How To Buy Stock In Medical Marijuana
Cannabis stocks jumped in early October, after President Joe Biden took the United States closer to federal marijuana legalization. But these stocks have since lost ground as Biden's pronouncement does little in the short term to change the industry.
how to buy stock in medical marijuana
Biden said he would pardon people convicted of the federal crime of simple marijuana possession, called on governors to make similar moves for convictions under state laws and ordered a review of the way marijuana is federally scheduled as a controlled substance. But that is a far cry from full legalization that would lead to a sustained rally in marijuana stocks.
Like many other companies, cannabis stocks have been under pressure because of inflation, higher interest rates and the general negative market sentiment as investors worry about a potential recession.
But these companies were already in a downtrend before the broader market took a turn for the worse. Cannabis stocks were underperforming after Democratic political gains in 2020 and 2021 failed to produce meaningful legislative reform, leaving companies to face a host of issues traditional businesses don't.
Cannabis companies headquartered in the United States, or anywhere that marijuana isn't legal, can't raise money in the stock market by listing on the New York Stock Exchange or Nasdaq if they grow, process or sell marijuana, a Schedule I drug alongside heroin and LSD. (Many publicly traded cannabis companies are headquartered in Canada, where the drug is federally legal, or trade over-the-counter.)
Still, there are plenty of positives for the U.S. marijuana industry, which has already taken great strides even while operating under federal prohibition. That means these marijuana stocks are primed to move significantly higher if meaningful federal reform does end up taking place.
"I anticipate that most cannabis stocks will skyrocket once we truly legalize cannabis on the federal level," says Andrew Bowden, CEO of dispensary franchisor Item 9 Labs Corp. (ticker: INLB). Until that happens "we will continue seeing these small wins along the way that will positively impact cannabis stocks," he says.
When it comes to investing in individual marijuana stocks, Cresco Labs Inc. (CRLBF), Trulieve Cannabis Corp. (TCNNF), Green Thumb Industries Inc. (GTBIF) and Curaleaf Holdings Inc. (CURLF) are on Czarkowski's list of blue-chips.
The AdvisorShares Pure US Cannabis ETF (MSOS) is a popular option that doesn't hold stocks directly but opts for synthetic exposure via total return swaps. The ETFMG Alternative Harvest ETF (MJ) is a passively managed fund that tracks an index of globally listed cannabis companies that could benefit from medicinal and recreational marijuana legalization initiatives. A new option is the Roundhill Cannabis ETF (WEED), which came online in April.
Whether you pick individual stocks, ETFs or a mix of both, remember that Biden's announcement is important, but there is likely a long way to go before significant hurdles are removed from the U.S. marijuana industry.
Marijuana generally falls into two different categories: medical and recreational. While medical cannabis is legal in 36 states, Washington, D.C., Guam, Puerto Rico and the U.S. Virgin Islands, recreational use is legally permitted in only 19 states, D.C. and Guam.
In addition, other types of cannabis products fall under the umbrella of the marijuana market. Some of the most common medical marijuana products include cannabidiol (CBD) or tetrahydrocannabinol (THC).
Both CBD and THC are naturally occurring compounds, and they are usually used to treat illnesses such as chemotherapy-induced anorexia, nausea, or vomiting. Recreational marijuana, on the other hand, is usually ingested either through smoking the cannabis plant or by consuming cannabis edibles.
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The marijuana industry is growing rapidly, as more and more states legalize the drug on both a medicinal and recreational level. Just like any other burgeoning industry, the marijuana market is attracting plenty of investors.
But while 2023 might not be a year to buy in expectation of rapid gains, this could be a great entry point for purchasing some solid cannabis stocks at a discount and holding them in anticipation of eventual federal legalization in the U.S., the world's biggest pot market.
Like many firms in other industries, cannabis companies have been struggling with high inflation adding to their costs. But marijuana companies also face a host of headwinds unique to them, including competition from the illegal market and falling prices for marijuana because of competition and oversupply.
In Canada, despite federal legality, the industry has been weighed down by high taxes. In the U.S., where the drug remains federally illegal, taxes are also high, and the industry faces onerous hurdles to financing from banks. Because of federal illegality in the U.S., plant-touching companies can't list on major exchanges, and many institutional investors don't want to buy shares of companies trading over the counter, limiting marijuana firms' ability to raise money.
"From a stock perspective, the marijuana industry has not experienced the same bounce back that other beaten-down sectors have experienced since the market's bottom in October," said Tom Bruni, senior writer for The Daily Rip & Markets newsletter at Stocktwits. "Part of that is because, from a regulatory or business standpoint, there have yet to be any significant catalysts to spark a renewed interest in the space."
A silver lining for operators in mature markets facing slowing sales growth is that falling marijuana prices because of competition and oversupply should help the legal market compete with the illicit one, according to Jason Wilson, cannabis research and banking expert at ETF Managers Group. While that might not move the needle for share prices in 2023, it should be beneficial in the longer term, he said.
"U.S. cannabis has significant white space ahead, with many states yet to implement medical or adult-use programs and a growing appetite for substantive federal reform," CEO Kim Rivers said in a press release accompanying the results.
On the StockTwits platform, there are only two pot stocks held by popular exchange-traded fund ETFMG Alternative Harvest ETF (MJ) that have a bullish sentiment reading: SNDL Inc. (SNDL) and Cronos, according to Bruni.
The company's European division is headquartered in Berlin. In May 2022, the company announced it had received a European Union good manufacturing practice certification for a medical cannabis production facility in Germany.
Marijuana stocks have given cannabis investors nothing but false starts over the past few years. Most recently, there were a plethora of issues facing the industry throughout 2022, including inflation, overproduction, lack of capital, job losses and cratering stock prices.
The long-term prognosis for the cannabis industry is good. Ultimately, the following nine picks look like the best marijuana stocks (and funds) to benefit from this ongoing growth and maturation.
Scotts Miracle-Gro (SMG (opens in new tab), $82.47) stock has been on a roller-coaster ride for the past four years. At the end of 2018, it traded south of $60, but by April 2021, it had reached an all-time high of $250, a cumulative total return of nearly 320%.
On the consumer side of cannabis, it has a $150 million six-year convertible note in RIV Capital (CNPOF (opens in new tab)), which represents a 42% stake. In March 2022, RIV Capital acquired Etain Health (opens in new tab), one of New York state's original medical marijuana producers, for $247 million. Etain has one of 10 vertically integrated licenses from the state.
Innovative Industrial Properties (IIPR (opens in new tab), $90.53) is a real estate investment trust (REIT) that invests in greenhouses and industrial facilities for the medical cannabis industry. It was founded in 2016 when it had just one property under its umbrella. This grew to 66 by the end of 2020, and IIPR's portfolio is now at 110 properties.
Still, IIPR remains one the best REITs on Wall Street, as well as one of the best marijuana stocks, according to analysts. Piper Sandler analyst Alexander Goldfarb has an Overweight rating (the equivalent of Buy) on IIPR, with a $140 target price, some 55% higher than current levels.
If you're looking for a pure-play cannabis company in the U.S., Massachusetts-based Curaleaf Holdings (CURLF (opens in new tab), $3.82) is one way to go. The firm got its start in New Jersey in 2010, developing one of the first vaporizers to administer a single measured medical marijuana dose.
A total of 39 states, as well as Washington, D.C., have legalized medical marijuana. Twenty-one states and D.C. have legalized adult-use cannabis. As more states legalize recreational weed, Curaleaf should be able to continue to grow its business organically and through acquisitions.