It’s been a mixed week for pot stocks, with the TSX30 effect causing some stocks to bounce, while others had a rough time of it. The market is jittery, and cannabis bears have already pointed out that once the excitement of dominating a new industry and overtaking the black market has subsided, what’s left will be a crowded playing field with relatively little market growth potential.
The sector will likely shake out in two directions: First as a pharma play, which has already had most of the juice sucked out of it in terms of upside, and second as an extension of the sin stocks, which may also have limited upside once the crowded market has stabilized and consumer growth has reached saturation point.
However, for now, let’s focus on that upside and review two currently weakened stocks.
Paranoia is stalking the weed market again
Perhaps predictably, the market has reacted badly to another top member of staff leaving HEXO (TSX:HEXO)(NYSE:HEXO) so soon after its co-founder stepped down in the summer. However, given HEXO’s brand-conscious approach to the multi-faceted cannabis industry, as well as its popularity with consumers and investors alike, this is one stock to buy on the dip.
Indeed, perhaps just this once a company should be taken at its word. While the CannTrust debacle has had investors second-guessing an industry that was already struggling with issues of legitimacy, HEXO’s change of CFO could simply be what it looks like: a new member of management was spending more time than expected at HEXO’s base of operations.
Then again, perhaps the pundits are paranoid for good reason. Or, to paraphrase Hunter S. Thompson, maybe they’re not paranoid enough. Currently down 17% and falling, investors will have to watch for the stock to bottom out before getting invested.
This TSX 30 favourite is a value opportunity
The stock is currently down 11.3% and falling after the veggie grower announced a US$25 million bought deal public offering of common shares, creating a good opportunity for value investors to either jump on the pot stock train or back up the truck.
Village Farms has seen its share price rocket since getting in on the cannabis trend. It’s perhaps better known for being a world-class producer and distributor of high quality fruit and vegetables, growing cucumbers, tomatoes, and bell peppers.
The company’s expertise in hydroponics and high-intensity farming using state-of-the-art greenhouses makes it a front runner in the marijuana race.
The bottom line
Both Village Farms and HEXO are looking like solid plays in the cannabis sector for investors seeking out the most likely companies to dominate in a stabilized market.
While nothing is set in stone and the sector could be reshaped by key acquisitions and mergers, both stocks listed here represent some of the best quality in the legal marijuana space and could reward shareholders with significant capital gains further down the road.
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 Victoria Hetherington has no position in any of the stocks mentioned. The Motley Fool owns shares of Village Farms International, Inc.