Marijuana—or cannabis, to use the all-encompassing term—is one of the fastest-growing industries in America. Marijuana stocks are growing even faster.
It’s not hard to understand why.
Canada has legalized the drug nationally, and since the switch in that country was flipped, companies in Canada have been struggling to find enough marijuana supply for the booming legal market.
Here in the U.S., federal marijuana law hasn’t changed yet, but state by state, legalization is progressing, and hemp is now legal nationwide, which has been a boon to the CBD industry.
Cannabis Stocks to Consider
Aphria (APH), Aurora (ACB), Canopy Growth (CGC) and Cronos (CRON) are the leaders to watch in Canada, but they are all overvalued to some extent, while HEXO (HEXO), Organigram (OGRMF) and The Green Organic Dutchman (TGODF) are not as famous and are also better values.
In the U.S., meanwhile, the feds still have a ways to go before full legalization of cannabis, but state-by-state, progress is being made, and vertically integrated multi-state operators are getting big fast.
Marijuana stocks to consider here are Acreage Holdings (ACRGF), Cresco Labs (CRLBF), Curaleaf (CURLF), Green Thumb Industries (GTBIF), Ianthus (ITHUF), MedMen (MMNFF) and Trulieve (TCNNF).
And then there are the CBD companies! Since the Farm Bill was passed, this sub-sector of the industry has been booming, as consumers, spurred by the experience of friends, try CBD for whatever ails them. From insomnia to PMS, arthritis to PTSD, there’s a chance, according to proponents, that CBD can help.
Cannabis stocks to watch here include CBD Unlimited (EDXC), Charlotte’s Web (CWBHF), CV Sciences (CVSI), Elixinol (ELLXF), and Isodiol (ISOLF), as well as English pharmaceutical giant GW Pharmaceuticals (GWPH).
How to Choose Marijuana Stocks
I like to use four principal factors when evaluating marijuana stocks.
Growth is first. If a company isn’t growing revenues at a very good pace, it doesn’t warrant my attention. As I write, the average company in my marijuana portfolio increased revenues 298% in the latest quarter compared to the year before. Business is booming! So if a prospect is not growing revenues at a rate of at least 100%, I probably won’t consider it.
Story is second. I need to see a story that tells me 1) that this company can grow fast and become one of the long-term winners in the industry or 2) that this company, while it isn’t growing fast, has a rock-solid defensive position that will enable its stock to resist the occasional big correction in the sector.
Chart is third on this list, though it could easily be first. The movement of the chart reflects everything that investors know about the company and its prospects, so if the chart doesn’t tell me that investors’ perceptions of the company are improving, I’m not buying, regardless of the story.
Value is definitely last in this list when it comes to marijuana stocks. These companies are growing so fast—and so few have real earnings—that traditional valuation metrics are next to useless. So I look at relative valuations in the group, looking at the price/sales ratio (PSR) of each stock, and that has been helpful.
*This post has been updated from a previously published version.