After a fantastic 2018, pot stocks fell out of grace with investors in 2019 and investors watched their holdings trade sharply lower. In many cases, the losses continue to mount as investors remain bearish on the sector.
While the long-term outlook for marijuana stocks remains favorable… there are a lot of pitfalls that the sector has to overcome. Regulation, lack of supply, and slower than expected retail location openings has plagued the sector.
Despite the problems the sector currently faces, there is a lot of potential. In the U.S., more states have legislation in process with the aim of expanding both medical and recreational marijuana laws. 11 states have legalized marijuana for recreational use, and there are a total of 33 states have legalized medical marijuana.
The numbers are growing, and as recreational and medical marijuana laws expand usage in the U.S. the market has huge growth potential. The short-term will be a challenge, but for investors with a long-term outlook, the end game looks promising.
The following three pot stocks have great for long-term potential but also have a lot of short-term potentials that investors should consider.
Constellation Brands, Inc. (STZ)
Constellation Brands, Inc. (STZ) is an interesting play in the marijuana sector because of the company's position in the alcohol market. Constellation Brands is the company behind popular brands such as Corona, Modelo, and Svedka Vodka. Constellation entered the marijuana sector by acquiring 37% of marijuana producer Canopy Growth (CGC). Constellation's alcohol business has performed well and the company will introduce a hard seltzer Corona beer in 2020 that should boost the company's revenues. Canopy could also enjoy a strong year as additional locations open in Ontario. After selling off in the fourth quarter, STZ shares have traded steadily higher since mid-November and is approaching its 52-week high. After growing profits 18.5% per annum over the last five years, Constellation's profit growth is forecast to slow to an annual rate of 4.7% over the next five years. STZ trades at $199.72 with an average price target of $221.90.
GW Pharmaceuticals plc (GWPH)
GW Pharmaceuticals plc (GWPH) is a drug manufacturer. The company's cannabidiol-based oral drug, Epidiolex has seen massive sales growth since it was launched in late 2018. In the third quarter of 2019 Epidiolex had sales of $86.1 million. The company's total sales hit $91 million during the quarter, up from just $2.4 million during the same period the previous year. The drug's massive success should continue to drive the company's sales, and as more insurance companies adopt the drug it is possible that the company will turn profitable in 2020. Last quarter the company lost 4 cents per share, which was far better than the loss of 23 cents during the same period the previous year. The stock has been trending higher since mid-December when it hit a 52-week low and should continue to build on its recent gains if the company is able to post a strong set of numbers when it releases Q4 results on February 25. Analysts are very bullish on the stock and see a lot of upside potential. GWPH currently trades at $127.15 with an average price target of $196.54.
Innovative Industrial Properties, Inc. (IIPR)
Innovative Industrial Properties, Inc. (IIPR) is a real estate investment trust that focuses on regulated medical-use cannabis facilities. The stock sold off in the second half of 2019, but shares have trended higher since the start of 2020. IIPR faces a stiff level of resistance at $95, but if the stock is able to break through the $95 level there is little resistance until shares hit $110. The company has topped estimates for both earnings and revenues in the last two quarters, and it will next announce quarterly numbers on February 26. Analysts expect a profit of $0.57 per share, up from $0.38 during the same period last year. Analysts expect earnings to rise 134% during the current year, and 156% next year. IIPR trades at an attractive 20 times future earnings, but with such high growth estimates there is little room for error and the company needs to keep pace with future estimates in order for shares to build on the recent momentum.
