2 Marijuana Stocks to Consider Before U.S. Legalization

Marijuana legalization in the U.S. seems right around the corner, potentially giving U.S.-facing Canadian cannabis companies a powerful valuation boost.

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The “green” wave is expected to sweep across the U.S. soon, and I am not talking about the green energy and environmental consciousness wave. Ever since President Joe Biden took office, the probability that the U.S. federal government will legalize recreational use of marijuana has increased. The states of Connecticut and Delaware are highly likely to pass the bill legalizing marijuana, while Alabama has already given the go-ahead to medical marijuana.

While many other states and Congress are deliberating the matter, Amazon emerged as a powerful new ally to entities making a case for marijuana legalization. The public is already in favour of this legalization, and it might just be a matter of time before the Marijuana Opportunity Reinvestment and Expungement Act or (MORE) is approved.

Before that happens and potentially propels many Canadian marijuana stocks through the roof, you may consider adding some of them to your portfolio.

A Moncton-based marijuana company

Organigram (TSX:OGI)(NASDAQ:OGI) produces high-quality cannabis for medical and recreational purposes. It has a production facility in 56,000 square feet of dedicated edibles and a derivative facility in Moncton, where it leverages three-level cultivation technology to maximize indoor space. By the second quarter of 2021, the company took care of most of its debt, and its current debt is less than its cash and short-term investments.

In the second quarter, the company increased its gross revenue and cut down on its losses compared to the first quarter in significant proportions. With its five major brands, including Edison and Shred, the company is well-poised to take advantage of the Cannabis derivatives market, which is expected to grow along with the number of retail stores in Canada.

Organigram already has an international pull, thanks to its multi-year deal with an Israel-based medical Cannabis producer. British American Tobacco owns a significant piece of the company, and although this international exposure doesn’t really help Organigram shine in the U.S., it’s a dual-listed stock. And if U.S. investors — both institutional and retail — start dumping money into this evolving sector, Organigram stock might take off.

One of the largest marijuana companies

Canopy Growth (TSX:WEED)(NASDAQ:CGC), with a market capitalization of $11.7 billion, is one of the largest marijuana companies in the world. It already has a significant international presence through its various subsidiaries, including Spectrum Therapeutics (medical marijuana), Tweed, Martha Stewart, etc. The company is also in the process of acquiring premium cannabis derivatives company Supreme Cannabis.

Many of its brands already have a decent U.S. presence, and it’s only going to grow once the U.S. government legalizes marijuana. The company has been growing its revenues quite consistently for the last three years; it has a manageable amount of debt and a powerful cash position. Canopy has both the presence and the resources to capitalize on the U.S. legalization wave fully.

Foolish takeaway

The Canadian marijuana sector is still plagued by slow retail licenses, making it difficult for legal cannabis producers to consolidate the market. If the process is relatively swift in the U.S., it might be enough to draw the attention of Canadian cannabis producers to the larger and more active U.S. market.

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.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon and OrganiGram Holdings. The Motley Fool recommends OrganiGram Holdings and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon.

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