The best marijuana stocks to buy are those that go outside the box for growth
Google the words “marijuana stocks to buy,” and you get hundreds of thousands of results. Investors remain enthusiastic about weed’s future despite all the ups and downs the global industry has experienced in recent years.
When it comes to marijuana investments, I’ve always been partial to those companies whose business strategy goes well beyond the flower into other products such as edibles and cannabis-infused drinks.
That said, I’m not suggesting businesses that focus on growing and producing excellent flower are wrong to do so — different strokes for different folks.
All I know is that this cannabis thing is catching on. Knowing which marijuana stocks to buy is critical for today’s investor.
Here in Nova Scotia, where I live, the Nova Scotia Liquor Commission (NSLC) just reported its annual sales. Cannabis revenue jumped 21.1% in the fiscal year ended March 31, to 86 million CAD ($70 million), or almost 11% of the crown corporation’s total sales.
And while it doesn’t break down the cannabis sales by type of product, I’m confident the non-flower sales are gaining ground on dried flower and pre-rolls.
With this in mind, here are 10 marijuana stocks to buy that are moving beyond the flower:
- Canopy Growth (NASDAQ:CGC)
- Tilray (NASDAQ:TLRY)
- Cronos Group (NASDAQ:CRON)
- Hexo (NYSE:HEXO)
- OrganiGram Holdings (NASDAQ:OGI)
- Valens Company (OTCMKTS:VLNCF)
- Neptune Wellness (NASDAQ:NEPT)
- Auxly Cannabis Group (OTCMKTS:CBWTF)
- Coffee Holding Co. (NASDAQ:JVA)
- Indiva (OTCMKTS:NDVAF)
Marijuana Stocks to Buy: Canopy Growth (CGC)
As one of the largest global cannabis companies, Canopy delivers a diversified product line that runs the gamut from dried flower to oils, concentrates and even hemp.
How many cannabis brands get to say they have Martha Stewart on their team? Her CBD products are likely to be very successful in the U.S. marketplace.
When it comes to beverages, Canopy delivers a one-two-three punch. First, there is BioSteel Sports Nutrition, the number one sports nutrition product in the world. Second, it’s partnered with actor Seth Rogen to produce Houseplant cannabis-infused sparkling water in Canada and the U.S. Lastly, it launched Quatreau cannabis-infused sparkling waters in Canada in November 2020. In March, it launched Quatreau in the U.S.
2021 looks to be the year Canopy Growth becomes the company everyone thought it could be.
The merger of Tilray with Aphria brought together some very successful brands in the food and beverage space.
Aphria had Sweetwater Brewing, which it acquired in November 2020 for $300 million. It brings beverage experience to the table as it wades into the growing cannabis-infused drinks market. Tilray brought Everie to the table, the first product out the door from its Fluent Beverages joint venture with Anheuser-Busch InBev (NYSE:BUD).
Expect a lot more to come down the pike now that Aphria CEO Irwin Simon is in charge of the entire business. And some believe Tilray could be the next big short squeeze candidate.
Post-merger, the company’s not sitting still. On June 10, Tilray launched Symbios, a medical brand that will complement its other medical cannabis brands. Available at cheaper price points, it’s become the company’s value play in the medical space.
Marijuana Stocks to Buy: Cronos Group (CRON)
While this article focuses on products beyond dried flower, I would be remiss if I didn’t mention that Cronos Group made a strategic investment on June 14 that sees it buy an option to acquire 10.5% of PharmaCann for $110.4 million. The option’s exercise is predicated on the U.S. federal government legalizing cannabis.
The company is one of the largest vertically integrated cannabis companies in the U.S., with operations in six states, including 23 dispensaries operating under the Verilife brand.
On the product front, Cronos Group offers tincture oils through its Peace Naturals brand; edibles and vape products through Spinach, which is available only in Canada; CBD-infused skincare and edibles through Lord Jones; and Happy Dance CBD skincare from actress Kristen Bell.
