After a huge lead up to last year’s cannabis legalization, this year looks much different already. Cannabis stocks soared ahead of legalization, only to drop with the rest of the markets almost immediately afterward.
Since then, almost all cannabis companies have found it difficult to have any sort of rebound. That’s why many investors are looking at cannabis 2.0 legalization with a wary eye.
With cannabis stocks already down, it’s unlikely these stocks will drop any further, which should be a positive if you’re considering buying ahead of derivatives legalization.
However, I wouldn’t expect this legalization to be the answer to your cannabis dreams. Instead, be patient and buy up stocks now that you could see take advantage of the derivatives market over the long term.
If that’s your goal, I would consider these three stocks.
Hexo Corp. (TSX:HEXO)(NYSE:HEXO) has dropped by about 50% since the end of April, with nary a rebound in site. However, the derivatives market could seriously turn this around due to the company’s partnership with Molson Coors Canada.
The pair have already been working away at cannabidiol (CBD)-infused beverages. In fact, the company has focused 600,000 square feet of its operations to the CBD market, which could make it a leader in the CBD market going forward after legalization.
Yet again, it might be a bit of a wait for investors hoping to see a rise in share price over night. Edibles won’t appear on shelves until likely December, and even then, investors won’t see the results until at least the next earnings report.
So if you’re looking to take advantage of Hexo while it’s down, now is a great time, but it could also be a buy-and-hold option for a number of years. It could certainly add up, however, as Hexo believes it could hit $400 million in revenue by 2020.
Another stock that’s dropped by almost half in the last few months is Cronos Group Inc. (TSX:CRON)(NASDAQ:CRON). Even with a heavy investment from partner Altria, investors just don’t think that Cronos has been putting out the numbers of news that they want to see.
All that cash has been used toward acquisitions, where the company has been mainly focused on the CBD market, most recently creating a presence in the United States.
It looks like this path is working so far, with the company reporting strong revenue and sales in its latest earnings report, with CBD leading the charge. In fact, CBD oil took a total of 20% of the company’s sales.
This could only be the beginning, as the company is now looking international to enter the CBD markets, most recently signing a five-year supply deal with Germany’s Pohl-Boskamp.
With CBD already such a strong presence in the company’s performance, the company is well set up to use the product for infused derivatives products.
If you’re really serious about the CBD industry and derivatives, the Charlotte’s Web Holdings Inc. (TSX:CWEB) has almost certainly already appeared on your radar. The company already claims the top spot for leading the CBD market in the United States, and is still expanding its 6,000 retail store presence across the United States.
Charlotte’s Web is in just about every area of CBD, with topicals, edibles, even pet products. Clearly, with legalization on the way, this company could seriously benefit in the Canadian marketplace.
In fact, out of the three I’d say Charlotte’s Web has the strongest position, which comes down to its financial performance. The company has been producing profit for quite some time now, and it looks like 2020 won’t be any different with $302 million in projected sales. That’s an increase of 140% based on 2019 estimates.
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Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool owns shares of Charlotte's Web Holdings.