Marijuana stocks captured the interest of Wall Street over the last couple of years as medical and recreational marijuana has spread in the U.S., and Canada fully legalized marijuana in late 2018.
Marijuana presents huge growth potential and it has caught the attention of not only investors, but also big players in the alcohol and tobacco sectors that see the growth potential.
There are now 33 states in the U.S. that have passed medical marijuana legislation and 10 states have legalized recreational marijuana use and Indiana announcing it would legalize recreational use by January 1, making it the 11th state to do so. As recreational legalization spreads into more states, more states will surely start to follow suit to both appease public sentiment and to enjoy the tax revenues from marijuana sales.
The marijuana market has the potential for exponential growth, and as such we have seen big gains in the sector leaders over the last several years.
Here are four of the top stocks in the sector to consider.
Canopy Growth (CGC)
Canopy Growth (GCG) is a Canadian based marijuana grower. After explosive gains in 2017 and 2018 the stock has been stuck in a sideways pattern after enjoying a strong bull run in January. With January’s rally the stock remains up 58% year to date. National legalization in Canada and the ever-increasing medical and recreational states opening in the U.S. has spurred interest in the company, and now controls just shy of 40% of alcohol company Constellation Brands (STZ). The company’s acquisition of such of a large chunk of Constellations opens the door for the company to build a strong market share of cannabis-infused drinks as edible marijuana demand builds. While the stock has traded sideways through the year, analysts see good upside potential. CGC is trading at $42.44 with an average price target of $56.26. The company will report its fiscal fourth-quarter numbers June 20 with the consensus calling for a quarterly loss of seven cents per share.
Aurora Cannabis Inc. (ACB)
Aurora Cannabis Inc. (ACB) is another marijuana company located in Canada. Aurora controls a large 20% of the recreational market, and its large infrastructure and expertise in the sector should allow it build its market share as dispensaries struggle to keep pace with high demand in Canada now that marijuana is legal on a national level. ACB shares are up an impressive 56% year to date, but the stock has trended lower over the last few months, fueled in part by a disappointing quarterly report in May that showed a loss of 16 cents per share, well below the consensus five cents loss. While last quarter numbers were disappointing, the outlook remains favorable as revenues were up 20% versus the previous period which is when the company first started hitting the recreational market in Canada. The company will report again mid-August with analysts expecting a Q4 loss of two cents per share. If the company is able to post earnings in-line or better than that figure the stock should quickly resume its upward trend. ACB is trading at $7.75 while analysts see significant upside with an average price target of $10.60.
Cronos Group (CRON)
Cronos Group (CRON) also enjoyed a strong start to the year before shares began to move lower in recent months. While the short-term trend is bearish, strong gains at the start of the year keep the stock up 60% year to date. Cronos is partnered with tobacco giant Altria (MO), who has acquired around 45% of the company with warrants that could increase the company’s ownership to 55%. The acquisition gave Cronos a solid balance sheet and a powerful partner as the U.S. inches closer to recreational legalization of marijuana. Altria is looking to combat declining smoking rates and sees the huge growth opportunity in the marijuana sector which remains in its infancy, and the company’s infrastructure and experience in the U.S. market gives Cronos a major advantage over the competition as U.S. demand grows. CRON trades at $16.86 with an average price target of $15.17.
Unlike the first three stocks in our group, Tilray (TLRY) has really struggled in 2019 with shares currently down 41% on the year and still looking for support. Tilray posted negative earnings surprises both in March and then again in May while revenues in each quarter topped estimates. Tilray is losing a lot of money, with an earnings loss of 32 cents per share last quarter. Tilray sees a lot of potential in the edibles market, and recently acquired the world’s largest hemp food company, Manitoba Harvest. Tilray reportedly paid $313 million for the company which it plans to use to boost its market share of marijuana edibles in both the U.S. and Canada. Analysts expect to see the company boost its earnings 14% in the current year and 100% next year. If the company is able to deliver in-line or better than expected profits in upcoming quarters the stock could quickly erase some of its recent losses, but until that time the stock remains less attractive to its peers in the sector. Analysts continue to see huge upside in the stock despite its recent performance. TLRY trades at $41.42 with an average price target of $88.00.