And, of course, who can forget the multi-billion stake Altria (NYSE:MO) has in Cronos, enabling the cannabis company to make deals like the one it made with PharmaCann.
Compared to its share price in 2019, Hexo is still well off those highs. Nonetheless, a 57% gain year to date through June 16 has got to feel good for the Ottawa-based company.
I’ve written a lot about Hexo in the past year. Still, it’s always remained on my list of cannabis stocks to buy, primarily because of its Truss Beverages joint venture with the Canadian division of Molson Coors (NYSE:TAP). It owns 42.5%, while Molson Coors owns 57.5%.
The last time I wrote about Hexo was in December. I was very upbeat about its joint venture at the time.
“I continue to believe that Hexo’s best hope is Truss Beverages. Now that it’s got a share price high enough to stay on the NYSE, I’d look for good news in 2021 to push it to $2 and beyond,” I wrote on Dec. 10.
“It’s been a rough ride for the Quebec company, but patient investors ought to be rewarded.”
Well, they have been.
Given Hexo has been busy making acquisitions — it’s closed on Zenabis and will close on 48North (OTCMKTS:NCNNF) and Redecan in the future — and Truss has been busy capturing market share — 46% of the Canadian cannabis beverage market — you can rest assured that future gains ought to take it to double digits in 2021.
Marijuana Stocks to Buy: OrganiGram Holdings (OGI)
At the end of May, OrganiGram announced it had hired Megan McCrae as its senior vice president of marketing and communications. With 17 years of consumer packaged goods marketing experience, McCrae’s biggest attribute may well be that she was Aphria’s chief marketing officer until recently. She knows the business.
“Megan’s tremendous marketing expertise and insight, as well as her personal commitment to the growth of Canada’s cannabis market, will help set a powerful strategic roadmap for the future of Organigram’s established and emerging portfolio of brands and products,” stated Executive Chair Peter Amirault.
Some of these emerging products include edibles such as chocolates and soft chews. In April, I discussed the company’s push into edibles.
“Currently, the edibles business has a 4.4% share of the overall Canadian recreational cannabis market. Organigram expects this share to grow to between 12% and 15% over the next few years, just as it has in the U.S. It also expects that soft chews will grow to represent 85% of the edibles market in Canada,” I wrote on April 12.
OrganiGram continues to make the moves it needs to remain competitive in the Canadian and global cannabis space. I expect it to report more news in the weeks and months ahead.
Valens Company (VLNCF)
In April, the Valens Company announced it would acquire Green Roads, the largest privately owned CBD company in the U.S., for $40 million and the possible earnout of an additional $20 million based on reaching certain EBITDA (earnings before interest, taxes, depreciation and amortization) milestones in fiscal 2022.
The cash-and-stock transaction gives it access to the U.S. CBD market, where it holds the second-highest share of the market. Together, the two companies had pro forma annual revenue in 2020 of 111.6 million CAD ($90.3 million).
“The acquisition of Green Roads represents only the first step in our US expansion strategy as we expect to continue to unlock complementary, revenue-generating opportunities while we forge our presence and build our reputation in the world’s largest cannabinoid market,” stated Valens CEO Tyler Robson in its April press release.
What makes Valens interesting is that its business strategy focuses largely on making and creating cannabis products for others. As page three of the company brochure states, “[It is] the largest custom manufacturer of cannabis products in Canada servicing both recreational and medical markets.”
I’ll be following its future very closely.
Marijuana Stocks to Buy: Neptune Wellness (NEPT)
Neptune Wellness is a Montreal-based health and wellness company that started in the late 1990s commercializing krill oil rich in omega-3 fatty acids. In 2017, it decided to retrofit its Quebec plant to apply its extraction experience in the cannabis market.
In August 2020, Neptune Wellness launched its proprietary Mood Ring cannabis brand for the Canadian market.
“Mood Ring CBD products primarily target wellness focused consumers looking for natural products, whereas Mood Ring THC concentrates focus on the recreational market,” stated the company’s Q3 2021 quarterly report.
