such acquisition was Gavita, a Dutch marketer that handled indoor lighting for hydroponic and greenhouse markets. Also, they bought American Agritech, LLC, which was based in Arizona and a leading maker of growing systems, plant supplements, and plant nutrients for hydroponic gardening.

Glance Technologies might be a more speculative choice. This is a small company which markets technology systems for mobile payments. In May of last year, this company licensed the technology it has to Cannapay Financial in order to offer fintech solutions to both customers and suppliers alike. Additionally, Glance purchased a sizeable share in Cannapay.

Constellation Brands is also another possible investment angle into the marijuana industry without actually purchasing a pure-play stock. Given its 9.9 percent ownership stake in Canopy Growth, Constellation is in a strong position to benefit if Canada approves the legalization of marijuana for recreational use. The business also intends to start up a cannabis-infused beer in the future, partnering with Canopy to do so.

Remember The Intent Here

More than anything, keep in mind that the most crucial aspect behind investing in the marijuana sector is to actually invest. When I say that, what I really mean is that the fundamentals of all kinds of stock investing still apply to marijuana stocks too, be it growers, peripheral providers, or biotechs.

Don't get caught up in the hype. Always be sure you comprehend the possible risks. Research each company to establish their actual prospects for growth. Glance, Constellation Brands, and Scotts Miracle-Gro are all companies that have a lot of business which has nothing to do with the marijuana industry, and you need to dig into everything. You should only invest after you've done all this homework and are still comfortable with the specific risk-reward prospects that each stock you're looking at presents you.

Given everything said here, I actually tend to think that quite a few investors are going to make a good bit of money this year from marijuana and related stocks. Is 2018 going to be the greatest year yet for marijuana stocks? We're certainly going to learn soon enough.

 

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