Cannabis investing may seem too risky for the current market. But several names in the Canadian pot stock space have been proving solidly resistant lately. Are cannabis stocks immune to the crushing market forces that have made mincemeat of other industries? Let’s review some of the top picks for investors looking to pack some green upside in a stock portfolio.
This is still a stock-picker’s market. The cannabis space is much too uneven for safe indexing. Look at the Horizons Marijuana Life Sciences ETF, down 23% in the last three months. Granted, some names, even perennially popular ones like Village Farms, have fared worse than the industry average. Village Farms is down 35% since February. But Aphria was down 17% in that time, matching the TSX point-for-point.
Cannabis stocks have a clear market leader
Two words make Canopy Growth stand out right now: “cash runway.” Sure, there are other reasons to get hyped, such as the corporate expertise afforded by the guiding hand of Constellation Brands. Speaking of branding, There’s also the high-tier celebrity endorsements from the likes of Toronto entertainer Drake. In short, Canopy is being cannily positioned as a lifestyle brand, and it’s cash rich enough to ride out the frothy market.
Meanwhile, Aphria runs a tight ship, and it’s this talent for efficiency, illustrated by a run of sturdy quarters, that makes this name a buy. Aphria packs a viable business model underscored by strong medical marijuana market share with access to European markets. In short, this is one of the best names in the Canadian cannabis space for long-term investors.
Like Canopy, HEXO leans into the lifestyle-branding strategy of market penetration. HEXO also released a low-budget play to undercut the competition. However, this was introduced pre-pandemic, so this theme is worth revisiting for a moment. The move is an innovative one, but it may take a while to filter through into HEXO’s market performance. This name is down 62% since February.
Canadians eyeing upside in the legal cannabis space still have some compelling options to mull over. Names like Canopy and Charlotte’s Web Holdings stand out for long-term market dominance, albeit for different reasons. While Canopy is a play for corporate know-how and culture savvy branding, Charlotte’s Web is a buy for CBD market growth south of the border.
Village Farms is another strong stock to buy for ready-made profitability, underpinned by consumer staples defensiveness. Investors should come for the cannabis spinoff, Pure Sunfarms, and stay for the world-class greenhouse expertise. Vegetable crops remain a stabilizing revenue stream and offer some rare diversification in the pot stock space.
The bottom line
Canopy has to be in the top three TSX stocks for marijuana exposure. Aphria is another top-three buy for Canadians looking for wealth creation in a sector with a lot of growth potential. Village Farms belongs in the top tier of Canadian cannabis stocks, given that it is both profitable and well established. The latter stock also has a strong online cannabis sales record.
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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 and recommends Charlottes Web Holdings, Constellation Brands, and Village Farms International, Inc. The Motley Fool recommends HEXO. and HEXO.