If You Buy 1 Pot Stock, This Should Be it

HEXO (TSX:HEXO)(NYSE:HEXO) has been my top pot stock for several years. If you’re thinking about buying cannabis this year, take a close look.

| More on:

Pot stocks are soaring again. It’s been years since the last cannabis bull market, and relief is finally here.

Just look at one of my all-time favourites: HEXO (TSX:HEXO)(NYSE:HEXO). Since 2021 began, shares have risen 76%.

If you buy into cannabis, this should be your top choice.

How to choose a pot stock

You can make a fortune by investing in cannabis, but don’t think you can just pick any stock. Over the next year, I expect some marijuana producers to do quite well, and some to do not so well. The trick is differentiating the two.

In many ways, the best way to invest in pot stocks hasn’t changed in several years. Just read what I wrote in early 2019, just before the massive cannabis sell-off began.

“Clearly, cannabis is set to become a major growth story for at least a decade. However, amid the hype, many investors are ignoring some real risks that could ultimately bring down many pot stocks,” I’d warned. “If you’re investing in the cannabis industry, you’ll want to fully understand the biggest risk nearly every marijuana producer will face: commoditization.”

Commoditization can ruin an industry. Think about off-brand soda. The customer base for these products are interested in one thing: low prices. Whoever offers the cheapest soda wins. That creates intense competition, driving down pricing and thus profits.

Now, consider Coca-Cola. This business can’t charge whatever they want, but there’s no doubt they can charge a premium versus the competition. That’s not because it uses special sugar or magic water, but because it brands the combined product in a way that creates customer loyalty.

“Today, it’s not very profitable to grow staples like tomatoes, beans, rice, or cabbage. In another decade, there’s a chance that growing cannabis isn’t wildly profitable either,” I correctly concluded in 2019. Your task shouldn’t be to simply buy pot stocks, but to buy the Coca-Cola of cannabis.

This is the Coca-Cola of cannabis

What does Coca-Cola do best? It transforms commoditized ingredients into a value-add product. The chief method is through powerful branding. The find the Coca-Cola of pot, we must identify businesses that transform raw pot into something differentiated. Right now, no company is doing that better than HEXO.

HEXO never focused on raw production numbers. Instead, it secured partnerships with big brands like Molson Coors to co-produce products. In a way, this pot stock skipped to the front of the line. It doesn’t spend years developing its own brand from scratch. Instead, it leverages brands consumers already know and love.

This strategy wasn’t an accident.

“Cannabis is a brand business,” stressed the company’s CEO. “We’re not about commodity farming. We’re focused on developing products that offer very specific experiences and are dose-controlled, shelf-stable and delivered to the adult-use market through non-prescription channels.”

Now valued at $1.1 billion, this pot stock has a long way to go to reach Coca-Cola’s $220 billion price tag. But HEXO’s infancy is exactly why shares have huge potential. If you bet on cannabis, HEXO should top your list.

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.

More on Cannabis Stocks

Cannabis business and marijuana industry concept as the shadow of a dollar sign on a group of leaves
Stocks for Beginners

Buy the Dip Before It’s Too Late: This Canadian Stock Won’t Stay Cheap Forever

Investors might think that cannabis stocks are out, but this one could be the top Canadian stock to consider.

Read more »

a person watches a downward arrow crash through the floor
Stocks for Beginners

Plummet Alert: Is This TSX Growth Stock a Bargain or a Falling Knife?

This growth stock was once a major winner, but can investors wait for more?

Read more »

Medicinal research is conducted on cannabis.
Cannabis Stocks

What to Know About Canadian Cannabis Stocks for 2025

Let's dive into two top Canadian cannabis stocks and where they may be headed from here (given the recent moves…

Read more »

Researcher works in hemp field
Cannabis Stocks

Aurora Cannabis Stock Is up 46% in 2025: Are Investors Going From 5 Years of Pain to a 2025 Gain?

Shares of Aurora Cannabis have staged a comeback in 2025, outpacing the broader markets comfortably. Is ACB stock a good…

Read more »

A plant grows from coins.
Stocks for Beginners

3 Growth Stocks That Could Skyrocket in 2025 and Beyond

It could be a big year for these sectors, and these growth stocks in particular throughout 2025.

Read more »

money goes up and down in balance
Tech Stocks

2 TSX Stocks to Buy and 2 to Avoid in the Looming Trade War

The looming U.S.-Canada trade war has changed the business environment. Here are some TSX stocks to buy and avoid in…

Read more »

space ship model takes off
Cannabis Stocks

2 Canadian Stocks With Strong Momentum for 2025

Celestica Inc. (TSX:CLS) stock and Dollarama (TSX:DOL) stock have sustained strong price growth momentum for a long time.  Here’s why…

Read more »

Worker tags plants at an industrial cannabis operation
Cannabis Stocks

Pot Stocks: Buy, Sell, or Hold in 2025?

Cannabis stocks remain a bit risky, but could long-term investors be in for more pain or far more profits?

Read more »