When it comes to cannabis stocks, what can get lost in the “weeds,” so to speak, is the gains that these names have provided on a year-to-date (YTD) basis. Yes, the sector has roughly halved from its February peak. However, many long-term investors that haven’t touched their weed stocks since the beginning of the year still have paper gains on the books at the time of writing.
Many of the publicly traded cannabis players available to investors right now happen to be domiciled in Canada. And, due to the various banking and listing restrictions in the United States, they are prohibited from selling THC products in the U.S. market.
But the rate of growth north of the border is something cannabis investors will want to watch closely. The Canadian market isn’t one that typically gets a lot of attention. However, when it comes to weed stocks, it’s where a lot of the action is right now.
Canada reported some pretty impressive growth in legal cannabis sales last year. Revenues from legal sales grew 120% over 2019 to $2.1 billion. Additionally, legal sales surpassed “illicit” sales for the first time in the country’s history. Nine out of Canada’s ten provinces saw growth.
As the first major economy to legalize cannabis for recreational purposes, the Canadian growth trajectory in this industry will likely be looked to as a key indicator for how other major economies perform post-legalization. So, for those honing in on the Canadian market today, here are seven weed stocks to keep an eye on right now:
- Canopy Growth (NASDAQ:CGC)
- Tilray (NASDAQ:TLRY)
- Aphria (NASDAQ:APHA)
- Aurora Cannabis (NYSE:ACB)
- Hexo (NYSE:HEXO)
- Cronos (NASDAQ:CRON)
- Organigram (NASDAQ:OGI)
Weed Stocks to Buy: Canopy Growth (CGC)
With a market capitalization of more than $10 billion, Canopy Growth is a formidable player in the Canadian cannabis space. In fact, it’s been the forerunner in this sector for some time.
Yes, the combined Tilray-Aphria will be larger upon completion. For now, though, CGC stock is the bellwether name that most investors look to when they think about the Canadian weed stocks.
Formerly known as Tweed, this company has built a significant market share in Canada across both recreational and medical cannabis. CGC’s core products and brands have spurred large investment interest not only in Canada, but from the U.S. as well. Investors may also remember that beer maker Constellation Brands (NYSE:STZ) took a large stake in Canopy in recent years. The company effectively owns roughly 40% of Canopy after exercising warrants last year.
In addition to its Canadian business, however, Canopy also acquired Acreage Holdings in a deal which was repriced to $843 million, down from the original price of $3.4 billion in 2019.
Investors are hopeful this Acreage deal will result in a beverage line being rolled out in the U.S. in the summer of 2021. Given Acreage’s U.S. exposure, investors have something to be excited about with CGC, especially with the recent speculation around U.S. federal legalization of late.
Okay, now on to that Tilray-Aphria deal I just mentioned. The combined firm will be the largest in Canada — and the world for that matter — upon completion. Additionally, this deal looks closer than ever to being approved. This month, Aphria shareholders voted in favor of the combination.
So, it seems this company is full-steam ahead on its combination efforts. The deal is expected to close sometime in the second quarter of this year. Of course, regulators still need to approve the deal in Canada, the U.S. and Germany. However, all indications are this combo is likely to happen.
Now, U.S. multi-state operators (MSOs) are growing fast, so I’d expect this global leadership to eventually be eclipsed at some point. For now, though, TLRY stock is the pre-eminent name that many cannabis investors are watching right now.
Tilray’s market cap of around $3 billion previously placed this company as a top-tier player in the space, albeit smaller than Aphria (which has a market cap of $4.6 billion today). Now, it’s expected that Aphria stakeholders will own roughly 62% of outstanding Tilray shares upon completion.
Lately, TLRY has been one of investors’ favorite weed stocks. Shares were bid up to as high as $67 following the recent meme-stock mania earlier this year. Right now, though, investors can pick up shares of the stock for just under $18 apiece.
Given the pending merger and the aggressive cost-savings targets associated with the deal, investors may be getting a steal with Tilray today.
Weed Stocks to Buy: Aphria (APHA)
Now, as the company that is likely to come out the winner in this mega-merger, Aphria shareholders may have more to like about the deal.
After all, they’ll own the majority of shares of the combined entity. And, the company’s move into the U.S. via its acquisition of Sweetwater Brewing for $300 million late last year positions Aphria well to take advantage of the growth in the U.S. “cannabis 2.0” products segment.
Indeed, one of the key profitability drivers for cannabis producers over the long-haul will be the ability to increase margins over time with new products. These 2.0 products include CBD-infused beverages, oils, vapes and other value-added products with higher margins.
Cannabis is a commodity — just like corn, wheat or soy beans. Long-term, cannabis producers will be price-takers, with little ability to increase their margins over time outside of value-added activities within the processing of these raw materials and other vertical-integration across the supply chain.
