Covering a fistful of North American markets, the following five cannabis stocks represent some of the best marijuana producers to buy shares in right now. From the TSX to the NASDAQ and the CNSX to the NYSE, these names are popular with investors. But which ones offer the best chances for upside in the new year? And are there hidden risks in cannabis investing? Let’s explore some of the options.
Focus on revenues when buying pot stocks
CuraLeaf is projected to generate strong revenues next year, making it a key stock to watch in this space. A medical cannabis and wellness product operator with U.S. market penetration, this name is already in place for American legalization. It’s also technically undervalued, selling at less than half its future cash flow value. Throw in annual earnings growth of 72%, and CuraLeaf is emerging as a strong strategic buy.
Aphria recently made the news as an apparent takeover target. Tilray is en route to becoming the consolidator in a major cannabis merger, creating a legal marijuana superstock. Cannabis investors have been pumping Tilray this week as a result. But Aphria is the more desirable asset in this relationship. Its revenues, health, valuation, and share price performance mark it out as a superior stock.
Canopy Growth is a projected eventual market leader on the global cannabis production stage. From celebrity endorsements to key business partnerships, Canopy is the cutting edge of cannabis commercialization. From debt financing to restructuring, Canopy is doing a lot of growing up at the moment. This should reassure shareholders going long on this $12 billion name that even Jim Cramer likes.
Many investors had counted out HEXO — its stock has sunk 47% in the last 12 months. Its 1.1 P/B would have looked alarmingly out of place back in 2018. Today, though, such attractive valuation almost makes sense. However, momentum has picked up since mid-November, with 40% added in just four weeks of trading. Rich with upside, post-correction HEXO is emerging as a market leader in dried flowers, oils, and vaping products.
Risks abound in the cannabis stock space
So, these are five of the best cannabis stocks to buy for first-time exposure to the legal weed market. But are cannabis producers on the threshold of a booming industry? Or is U.S. legalization just another smokescreen? Investors have had their fingers burned already. The U.S. market is undeniably full of potential. However, Canadian producers could still face an uphill battle — especially those counting on international growth.
One of the ongoing issues with trusting to international market growth is the potential for local producers to undercut foreign names. This is also one of the big risks of investing in Canadian producers hoping to muscle in on U.S. turf. But looking further afield, it’s also pertinent to European markets.
And even closer to home, there’s still the running battle with black and grey markets to consider. That particular issue has combined with a piecemeal retail environment to throttle domestic cannabis business growth. Indeed, cannabis producers could continue to find themselves running to stand still in 2021.
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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 recommends HEXO. and HEXO.