Pot stocks had a wild ride last decade. We saw the near-instant formulation of billion-dollar markets. Several upstarts attained $1 billion valuations within weeks, despite having little to no operating history.
Then, almost as suddenly, the market experienced a precipitous fall. Marijuana ETFs were cut in half last year. Many pot producers are now on the brink of bankruptcy.
Yet here’s the thing: pot demand is still on the rise. Year after year, North American marijuana sales continue to mount. By the end of this decade, management analysts think that industry revenues will grow to five times today’s levels.
Now is the time to dive deep into pot stocks. Many are priced at fire-sale valuations. One company in particular trades near its cash balance despite having billions in the bank. Another company has built one of the best businesses in the industry, capable of scaling rapidly in the years to come.
Here are the top names to pay attention to this month.
Bet on the biggest
Altria Group (NYSE:MO) is a proven company. Since 1980, shares have risen by more than 10,000%. That’s not even including the annual dividend, which now stands at 8.3%.
What made Altria so successful? It perfected the art of turning commodified ingredients into value-add products. The company is perhaps best-known for its Marlboro cigarettes, which contribute to the company’s 50% market share in the U.S. for smokable tobacco products.
Tobacco is a commodity, yet Altria figured out how to make consumer pay many times the underlying cost.
Altria’s knowledge and expertise will be critical for pot stocks, which are still reeling from the long-term effects of commoditization. Marijuana, it turns out, isn’t much harder to grow than tomatoes and carrots, meaning prices fall as industry supply ramps. The Altria of cannabis will win long term.
Fortunately, we have a great idea which pot stock will emulate Altria’s success. That’s because the company invested $1.8 billion into pot producer Cronos Group Inc (TSX:CRON)(NASDAQ:CRON). This is an exclusive partnership. If Altria succeeds in pot investing, it’ll be through Cronos.
After the pot bear market, Cronos is valued at $3.1 billion, even though it has $1.8 billion in cash. This looks like one of the lowest risk ways to bet on a long-term marijuana rebound.
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This pot stock can surge
As with Cronos, HEXO realized the difficulty of being a standalone pot stock. That’s why it built the industry’s first cannabis platform, capable of integrating outside companies.
This year, for example, the company will launch its first co-branded marijuana product with Molson Coors Canada Inc. (TSX:TPX.B)(NYSE:TAP), a brand Canadian consumers already know and love.
The key to long-term success will lie with branding. Pot stocks that crack this code will become the Altria’s of cannabis, garnering $100 billion valuations.
With key partnerships already established, plus a clear strategic focus on brand building, HEXO and Cronos are your best bets for 2020 and beyond.
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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.
The Motley Fool recommends HEXO. and HEXO.
Fool contributor Ryan Vanzo has no position in any stocks mentioned.