These 12 Pot Stocks Soared by Double Digits in July

For those of you nauseated by the stock market volatility this year, understand that you have nothing on the roller-coaster ride that cannabis stock investors have been on since 2017…

Through the first quarter of 2019, marijuana stocks were virtually unstoppable. With tens of billions of dollars in sales being conducted each year in the black market, it seemed only logical that legalizing adult-use weed in Canada, and at the state-level in multiple U.S. states, would lead to rapid growth in legal pot channels. In many instances, all it took was a promise of capacity expansion or an acquisition announcement to send pot stock valuations to the heavens.

But a combination of expected growing pains and reality struck the sector in April 2019. For the following 15-month period, pot stocks were in a tailspin. Throughout North America, we’ve witnessed production facilities shuttered and layoffs made as cannabis stocks aim to bring output in-line with supply. In the meantime, most marijuana stocks lost 50% or more of their value.

Then July 2020 hit, and the sun shone brightly on pot stocks once again. Last month, 12 prominent cannabis companies delivered a double-digit return for their shareholders:

  • Planet 13 Holdings (OTC:PLNH.F): 77.9%
  • Curaleaf Holdings (OTC:CURL.F): 38.3%
  • Cresco Labs (OTC:CRLB.F): 38.1%
  • Green Thumb Industries: 34.2%
  • Trulieve Cannabis (OTC:TCNN.F): 29%
  • GrowGeneration (NASDAQ:GRWG): 23.4%
  • Acreage Holdings: 22%
  • Harvest Health & Recreation: 19.2%
  • Innovative Industrial Properties (NYSE:IIPR): 18.4%
  • Scotts Miracle-Gro (NYSE:SMG): 17.9%
  • Canopy Growth (NYSE:CGC): 13.1%
  • Aphria: 11.3%

Why these marijuana stocks and not their peers? Let’s take a closer look at a handful of trends that emerged from July.

The U.S. is kicking “bud” and taking names

If there’s one thing that clearly stands out, it’s that the 10-best performers from July are all U.S. marijuana stocks. Canadian regulators completely blew their country’s chance at becoming a cannabis leader, which has opened the door for the U.S. to take its place, even if the federal government has stood pat on its classification of weed as a Schedule I (i.e. illicit) substance.

No matter who wins the White House in November, state-level legalizations are likely to continue in the United States. Despite having to set up potentially redundant cultivation and processing sites around the country, multistate operators (MSO) have shown that this can still be a high-growth and (eventually) profitable venture.

Cresco Labs, for example, is expected by Wall Street to grow its sales by 186% in 2020 and another 80% next year. Some of this sales growth has to do with Cresco closing on its acquisition of cannabis distribution company Origin House in January, which’ll allow it to place its products into more than 575 dispensaries in California. Cresco is also benefiting from opening eight locations in Illinois, which began allowing recreational marijuana sales on Jan. 1, 2020.

The same can be said for Curaleaf, which leads all MSOs in operational dispensaries. Curaleaf completed its game-changing acquisition of privately held Grassroots on July 23, which increased its open dispensary count to 88. Curaleaf has the ability to open as many as 135 retail locations spanning 23 states. It looks like a sure shot to hit $1 billion in yearly sales in either 2021 or 2022.

Ancillary players in the growing space are performing well

Although ancillary players — i.e., companies supporting the pot industry without touching the plant — have been very hit-and-miss to this point, companies focused on helping indoor cultivators improve their yields, like GrowGeneration and Scotts Miracle-Gro, are doing extremely well.

What’s particularly interesting about these returns is that we’ve seen Canadian licensed producers close some of their indoor greenhouses in favor of cheaper outdoor grow farms. The strength from GrowGeneration and Scotts Miracle-Gro would seem to imply that it’s not entirely a price proposition when it comes to growing cannabis. Though value matters, quality will still be important.

GrowGeneration, which operated a little over two dozen hydroponic and organic garden centers at the end of March, reported 152% sales growth in the first quarter, with same-store sales growth of 58%. Yes, expansion is accounting for a lot of this growth, but 58% same-store growth is very impressive.

Meanwhile, Scotts Miracle-Gro released its results for the quarter ending on June 27 last week. Companywide sales soared…

Continue reading at THE MOTLEY FOOL



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