Are These Cannabis Stocks too Risky for Your Pot Portfolio?

WeedMD Inc. (TSX:WMD) has adopted an outdoor growing strategy – but is it less of a risky play than getting invested in one devalued competitor?

| More on:

Cannabis investors looking for fringe companies to stack shares in have continued to eye CannTrust (TSX:TRST)(NYSE:CTST) for its combination of severe devaluation and the possibility of a buyout.

Having shed around 60% in barely a full month of trading, pundits are divided about what could happen next for the disgraced grower, with everything from business combination to a full sale of assets on the table.

On the one hand, a total license revocation could sink the stock entirely, while its outdoor production operation – with 200,000-kilometre capacity – could make the company an acquisition target.

Aside from the extreme low cost of this stock and the admittedly very real prospect of a buyout, though, the loss of investor confidence makes this embattled stock a high-risk investment for the hardcore cannabis fan or speculative value investor only.

Are outdoor growers too high risk?

Another Canadian cannabis company with outdoor cultivation rights, and currently in far better shape than CannTrust, is WeedMD (TSX:WMD). Only 12 other growers have been awarded this type of license, with the majority of Canadian weed cultivation going on behind closed doors.

While WeedMD’s operation is much lower capacity than CannTrust’s at less than 50,000 kilos, over half of that is due to be harvested this year from previous asparagus fields.

Outdoor sites are cheaper to run than warehouses, too, meaning that WeedMD’s bottom line is already healthier than a warehouse-heavy operation. There’s also the argument that the product is of a higher grade if it’s grown outdoors.

This should technically mean that a higher per gram price can be commanded from connoisseur consumers, while overheads are automatically lower: The logical result is a higher profit margin.

A good harvest could make for a strong investment

Growing outdoors isn’t without its own risks, however, with everything from pests to crop disease to a harsh winter or drought conditions carrying the potential for an impacted harvest.

WeedMD is running the gauntlet by balancing a gung ho outdoor growing strategy against the benefit of a lower hydro bill. Indeed, even the granting of an outdoor production license doesn’t mean other companies are necessarily going to use them, and dependence on this method could prove a risky venture.

Up 22%, WeedMD’s outdoor growth strategy is paying off with investors. As with the biosynthesis angle being eyed by other cannabis growers, anything new and novel in the marijuana space is attracting speculative investment.

This trading phenomenon makes sense: The sector is new and nobody knows which area of it will end up having market dominance. From outdoor growing to synthetic production to edibles, any area of the cannabis spectrum could win out.

The bottom line

WeedMD has adopted an outdoor growing strategy – but is it less of a risky play than getting invested in a former competitor? While a cautious investor would steer clear of CannTrust unless extreme devaluation and the prospect of a buyout or last-minute partnership particularly appeals, other speculative plays exist that could reward traders with upside.

If WeedMD gets a good harvest this year and can translate its outdoor growing strategy into solid sales, its share price will rise appreciably.

Fool contributor Victoria Hetherington has no position in any of the stocks mentioned.

More on Stocks for Beginners

a man celebrates his good fortune with a disco ball and confetti
Stocks for Beginners

Where Will Scotiabank Stock Be in 3 Years?

BNS could look like a “turnaround dividend bank” now, but a “credible total-return bank” by 2029 if returns keep improving.

Read more »

c
Dividend Stocks

The $109,000 TFSA Benchmark: Here’s How to See Where You Stand

A $109,000 TFSA limit is a useful benchmark, and Waste Connections is the kind of “boring” compounder that can help…

Read more »

dividend growth for passive income
Dividend Stocks

The Canadian Companies That’ve Been Quietly Raising Their Dividend Payouts

These Canadian companies have quietly raised their dividend payouts for decades, offering investors a mix of income and long-term growth.

Read more »

A close up color image of a small green plant sprouting out of a pile of Canadian dollar coins "loonies."
Dividend Stocks

The Ideal TFSA Stock Paying a 6% Yield Every Month

A 6% monthly TFSA yield sounds flashy, but SmartCentres is really about whether that payout can hold up.

Read more »

stock chart
Energy Stocks

1 Canadian Dividend Stock Down About 14% to Buy and Hold Forever

Suncor’s pullback looks less like a dividend warning and more like a chance to buy a cash-generating energy heavyweight at…

Read more »

open bank vault
Dividend Stocks

Have $21,000 in TFSA Room? Here’s a Dividend Stock Worth Considering

Have $21,000 in TFSA room? Scotiabank offers dividend income, recent earnings growth, and a strategy built around stronger core markets.

Read more »

energy oil gas
Dividend Stocks

A 2% Dividend Stock Paying Cash Every Month

Exchange Income’s yield has fallen as the stock climbed, but its monthly dividend looks safer than many flashy 7% payers.

Read more »

truck transport on highway
Energy Stocks

1 Canadian Energy Stock Positioning for a Big 2026

Canada’s LNG exports are finally real, and Tourmaline may be one of the biggest ways to benefit.

Read more »