Marijuana stocks are starting to catch fire again, and medical use may lead the way
It hasn’t been easy to be bullish on marijuana stocks in the last few years. After hitting the market with their own bubble in 2018, pot stocks have had a rough go of it. But that looks to be changing. And it could be medical marijuana that is leading the way.
According to the firm Data Bridge Market Research, the compound annual growth rate (CAGR) of the global medical marijuana market is projected to be 20.25% through 2027. That would value the market at approximately $82 billion in six years. And it would also outpace the CAGR of the total marijuana market which Grand View Research has at 14.3% through 2028.
There are several reasons for this anticipated growth. First, we have an aging population that is looking for alternatives to traditional pain relief solutions. Second, in addition to pain relief, marijuana is most commonly used for conditions such as anxiety and depression which are conditions widespread throughout demographic categories. Yet another reason is that states are trying to repair budget caps and need the revenue that cannabis can deliver.
And just like the recreational market, it’s likely to be the United States leading this charge. Even before President Joe Biden’s Administration got cannabis bulls fired up over the prospect of legalizing marijuana, a majority of the United States had already legalized marijuana for medical use. Today that number stands at 35 states.
Cannabis is still a volatile sector. Only you can decide the right time to enter a position or add to an existing one. However here are seven medical marijuana stocks that you should have on your watch list.
- Canopy Growth (NASDAQ:CGC)
- Hexo (NYSE:HEXO)
- GW Pharmaceuticals (NASDAQ:GWPH)
- Cronos (NASDAQ:CRON)
- Cresco Labs (OTCMKTS:CRLBF)
- Curaleaf (OTCMKTS:CURLF)
- Innovative Industrial Properties (NYSE:IIPR)
Marijuana Stocks: Canopy Growth (CGC)
When it comes to marijuana stocks, you have to include Canopy Growth on the list. In fact, it’s fair to start with Canopy. With a market cap of around $10 billion, the company is the largest cannabis company in the world. Although Canopy has only posted one profitable quarter, it is beginning to see revenue gains, largely in its home country of Canada. In fact, in its most recent quarter, Canopy posted record revenue of $153 million.
Canopy also distributes medical marijuana internationally, including Germany, which is another large market. However, the company will have the best opportunity to deliver at the scale that is needed once the United States is fully open for business. The $4 billion reason for that optimism centers around the investment made by Constellation Brands (NYSE:STZ). Constellation is working with Canopy to help develop a line of cannabis-infused beverages. However, this will also give Canopy a toe-hold in the United States.
CGC stock is up 82% in the last 12 months, but is only up 7% in 2021.
Hexo is another of the medical marijuana stocks that tried to benefit from the infused beverage market. However, Hexo’s relationship with Molson Coors (NYSE:TAP) didn’t go as planned. But Hexo is taking another bite at the acquisition apple. This time the target is Zenabis Global (OTCMKTS:ZBISF), which Hexo is acquiring for $186 million.
This is par for the course as the cannabis sector enters into the consolidation phase of its business cycle. With this acquisition, Hexo is making a strong case that it’s here for the long haul. Hexo is not one of the largest cannabis companies. In fact, analysts predict a 2021 revenue increase of around 25%.
However, analysts are more impressed by the company’s diversified product line, which will be enhanced with the Zenabis acquisition. And Hexo’s home province of Quebec is Ontario’s largest (by population). While Quebec experiences significant difficulties getting up and running, Hexo is positioned to be a big winner as conditions improve.
HEXO stock is up 168% in the past 12 months and has surged 43% so far in 2021.
GW Pharmaceuticals (GWPH)
GW Pharmaceuticals has the feel of a biotech more than a cannabis company. The company’s most recognizable product, and its highest revenue generator, is Epidiolex a CBD drug that is approved for use in the United States and Europe.
The good news is that in 2020, Epidiolex delivered a 70% year-over-year revenue gain, accounting for $510.5 million in sales. The bad news is that Epidiolex made up all but approximately $17 million of the company’s revenue for the year.
