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:

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.

Just Released! 5 Stocks Under $50 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $50 a share.

Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.

Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

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.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Cannabis Stocks

Cannabis business and marijuana industry concept as the shadow of a dollar sign on a group of leaves
Stocks for Beginners

Buy the Dip Before It’s Too Late: This Canadian Stock Won’t Stay Cheap Forever

Investors might think that cannabis stocks are out, but this one could be the top Canadian stock to consider.

Read more »

a person watches a downward arrow crash through the floor
Stocks for Beginners

Plummet Alert: Is This TSX Growth Stock a Bargain or a Falling Knife?

This growth stock was once a major winner, but can investors wait for more?

Read more »

Medicinal research is conducted on cannabis.
Cannabis Stocks

What to Know About Canadian Cannabis Stocks for 2025

Let's dive into two top Canadian cannabis stocks and where they may be headed from here (given the recent moves…

Read more »

Researcher works in hemp field
Cannabis Stocks

Aurora Cannabis Stock Is up 46% in 2025: Are Investors Going From 5 Years of Pain to a 2025 Gain?

Shares of Aurora Cannabis have staged a comeback in 2025, outpacing the broader markets comfortably. Is ACB stock a good…

Read more »

A plant grows from coins.
Stocks for Beginners

3 Growth Stocks That Could Skyrocket in 2025 and Beyond

It could be a big year for these sectors, and these growth stocks in particular throughout 2025.

Read more »

money goes up and down in balance
Tech Stocks

2 TSX Stocks to Buy and 2 to Avoid in the Looming Trade War

The looming U.S.-Canada trade war has changed the business environment. Here are some TSX stocks to buy and avoid in…

Read more »

space ship model takes off
Cannabis Stocks

2 Canadian Stocks With Strong Momentum for 2025

Celestica Inc. (TSX:CLS) stock and Dollarama (TSX:DOL) stock have sustained strong price growth momentum for a long time.  Here’s why…

Read more »

Worker tags plants at an industrial cannabis operation
Cannabis Stocks

Pot Stocks: Buy, Sell, or Hold in 2025?

Cannabis stocks remain a bit risky, but could long-term investors be in for more pain or far more profits?

Read more »