Cannabis Stocks

Investing In Marijuana & Cannabis Stocks

U.S. based vertically-integrated cannabis investors are fortunate. Rarely can speculators scrutinize the successes and failings of industry leaders in a parallel market before the market ripens domestically. Yet such is the case with Canada’s public cannabis sector, which offers an apples-to-apples glimpse of where U.S. MSOs will be in the not-too-distant future. Cannabis Investors by the thousands are already positioning themselves for America’s legalization moment, where federal de-criminalization of cannabis becomes a reality. Those willing to sit through the inevitable volatility swings while maintain forward-looking focus will make untold millions in the process. Many already have.

Although many U.S. MSOs have already obtained new highs on their Canadian and OTC listing, most agree we’re still in the early innings of a long ballgame—at least in the United States. Of the hundreds of companies listed on North American exchanges, a couple of dozen should emerge as the next cannabis unicorns. These winners will arise not through sheer randomness or chance; they will follow a disciplined blueprint for success at each stage of their developmental cycle.

Most Popular Cannabis Stocks & Industry Leaders

One company in particular—Canopy Growth Corp.—has formulated a blueprint for success that its peers may emulate. Canopy Growth’s leadership position among cannabis stocks is part of byproduct of its early-mover advantage and outsized prosperity by landing partnership deals with Tier-1 CPG companies such as Constellation Brands. While other licensed producers will follow their own unique prototype to prosperity, each—to one degree or another—will emulate Canopy’s model in order to get there.

The genesis of Canopy Growth actually began quite inauspiciously. Reacting swiftly to favorable business conditions and full ‘Licensed Producer’ status under the MMPR granted in November 2013, Tweed Inc. successfully applied for Toronto Venture Exchange (TVE) listing. It did so by acquiring a shell company to enact what is known as a Reverse Takeover (RTO) transaction. Such a maneuver sought to bypass the lengthy and complex process of going public, as the organizational share structure and listing requirements were already in place.

Trading in the common shares of the new corporate entity resumed on Friday April 4, 2014 under the symbol “TWD”. Quite literally, Canopy Growth (as we know it today) became first cannabis investing stock to list on a major North American Exchange. Hundreds of cannabis stocks listings would follow in subsequent years, with varying degrees of success.

The first of the “Big 4” cannabis stocks to list in Canada was Green Thumb Industries, which debuted on the Canadian Securities Exchange in June 2018. The U.S. MSO and consumer packaged goods company with operations in more than a dozen states began trading June 13, 2018 under the ticker symbol “GTII”. It has maintained its leadership position throughout by consistently producing steady revenue growth and top-of-industry market capitalization.

Upon its launch on September 2, 2020, the actively managed AdvisorShares MSOS ETF became the first U.S.-listed ETF focused solely on American cannabis companies, including U.S. MSOs. U.S. MSOs are U.S. companies directly involved in the legal production and distribution of cannabis in states where approved.

Beginner's Guide to Investing in Marijuana Stocks

Do you want to invest in marijuana stocks but don’t know where to start? Many new cannabis investors are asking a similar question, given the complexity of the industry and the plethora of cannabis stocks eligible for trade. TDR will attempt to sort through the noise.

According to some estimates, the annual global cannabis market could be worth $150 billion or more before the end of the decade. Cannabis investing has grown commensurate to the retail opportunity in cannabis sales, which is steadily climbing despite the COVID pandemic which has plagued other retail companies. With a duo medical-recreation purpose, U.S. MSOs have the advantage over many other consumer discretionary goods.

Although cannabis remains illegal at the federal level in the U.S. more than 30 states have legalized medical marijuana. U.S. territories Guam and Puerto Rico also allow the legal use of medical marijuana. Even more states are considering legalizing recreational pot as well. While federal regulations in the United States continue to ban the use and selling of marijuana, hemp was approved on a national basis in December 2018. Marijuana and hemp are all derived from the cannabis plant. The main distinction being that hemp produces so few tetrahydrocannabinol (THC), the dominant chemical in cannabis that allows people to get high.

This growing adoption has created an environment where cannabis stocks are attracting increased interest among cannabis investors, and cannabis investing is thriving worldwide.

While there are many different types of cannabis stocks for cannabis investors, it is important to understand the different domains for each grouping. They can be classified as plant touching, non-plant touching, and cannabis-focused biotech companies.

Plant touching companies include U.S. MSOs which are vertically integrated and control their whole supply chain. From growing the plant, creating the finished product to warehousing and distribution, these companies cover everything from seed to sale. These companies tend to produce the biggest revenues and the highest margins since they tightly control many of their own production costs.

Non-plant touching companies provide important products and services to the marijuana industry, including consulting, distribution, hydroponics, lighting systems, and packaging. They may also have brands that are produced on a white-label basis by third-party companies.

Cannabis-focused biotech companies do not engage in the sale, production, and distribution of cannabis retail products, but rather develop prescription drugs based on ingredients found in cannabis.

For cannabis investors unwilling to take on individual marijuana stocks risks in a portfolio, there are several cannabis-focused exchange traded funds (ETFs) to choose from.

The Horizons Marijuana Life Sciences Index ETF is the oldest and most prestigious cannabis ETF on the market. It tracks Arcview Market Research's North American Marijuana Index, which includes marijuana and hemp companies. This ETF trades on the Toronto Stock Exchange, but like most industry ETFs, maintains a U.S. listing.

Another prominent cannabis ETF is the ETFMG Alternative Harvest ETF (NYSEMKT:MJ) tracks the Prime Alternative Harvest Index. While this index includes many marijuana or hemp stocks, it also includes some tobacco-related stocks. The ETFMG ETF is listed on the New York Stock Exchange's Arca exchange.

The most popular cannabis ETF is the AdvisorShares Pure US Cannabis ETF (Ticker: MSOS). MSOS is the first and only actively managed U.S.-listed ETF with dedicated cannabis exposure focusing exclusively on U.S. companies, including multi-state operators. The portfolio manager allocates across an investable universe of U.S. companies spanning a variety of cannabis-related businesses.