That would be reason enough to include GWPH stock on this list. But since the announcement that it will be acquired by Jazz Pharmaceuticals (NASDAQ:JAZZ), the stock has soared even higher. With a price as of this writing about $5 above the merger price of $214, GWPH stock is not the best bet. However, once the merger is complete, Epidiolex is likely to be a driver of growth for the new company. And GW has other products in its pipeline.
At one point this year, CRON stock was up 124%. And this wasn’t because Cronos was a meme stock. Investors were excited about the company’s partnership with Altria (NYSE:MO) that has brought financial stability to the company. Altria holds a $1.8 billion stake in the company that is focused on delivering cannabidiol (CBD) wellness products. The company has international production and distribution that spans five continents.
As you consider investing in marijuana stocks in 2021, you need to pay attention to the differentiation that cannabis companies are offering. For Cronos, that means focusing on developing intellectual property that is changing the way cannabis products are manufactured. If the company is successful with initiatives such as laboratory-grown cannabis, they will become a much more competitive player in this sector.
The company is not yet consistently profitable, but it did deliver positive non-GAAP earnings in two of the last four quarters. Plus, Cronos delivered a 97% year-over-year increase in revenue in 2020. And in each of the last two quarters the company has set a new record for revenue.
Cresco Labs (CRLBF)
Cresco Labs is the first of two multi-state operators (MSOs) that make this list of medical marijuana stocks. What the U.S. market may eventually become is unclear. But until marijuana is legalized at the federal level, MSOs will be leading the way.
Cresco has operations in nine states totaling 19 retail locations. The big prize for Cresco is the California market, which has the largest market for legal marijuana in the country.
Prior to 2021, Cresco Labs was rewarding investors with slow and steady growth. But that all changed in February. CRLBF stock got swept up in the market mania and soared 43% in the first few weeks of trading. The stock has given up most of those gains, but with the expectation that the company will open more retail locations, including in California, the company has more room for growth.
Specific to its medicinal marijuana efforts, Cresco recently acquired Bluma Wellness, another vertically integrated company. This gives Cresco exposure to the Florida market.
The operative phrase for Curaleaf in 2020 was “growth through acquisition.” And the company isn’t done growing. Curaleaf operates in 23 states and is the largest medical marijuana distributor in New Jersey. With New Jersey’s upcoming legalization date fast approaching, CURLF should see a significant bump in business in a state it already has a sizeable market share of.
And unlike the Canadian cannabis companies that are trying to get into the United States, Curaleaf is successfully exporting into other markets, such as Europe, which is forecasting a CAGR of 29.6% through 2027. Here again, Curaleaf is forecasting growth through acquisition. In this case, the target is EMMAC Life Sciences Group, Europe’s largest independent cannabis company.
Aside from the company’s revenue growth, Curaleaf is showing the ability to slow its cash burn. This is leading some analysts to believe that the company may turn profitable in 2021.
Among analysts, Curaleaf has a consensus buy rating and a price target of $22.50. That would be a gain of 43% from the stock’s current level.
Innovative Industrial Properties (IIPR)
The last of the medical marijuana stocks to look at is Innovative Industrial Properties. For the unfamiliar, the company isn’t a grower or a distributor. It’s a real estate investment trust (REIT) and it is the leading real estate provider for the medical cannabis industry in the United States.
Innovative Industrial Properties provides climate-controlled greenhouses to cannabis companies. This allows companies, particularly MSOs, to scale up quickly. And for its part, IIP (who buys properties from medical marijuana companies) gets the consistent revenue that comes when they lease the property back to the operators.
The company currently operates in 17 states, which is up from 14 in 2019. And, unlike other companies on this list, is profitable. Plus, as a REIT, the company is required to distribute at least 90% of its taxable income back to investors via a dividend. And IIPR stock is giving investors some nice growth potential. It’s up 143% in the last 12 months.
Note: This article originally appeared at InvestorPlace.
On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for Investor Place since 2019.