“Mood Ring will use Neptune’s proprietary cold ethanol extraction process technology to create full spectrum extracts for the Company’s tincture and capsule products and newly implemented solventless extraction for THC concentrates.”
In addition to its Mood Ring brand of CBD and THC capsules and oil acquired a controlling interest in Sprout Foods in February. Sprout makes organic baby food. It had $28 million in annual revenue.
This is an interesting business that continues to transition from business-to-business operation to focus on consumer packaged goods. While it’s a work in progress, the upside rewards for speculative investors could be significant.
Auxly Cannabis Group (CBWTF)
Canadian cannabis company Auxly finished 2020 with 12% of the edibles market in Canada and 19% of the vapes category. In fact, it was the number one licensed producer in Canada for Cannabis 2.0 products with a 14% market share.
The company has a six-point plan on its path to profitability. Cannabis 2.0 products are a big part of that plan. In 2020, Cannabis 2.0 products accounted for 19% of the Canadian market, and they’re growing like weeds. By 2025, these products are expected to account for 47% of Canadian cannabis sales.
And Auxly’s going to be at the front of that parade.
That doesn’t mean it’s turning its back on dried flower and pre-rolls. Rather, it’s evolving its portfolio to meet the needs of Canadian consumers.
On June 14, Auxly announced it had sold 54.8 million units at 31.5 cents CAD (25.5 cents), raising 17.25 million CAD ($13.96 million), including the exercise of the over-allotment. The units include one common share and half a warrant to purchase an additional share for 38 cents CAD (31 cents) in the next 36 months.
While Auxly’s got a checkered past, CEO Hugo Alves seems to be doing his best to right the ship.
Marijuana Stocks to Buy: Coffee Holding Co. (JVA)
I selected this relatively unknown commodity because of its 49% ownership stake in The Jordre Well, an incubator for hemp and CBD brands. The Jordre Well was recently issued a three-year hemp processing license by its home state of Ohio.
The company has been around since 1971. It went public in 2005 under the leadership of CEO Andrew Gordon, whose family has been associated with the company since its founding. Gordon remains CEO and one of its largest shareholders. Another large shareholder is Renaissance Technologies, the investment firm run by Jim Simons. It owns 8.4% of JVA’s stock.
As a result of its cannabis connection, Coffee Holding is in the process of rolling out its line of CBD-infused coffee products under its Café Caribe and Harmony Bay brands. The license from the state of Ohio was part of the company’s plan to get multiple facilities across the U.S.
Despite a 28% decrease in Q2 2021 sales due to Covid-19, Coffee Holding still managed to generate a profit of six cents per share in the quarter. It reported that initial testing of its CBD products by customers has been positive.
If you like your investments really out there, JVA is right up your alley.
Anyone who follows Sundial Growers (NASDAQ:SNDL) is likely familiar with Indiva. Sundial owns 18.45% of the London, Ontario, cannabis company.
In early June, I wrote that if I had to make a speculative bet between the two companies, I’d go with Indiva because of its strong branding.
When it comes to edibles and the Canadian market, there is no question who the 800-pound gorilla is. Indiva’s Bhang chocolate and Wana gummies brands control 48% of the Canadian edibles market.
“As for Indiva, getting the Canadian rights to Wana was brilliant,” I wrote on June 1.
“However, Canada has a relatively small domestic adult-use cannabis market. The owners of Wana in the U.S. have a much bigger opportunity. Canada was probably an afterthought for them.”
They say that luck is what happens when preparation meets opportunity. Indiva took the opportunity and ran with it. The upside remains tremendous.
“People need to remember, remember that Edibles weren’t even [legal] until December of 2019 and really didn’t start getting into the market until January 2020. So, the entire Canadian edibles market is not even a year and a half old,” Indiva CEO Niel Marotta said in its Q1 2021 conference call.
This is a diamond in the rough.
Note: This article originally appeared at InvestorPlace.
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On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.