At times, marijuana stocks have the ability to be the best-performing stocks in the market. They can catch fire — no pun intended — on headlines or reports and scorch higher. During some of these runs, it’s not odd to see the stocks double or triple in value over a short period of time…
A high level of short interest also helps spark a nice move. In other words, bears put on a number bets to the downside, shorting these stocks as they look for a big move lower. Oftentimes, these bears get exactly what they’re looking for, as marijuana stocks tend to be a volatile bunch.
However, sometimes these bets backfire.
High short interest can lead to a short squeeze, like what we saw with GameStop (NYSE:GME) and all of the Reddit hype earlier this year. These large short positions have to be unwound through buy orders and when coupled with natural buyers, can really help drive the stock price higher.
As authorities continue to decriminalize and legalize cannabis use on a state-by-state basis, investors are also waiting on a more favorable federal stance.
As that likelihood draws closer, let’s look at seven marijuana stocks to buy.
- Canopy Growth (NYSE:CGC)
- Constellation Brands (NYSE:STZ)
- Aphria (NYSE:APHA)
- Tilray (NASDAQ:TLRY)
- Cronos (NASDAQ:CRON)
- GrowGeneration (NASDAQ:GRWG)
- Curaleaf (OTCMKTS:CURLF)
For comparison purposes, we are measuring year-to-date performance against the ETFMG Alternative Harvest ETF (NYSEArca:MJ), a cannabis-focused exchange-traded fund with a 32-stock portfolio that includes five of the eight stocks that follow. The ETF is up 47.6% for the year versus an 11.8% increase in the S&P 500 index.
Marijuana Stocks to Buy: Canopy Growth (CGC)
YTD: +11.24% vs. MJ +47.6%
Perhaps the best-known name on this list, we couldn’t begin any story about cannabis without starting with Canopy Growth. It’s considered a blue-chip cannabis company, as it has one of the strong balance sheets and best management teams.
Thanks to a sizable investment from an outside investor — namely, Constellation Brands (see below) — the company will not run out of funds before business really starts humming. Not only does that buy investors peace of mind, it also buys the company time to do things right.
There’s nothing worse than a company that has its back against the wall with limited resources and not enough time to properly execute its strategy. Plus, the additional cash allows Canopy, a Canadian company, to make the necessary investments and acquisitions here in the U.S.
If the U.S. were to legalize marijuana at the federal level, the market would be far larger than the Canadian market. Even just the legalization of a few more U.S. states would surpass the Canadian population.
Luckily, Canopy continues to position itself for the ever-loosening restrictions in the U.S. markets and I would expect this company to be one of the big winners down the road.
Analysts expect solid growth over the next few years, allowing Canopy to go from $440 million in expected revenue this year to more than $866 million in two years. On the flip side, Canopy still operates at a loss, but because of its beefy balance sheet, it’s creating little concern for investors.
Constellation Brands (STZ)
YTD: +10.2% vs. MJ +47.6%
Want exposure to marijuana stocks but feel that the group is too volatile, speculative or aggressive? Well then it might be worth considering Constellation Brands.
Constellation is a well-known beverage company, with its largest brands including Corona and Modelo. The company recently introduced its Corona hard seltzer lineup, which did well after launch. It also owns several wine brands and spirits, perhaps most notably with its Casa Noble tequila line.
But for our purposes, it also owns a 38.6% stake in Canopy Growth. If it were to exercise the remainder of its warrants, the company could own more than 55% of Canopy.
In that sense, investors who are looking for a more stable investment, Constellation may be what they’re looking for. It may lack some of the upside that these pure marijuana stocks are capable of, but it also sidesteps a lot of those nasty pullbacks.
The company is a steady grower in regard to the top- and bottom-lines, but also sports a reasonable valuation. For those that care about…
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