Bitcoin vs. Marijuana Stocks: Which Is the Better Bet?

Are speculative investors better off buying Bitcoin or marijuana stocks like Canopy Growth Corp (TSX:WEED)(NYSE:CGC)?

| More on:
question marks written reminders tickets

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

In 2017, Bitcoin was the breakout investment of the year. In 2018, Marijuana stocks stole the show. Now, in 2019, they’re both back with a vengeance. Since January 1, Canopy Growth (TSX:WEED)(NYSE:CGC) has risen 54%, while Bitcoin is up 12% from its December low. With other marijuana stocks delivering returns similar to Canopy’s, this comparison serves as a pretty good yardstick for how pot and Bitcoin have compared.

So far, it looks like weed is easily beating Bitcoin in 2019. However, the year is young. Both Bitcoin and weed stocks have had dramatic swings up and down over the past five years, and in the months ahead, anything could happen. Although it’s impossible to predict which of the two speculator favourites will ultimately prevail, it’s possible to come up with a likely short-term scenario. We can start by looking at historical returns.

Long-term returns

As we’ve already seen, marijuana stocks have got Bitcoin beaten in the short term. However, Bitcoin absolutely trounces weed in the long term; since January 2013, Bitcoin is up 29,000% — better than any marijuana stock rally ever observed. Even Bitcoin’s 2017 rally saw it rise 1,000%, which is better than Tilray’s 755% post-IPO rally.

Going off of historical returns, it’s clear that Bitcoin has a higher “theoretical” max return than marijuana stocks. Whereas weed stocks are anchored in fundamentals to an extent, Bitcoin is an almost entirely speculative vehicle that people buy because they think it will go up. As long as this kind of speculative faith in Bitcoin remains, it can reach heights that marijuana stocks can’t touch — as history amply shows.

Marijuana stock fundamentals

There’s plenty of reason to believe that marijuana stocks can still go up. First and foremost, they’re growing like lightning: in its most recent quarter, Canopy grew its earnings by 4,000% year over year, while Aurora Cannabis grew revenue by 430%. With earnings and revenue going up like that, there’s nothing theoretically stopping marijuana stocks from continuing with high double-digit returns. However, it’s unlikely that future returns will be like past returns, as these stocks are now trading at 80-100 times sales.

What drives the price of Bitcoin?

It’s harder to appraise the price of Bitcoin, as one can’t speak of its “fundamentals” at all. However, its price is driven by demand, which is driven by basically two things: speculators who buy wanting the price to go up and black market participants who use it as a currency in illegal markets. Wild speculative activity based on extreme optimism isn’t anchored by anything, so the speculative demand for Bitcoin could send it to basically any stratospheric price you can imagine. Black market use ensures that Bitcoin will never go to zero, but that alone won’t produce the wild volatility seen in 2017. Artificial scarcity is also a factor in Bitcoin’s price: because a limited number of coins exist, the price goes up as more people want to buy them.

Factoring all of these considerations into account, it’s clear that marijuana stocks are a “safer” bet than Bitcoin, since their price is more grounded in value. However, should speculative interest in Bitcoin resume again, it would have more possible upside than weed stocks, because there’s no limit to how high a totally unregulated speculative asset can go.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Button has no position in any of the stocks mentioned.

More on Cannabis Stocks

edit Cannabis leaves of a plant on a dark background
Cannabis Stocks

Canopy Growth Stock: The Only Cannabis Stock to Consider Long Term

The cannabis stock industry remains an incredibly high risk one, but Canopy Growth (TSX:WEED)(NYSE:CGC) stock provides the best opportunity for…

Read more »

edit Cannabis leaves of a plant on a dark background
Cannabis Stocks

Should You Stay Away From HEXO Stock?

HEXO (TSX:HEXO)(NASDAQ:HEXO) stock is on a downward spiral, and there is little hope it is going to recover soon.

Read more »

edit Cannabis leaves of a plant on a dark background
Cannabis Stocks

Why Did Aurora Cannabis (TSX:ACB) Stock Plunge 75% in 2022?

A prominent cannabis stock has plunged by 75% in 2022, as the company’s losses continue to mount in the face…

Read more »

Pot stocks are a riskier investment
Cannabis Stocks

Fire & Flower: A Small Pot Stock Poised for Strong Growth

Fire & Flower is a cannabis retailer well-positioned for growth thanks to its digital and delivery initiatives.

Read more »

edit Jars of marijuana
Cannabis Stocks

Why Aurora Cannabis (TSX:ACB) Stock Is Sinking This Week

Starting another round of capital raising has hurt investor sentiments, and the Canadian cannabis giant’s performance on the stock market…

Read more »

edit Jars of marijuana
Cannabis Stocks

Why Canopy Growth (TSX:WEED) Stock Plunged 19% Last Week

Canopy Growth Corp. (TSX:WEED)(NASDAQ:CGC) stock has plunged after the release of its final fiscal 2022 results.

Read more »

Cannabis stocks have fallen.
Cannabis Stocks

Why Aurora Cannabis (TSX:ACB) Stock Tanked 45% Last Week

There's no respite for Aurora Cannabis investors!

Read more »

Money growing in soil , Business success concept.
Cannabis Stocks

TFSA Investors: This Undervalued Gem Could Turn $6,000 Into $25,000

Here's why TFSA investors can hold undervalued growth stocks such as Verano in their portfolios right now.

Read more »