Login

New to Benzinga?

Register

Already have an account?

How to Invest In Marijuana Stocks

Marijuana, which goes by several names such as weed, herb, pot, grass, bud, ganja, Mary Jane etc., refers to the dried flowers of a herbaceous plant scientifically known as Cannabis Sativa. The Cannabis plant is a source of over 400 compounds, including 60 cannabinoids. Of the 60 cannabinoids, two in particular, namely delta-9-tetrahydrocannabinol, aka THC or dronabinol, and cannabidiol, are tested for medicinal uses.

Though marijuana has multifarious benefits such as being a source of industrial fibre, seed oil, food, recreation, medicine and spiritual moods, the societal stigma attached to marijuana consumption cannot be erased overnight.

420 Investor

Alan Brochstein’s 420 Investor is the go-to community for investors to learn, explore, and profit from the marijuana companies. The main goal of 420 Investor is to provide real-time, objective information about the top marijuana companies in the market in order to help investors capitalize on cannabis.

The stigma emanated from the prohibition that was enforced on cannabis in 1930s, with several negative stereotypes such as violence, madness and non-productivity linked with its usage.

However, with more and more people appreciating the medical value of marijuana, and the realization that it is safer than alcohol and some legal prescription drugs, the movement to legalize marijuana began gaining momentum

.As of now, 29 states and the District of Columbia have legalized medical marijuana use, although federally it is still an illegal commodity. Apart from these, some states (18 of them) have limited the use of marijuana to the non-psychoactive marijuana extract called cannabidiol, or CBD.

Certain other states have laws that require doctors to prescribe marijuana. Meanwhile, eight states have currently legalized recreational marijuana use.

Even as marijuana is going through the process of mainstream acceptance, the investment community has moved in to capitalize on the development.

Arcview Market Research, which claims to be the top Cannabis Market Research company, said in its fourth edition of The State of Legal Marijuana Markets’ report, that legal marijuana sales were expected to have grown 25 percent in 2016 to $6.7 billion.  By 2020, sales could clock $21.8 billion.

Meanwhile, legalizing recreational marijuana is expected to give a shot in the arm for the industry. Colorado, which has legalized recreational marijuana in 2012, is now clocking weed sales of about $1 billion per year.

With so much clamor around it, the shrewd investment community is not the one to let the opportunity slip by.

Marijuana Stock Investing

With the risk appetite of investors forever on the rise, they are always on the lookout for high return assets. Marijuana stocks make the cut, given the increasing acceptance of the weed among the general public and the huge market opportunity before the marijuana companies.

Recommended Broker

Ally Invest offers an excellent platform to trade stocks, and at a price point that makes sense. Through TradeKing, they also have comprehensive research reports which are vital for investing in the Cannabis industry.

The marijuana market currently comprises several smaller players with limited market share. Therefore, most of them aren’t big enough to trade on the main exchanges and instead trade on the shady over-the-counter exchanges or is backed by venture capital funds.  Fairly protected from tough regulatory scrutiny due to the leeway for little to very little financial disclosure norms, some of them threaten to take investors for a ride.

Pump-and-dump operators fleece investors by artificially inflating stocks and then dumping them after making staggering profits.

Even if these are genuine companies, most of them are required to plough back all, and sometimes, even more than what they earn into the business. Therefore, they aren’t generally profitable for years together.

Why Invest In Marijuana Stocks?

The U.S. Marijuana Index, which has been in existence since January 2015, has been fairly volatile, which is the perfect recipe for a high risk-high return scenario. From a high of 126.98 in mid-January 2015, the index fell steadily over a year, reaching a bottom in mid-February of 2016.

After a small rebound and a consolidation move until August 2016, the index saw a pre-presidential-election run up on hopes of more states legalizing the weed. The index hit a high of 110.64 in late October 2016. Subsequently, it experienced a pullback and has currently settled around a support around 50.

The index is a compilation of the leading cannabis stocks operating in the U.S. Apart from the basic norm of the constituent companies having a business strategy focused on the marijuana industry, these stocks have to meet minimum trading criteria such as

  • Minimum market capitalization of $30 million
  •  Daily trading volume of $600,000
  • Stock price that is at least 10 cents

Companies having revenues of over $5 million per year are exempt from these listing standards.

Currently eighteen stocks make up the index.

Profiling The Hot & Happening Ones

Some of the best performers among the marijuana stocks have been:-

GW Pharmaceuticals PLC- ADR (NASDAQ:GWPH): Since its listing on the NASDAQ on May 1, cannabinoid drug maker GW Pharma has gained 1,110 percent. The gains are staggering, when compared to the NASDAQ Composite (INDEXNASDAQ:.IXIC), which has been up a more modest 94.81 percent in the same period.

