After Nov. 8, when voters in nine states will consider some form of cannabis legalization, the cannabis stock investment market may explode. If you’re feeling like you’d like to get in on the ground floor, consider Nov. 9 the day the street-level doors will be barred.
Want to jump in now? Be careful. Investors are already rushing into the market. According to New Cannabis Ventures, which tracks a large portfolio of cannabis stocks, marijuana-related equities have, on average, more than doubled in price since September 1. Many of those stocks are extremely volatile, however, and may plummet just as quickly as they’ve risen.
We’ve compiled this list of the largest, most stable and legal cannabis companies open to public investment. The article that follows should not be construed as investment advice; we are merely musing on an extraordinarily interesting and timely topic. Invest in these cannabis stocks at your own risk.
The largest sector of the marijuana industry, according to a Bloomberg analysis, is pharma/research ($1.5b), followed by the producer ($645m), consumer ($302m), real estate ($216m), consulting ($170m), tech ($162m) and industrials ($54m) segments. For our purposes, it might be helpful to think of just two types of investments: Companies with ties directly to cannabis, and those without.
Most companies with direct cannabis ties are penny stocks, whose quaint name belies a highly speculative and risky nature. The Securities and Exchange Commission (SEC) warns investors that penny stocks have a number of downsides, such infrequent trading (so once you buy them you might not be able to sell them) and murky data on how pricing is set. Earlier this month, the SEC temporarily suspended trading in Infinex Ventures, a Nevada corporation, because the company “appears to have made false and misleading statements concerning its operations and financial condition, its acquisition of Marijuana Funding, Inc., and its rights to financing to develop a marijuana business.” And Denver-based General Cannabis Corporation, which saw its price rise 500 percent from August to mid-October, lost one-third of its value overnight when OTC Markets, where the stock trades, informed General Cannabis about concerns over the company’s promotional activities.
When it comes to penny stocks, the SEC recommends being prepared to lose all of what you invest.
But, if you’re committed to doing your homework, there is a global market opening up that the Financial Post says may come to be as massive as the alcohol or tobacco industries. And there are a few cannabis companies out there that seem poised for profitability.
- Canopy Growth Corporation. [TSE: CGC] Canopy Growth is the parent company that owns Tweed, Tweed Farms Inc., and Bedrocan brands. Tweed is a commercial grower licensed under Canada’s Marihuana for Medical Purposed Regulations program (for people with chronic and terminal illnesses). Bedrocan is a Dutch company that, true to its roots in the third largest agricultural exporter in the world, offers pharmaceutical-grade cannabis under federally-regulated cannabis programs worldwide, and helps advance research, by licensing its technology and partnering with people and organizations. Canopy Growth produces and sells cannabis oil products and edibles, and the future up north is bright: Prime Minister Justin Trudeau has declared he’ll soon legalize, tax and regulate marijuana — the implication being that legal adult-use cannabis, and a broad customer base, may be just over the horizon.
- GW Pharmaceuticals. [NASDAQ: GWPH] This British biotechnology firm manufactures pain drugs using compounds present in cannabis. GW Pharma has developed a multiple sclerosis treatment product, and has another in the works to treat children with severe epilepsy. Just a few months ago GW raised $252 million on Wall Street, with Morgan Stanley, Bank of America Merrill Lynch and Goldman Sachs serving jointly as the major underwriters for the raise.
- Microsoft. (NYSE: MSFT) Perhaps you’ve heard of this little Redmond, Wash., software company. With its purchase of Los Angeles-based Kind Financial earlier this year, Microsoft now offers software to track marijuana plants from “seed to sale.” It seems Microsoft is looking to liven up its revenue streams and image, in light of its dwindling desktop software business and its recent retrenchment of its geek bonafides with its acquisition of career social networking site LinkedIn. Kind Financial had long been a commercial client of Microsoft’s; Kind now works through Azure Government, Microsoft’s cloud platform with security and compliance protocols tailored to meet needs of organizations with heavy government oversight. The downside: Kind Financial’s cannabis-focused products contribute an infinitesimal bump to Microsoft’s bottom line, so this isn’t a pure cannabis growth-market play. The upside: It’s Microsoft. They’re not going out of business tomorrow.
- Terra Tech. (OTCMKTS: TRTC). Terra Tech, based in Newport Beach, Calif., is the only publicly traded American company that touches every aspect of the cannabis life cycle. These folks have four subsidiaries in diverse segments of the industry: Edible Gardens (local and sustainably-grown hydroponic produce), MediFarm LLC (medical cannabis businesses in Nevada), IVXX LLC (medical cannabis-extracted products for regulated medical cannabis dispensaries throughout California), and Blum, a dispensary company acquired just last quarter. Blum, originally based in Oakland, has recently expanded to Nevada, where it’s opened one Las Vegas location and has seven more planned. Terra Tech offers everything from its Half Caked line of edibles to Whoopi Goldberg’s line of cannabis claiming to alleviate menstrual cramps. A downside: Since they’re close to the flower, TRTC isn’t traded on a major exchange. Until the DEA reclassifies marijuana from a schedule 1 drug, it’s not likely to be. While it’s listed in the OTC Market Group’s OTCQX Market, which OTC says does not list penny stocks, the fact is that shares were recently trading at $0.41, which technically meets even the most generous definition of a penny stock. If you’re determined to invest in the front lines of the industry, even though doing so is very risky, Terra Tech may be the most established public company in a highly speculative space.
- Scotts Miracle-Gro. (NYSE: SMG) The name may ring a bell, but this ain’t your momma’s Miracle-Gro. Mired in stagnation after the Great Recession, in 2013 Miracle-Gro was reborn, after CEO Jim Hagedorn made a call to go after an emerging market—cannabis growers. Considering the company’s shares increased 13% in the past year, he seems to have made the right choice. And he’s all in: Last year Hagedorn invested $135 million in two CA-based fertilizer, soil, and accessory companies; spent $120 million on an unnamed lighting and hydroponics company in Amsterdam; and says another $150 million of investment in the industry is coming down the pike this year. An established corporate powerhouse in the lawn and garden industry, led by a CEO who’s in his element making bold moves? Seems ideally suited to the risky but potentially lucrative opportunity cannabis presents. Leadership of few other old-guard brands can stomach such acrobatics but Hagedorn, a Cold War fighter pilot who in his youth lived on radical communes doing drugs, seems right at home, and controls enough of the company to be able to call most of the shots. In its Pot Era, the company’s hydroponics arm has seen sales that are quadruple the growth rate of the rest of the company, and as a whole Scotts Miracle-Gro has operating margin projections projected to be nearly 30% higher this year than the company average. The company is researching a line of branded pesticides designed for pot (at the moment many growers are using corn pesticides, to the consternation of public health officials). An early signature product to watch for? Black Magic potting soil, which costs more than twice as much as regular potting soil, and ran TV ads during the NBA Finals last spring.