In this sense, APHA stock appears to be well-positioned over other weed stocks. I like the company’s existing verticals. Additionally, I think the value added from its deal with Tilray should create scale. This scale should provide investors with a larger moat over the long haul. That’s a great thing.
Aurora Cannabis (ACB)
Recently, Aurora Cannabis has been under pressure. Shares have traded relatively flat over the past year and are only slightly up on a YTD basis. Using the company’s 52-week high of $19.68, ACB stock is down more than 55% from its peak.
Now, this is generally in line with the broader sector. However, Aurora’s stock has been slightly more volatile than other weed stocks. I think a significant reason for this is the company’s focus on premium cannabis product lines spanning both the medical and recreational spaces. However, investors seeking higher margin growth may be enticed to take a look at Aurora as a winner in this segment of the market.
According to Aurora’s website, the company remains focused on “state-of-the-art facility engineering, cannabis breeding, research, and industry-leading product development, creating brands that break through wherever they are launched.” Additionally, Aurora has entered the U.S. CBD market through its Reliva brand.
Like its peers, Aurora is attempting to position itself as a key player in the U.S. cannabis market prior to legalization. How this translates into the THC market remains to be seen. However, it appears there’s some unique upside to ACB stock that analysts like right now.
Weed Stocks to Buy: Hexo (HEXO)
HEXO stock is one of those diversified Canadian weed stocks that long-term investors will want to focus on.
Why? For starters, Hexo has strong domestic production, particularly in its home province of Quebec. The company’s multi-year distribution contract is something many investors focus on, especially because Quebec has a way of treating home-grown companies better than other provinces. So, from a domestic standpoint, Hexo has found a great regional niche market to dominate.
Importantly, though, Hexo has also actually made decent headway in growing its international portfolio. For example, the company has been making deals in Israel and Europe, bolstering its footprint outside of Canada. Further, like its Canadian peers, Hexo is currently pretty much on the sidelines when it comes to the U.S. markets. However, its international deals should offer solid upside for investors seeking cannabis players with geographic diversification today.
In my view, though, the real investment thesis for Hexo right now is its beverage division. The company’s partnership with Molson Coors (NYSE:TAP) has tons of potential over the long term. Launching CBD-infused beverage lines in the U.S. will continue to grow Hexo’s market share in the cannabis-infused beverage market.
One of the few weed stocks that’s still up on a YTD basis, investors in CRON stock are still showing paper gains of roughly 20% at the time of this writing. That isn’t at all bad considering how far and fast this sector has fallen since February.
Cronos’ CBD portfolio is what has enticed many investors to consider the company lately. However, this cannabis player is looking to continue the expansion of its value-added product portfolio as well. For investors seeking higher-margin growth, this is a good thing. Among the products Cronos has continued to focus on are oils, vapes and other CBD-infused products. These offerings are, of course, complimentary to the company’s dried flower business in Canada.
Similar to Organigram (which I’ll get to in a minute), Cronos has also received an investment from a big tobacco player. Altria (NYSE:MO) invested a massive sum in CRON back in 2019. This investment appears to be under water right now, but long-term investors may like the fact that Cronos has such strong backers today.
Additionally, Cronos is one of the few cannabis players with a decently stable balance sheet. Unlike many of its peers, this name’s outstanding debt is essentially zero. Other than capital leases and some current and non-current liabilities, Cronos’ balance sheet is about as clean as they come. Plus, strong earnings performance has set this company apart from its peers. So, long-term investors may want to consider CRON stock closely from a growth perspective.
Weed Stocks to Buy: Organigram (OGI)
The last entry on this list of weed stocks is a relatively small-cap cannabis play that I’ve come to like: Organigram. At the time of writing, OGI has a market cap hovering around $800 million. That’s pretty tiny in the grand scheme of things. However, I think there are reasons investors should consider OGI stock today.
One key reason I’d suggest investors look at Organigram is its backers. Recently, British American Tobacco (NYSE:BTI) bought a 20% equity stake in Organigram. The cigarette industry has been looking more and more at shifting into cannabis. So, for investors bullish on the value such partnerships could create, Organigram is an intriguing pick.
But another key reason that Organigram is on my radar today is its deal to acquire soft chew manufacturer Edibles & Infusions for a total of $35 million, contingent on certain milestones being hit. Like I’ve said before, edibles and other value-added products will be key profitability drivers for this sector. As such, OGI’s move into this space is one small deal with large potential impact.
Of course, OGI stock isn’t without risk, as evidenced by the company’s share price movements in recent years. That said, for investors seeking a stock with high leverage to the growth that cannabis provides, this is it.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.
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