Cannabis stocks have been increasingly on investors’ radar in recent months, as the Biden Administration announced plans to reschedule these drugs, and many experts suggested legalization could be the next logical step forward. On this issue, Canada has taken the lead, and many expect some sort of legalization initiative to take hold, particularly if President Biden wins another election.
The thing is, there’s always been a considerable amount of political risk investing in this sector. And some cannabis companies are better than others in terms of positioning to ride key tailwinds higher.
With that in mind, here’s one top cannabis stock to buy and one to sell as we navigate an ever-changing landscape in this sector.
Cannabis stock to buy: Curaleaf
Curaleaf (TSX:CURA) has been the cannabis stock I’ve been most bullish on in recent years. Of course, zooming out at this stock’s long-term chart, it’s clear that performance hasn’t been there, given the state of the cannabis sector overall.
However, with the Biden administration now looking at reclassifying cannabis as a less-harmful drug, hopes are that legalization within the U.S. will take hold in short order. If it does, Curaleaf is well-positioned to capture significant market share due to its existing presence as a multi-state operator (MSO) across various key markets in which cannabis has been approved at the state level.
In other words, for investors looking to benefit from the legalization catalyst in the U.S. market, Curaleaf is the cannabis stock I’d pick to play this trend. By some metrics, Curaleaf is the largest MSO in the market, meaning it should benefit the most from its scale and early-mover advantage out of the gate.
Cannabis stock to sell: Canopy Growth
Canopy Growth (TSX:WEED) used to be the largest cannabis company in Canada, a market that was among the first in the world to legalize marijuana for recreational use back in 2018.
However, the company’s growth numbers simply haven’t matched up to initial expectations. Starting from a very small revenue base, Canopy saw its revenue soar initially. However, accounting methodologies and other non-fundamental factors appear to have driven much more excitement than was warranted.
Canopy Growth has continued to burn through a tremendous amount of cash to ramp up production and has since scaled back its operations as demand in the Canadian market stabilizes. At current levels, the company appears to be a leading player in a market that’s really not that hot to begin with. And given where the taxation level is on cannabis, it’s no reason the black market continues to hold significant market share.
I don’t think the Canadian cannabis market is worth betting on long term. While Canopy does have some prospects outside of Canada, I view this company as primarily a Canada-first play. Thus, I think investors should pick Curaleaf over Canopy Growth every day of the week.