This company, with a market capitalization of $2.75 billion, is considered to be more of a biopharma company developing therapies using cannabinoids. Its lead candidate, namely Epidiolex, a liquid formulation of cannabis-derived cannabidiol,  is being tested for several epilepsy syndromes.

GW Pharma’s Sativex, the first prescription medicine derived from the marijuana plant, has been approved for Multiple Sclerosis spasticity and neuropathic pain in 29 countries outside of the U.S.

The company earned revenues of $13.32 million in fiscal year 2016.

CANOPY GROWTH CORP COM NPV (OTCMKTS:TWMJF) has gained 156.8 percent since its listing in April 2014. This Canadian company is focused on inorganic growth, while it is also the beneficiary of being among the very few, which have got licenses to export marijuana to countries, which have legalized medical marijuana.

Canopy Growth’s revenues for the fiscal year ended March 31, 2017 were at C$39.90 million or $32 million.

APHRIA INC COM NPV (OTCMKTS:APHQF) is another Canadian marijuana company, which is primarily focused on organic growth. Since its listing in March 2015, the stock has gained 651 percent. The company reported revenues of C$20.44 million or $16 million for the fiscal year ended May 31, 2017.

Canada has been a land of opportunity for marijuana companies, most of which are homegrown. The nation approved medicinal use of weed about 20 years ago. According to data presented by Bloomberg, about 30 percent of young Canadians adults say they use marijuana recreationally.

The Canadian government has already passed a bill to legalize the growth, sale and consumption of recreational marijuana, which is expected to become a law by July 1, 2018.

Avenues of Marijuana Investing

There are several avenues for those investors, who are looking out for a promising opportunity in the marijuana industry.

  • Pure-play marijuana stocks chosen after careful investigation and vetting
  • Cannabis ETFs
  • Mainstream biopharma companies having a cannabis-based drug in the market
  • Stocks of companies exposed to the Cannabis Industry

Cannabis ETFs

Earlier this year, Canada launched its first ETF based on marijuana stocks, named Horizons Medical Marijuana Life Sciences ETF, which began trading on the Toronto Stock Exchange. This ETF has 14 underlying stocks, with bulk of them being Canadian companies.

In February, the ETF Managers Tryst filed with the SEC to launch an ETF called the Emerging AgroSphere ETF, which was supposed to use a replication strategy. The index to be replicated by the fund was created by BE Asset Management and tracked the performance of exchange-listed common stock or corresponding ADR or GDR of

  • companies engaged in lawful medical research to produce government-approved prescription drugs using natural or synthetic versions of CBD and other cannabis-based extracts
  • production or sale of products which are legal derivatives of industrial hemp
  • involved in the supply chain of either category of company.

Mainstream Biopharma Companies With Cannabis-based Drug

Some biopharma companies along with the rest of their regular drug pipeline might also have one or more cannabis-based drugs in their portfolio.

AbbVie Inc (NYSE:ABBV)’s Marinol, which is a synthetic form of THC, has been approved for chemotherapy-induced nausea and vomiting and anorexia, resulting from AIDS or cancer.

Insys Therapeutics Inc (NASDAQ:INSY) has two FDA-approved drug, one named Subsys, which is a regular drug and fetched the company the lion’s share of its revenues, another named Syndros, which is an oral dronabionl solution or a synthetic form of THC just like AbbVie’s.

Valeant Pharmaceuticals Intl Inc (NYSE:VRX)’s Nabilone, marketed under the trade name Cesamet is a synthetic cannabinoid. It is used to treat nausea and vomiting associated with cancer chemotherapy in patients who have failed to respond adequately to conventional anti-emetic treatments.

Companies Exposed to Marijuana Industry

Scotts Miracle-Gro Co (NYSE:SMG) has exposure to the industry by way of its hydrophonics business used for marijuana growing. Hydrophonics is a technique of growing plants without soil. It also supplies pesticides for the marijuana industry

Led manufacturer Cree, Inc. (NASDAQ:CREE) has a very surprising marijuana exposure. The marijuana industry traditionally uses high-pressure sodium lights to grow cannabis. Given the environmental unfriendliness and high cost of this option, Cree’s LED lighting is now being considered a viable alternative to the traditional one.

There are a plenty of options now to be on the high with respect to marijuana investing. However, a word of caution for those looking at marijuana stocks as an investment option is to do the homework thoroughly so that you are not caught napping.