Aside from inspiring a whole lotta bad puns I’ve had to weed from my system, cannabis stocks have also piqued my interest greatly. The sector remains young and full of potential, yet more dependent on legislators to guarantee its success than any other I can name. This stems from the fact that marijuana use, while fully legal in 15 states and partially legal another 33, is still against the law on the federal level. (It is also illegal in Idaho though potatoes, a principal ingredient in vodka, are not. Just sayin’.)
Until Congress approves decriminalization and the president signs it into law, cannabis stocks may have something of a cloud hanging over them, and not of the Cheech and Chong kind. The good news is that under a new administration this could be one step closer to reality, as Vice President-elect Kamala Harris was the Senate sponsor of the Marijuana Opportunity Reinvestment and Expungement (MORE) Act. The House version came within inches of a vote on the week of Sept. 21.
Regardless of what happens in Washington D.C., pot stocks are hot and cannabis is big business. It’s estimated that the sector could generate up to $130 billion annually into the U.S. economy by 2024. It’s safe to assume that before then, more states will approve recreational use, just as New Jersey, Arizona, South Dakota and Montana did on Election Day 2020. Remarkably, marijuana was illegal all across the U.S. until 2012, when Colorado became the first state to legalize it.
Thanks in part to action north of the border — Canada legalized pot in 2018 — the marijuana sector has picked up steam over the last 24 months.
This list of cannabis stocks includes companies and contenders that stand on the cusp of maximizing the sector’s untapped potential.
Canopy Growth Corp. (NYSE:CGC)
GrowGeneration Corp. (NASDAQ:GRWG)
Cara Therapeutics (NASDAQ:CARA)
Merck & Co. (NYSE:MRK)
Yes, it’s fair to say these stocks are “poised to grow” without my getting arrested by the Pun Police. It’s a good thing, too, as some federal officials consider bad pot jokes a Class A misdemeanor. And so, onto the list and I promise — no pot shots.
Marijuana stocks: Canopy Growth Corp. (CGC)
Among cannabis stocks, CGC has faced crisis and survived, a crucial plus given that it belongs to a sector where many companies remain untested. Based in Smith Falls, Canada, Canopy ran into problems with less-than-expected domestic demand, distribution problems, and the one-two punch of losses and light revenue. All this stoked the ire of Constellation Brands (NYSE:STZ), which owns a 38% stake in CGC and forced the ouster of co-founder and co-CEO Bruce Linton.
The company has since recovered nicely, and year over year, CGC stock is up 35%. As of Dec. 21, the company announced some big moves that it hopes will prepare it for the new year. First, it retired its ownership interest in Canopy Rivers, which helped it develop key greenhouse infrastructure. At the same time, Canopy Growth increased its direct conditional stake in another Canadian marijuana company, TerrAscend from about 13% to 21%.
CGC stock also has a celebrity name going for it. While Marta Stewart is better known for hanging pots than hawking pot, Canopy has changed all that. She’s the doyenne behind Martha Stewart CBD brands and as such, represents a key entry point into the U.S. market.
As long as we’re on the subject of TerrAscend, let’s note that this Toronto-area company is worth a look on its own as cannabis stocks go. TRSSF stock is up 440% year over year, and that includes a 57% spike since Nov. 1. What’s the deal with this outfit that has a presence far beyond Ontario province?
For our purposes, it’s essential to know that TerrAscend has some strong roots in the U.S. It claims to be the first cannabis company with sales here. It also operates businesses such as The Apothecarium, a cannabis dispensary with several retail locations in California.
Canopy Growth’s move to buy up TRSSF stock could ultimately bolster both companies. Yes, investors should take care to make sure Canopy’s days of mismanagement are behind it. But with 11 brands under its umbrella, TerrAscend has legs to stand on.
As cannabis stocks go, it’s poised to ride the tailwind of legalization in America.
GrowGeneration Corp. (GRWG)
Based in Denver, GrowGeneration may have a relatively small market capitalization at $2.2 billion. But in 2020, it’s made many investors wealthy as GRWG stock has rocketed more than 900%! Though of course, the question is how long a high (ugh!) such as this can last.
No question, GRWG stock is overvalued with a price-to-earnings ratio over 500. (This figure shows how many dollars an investor will spend to buy $1 of company profit.) But as new sectors explode — electric vehicles provide a textbook example — profits aren’t as important as momentum, and GrowGeneration clearly has plenty of that.
I like that this company is based in Colorado, the first state to fully legalize pot. It has been in business since 2008. Burgeoning sectors too often attract wannabes and fly-by-night concerns; GrowGeneration is neither of these. That said, new investors in GRWG stock should watch closely, as the overvaluation could spell bubble trouble in 2021.
Cara Therapeutics (CARA)
That CARA stock is relatively flat year over year should relieve investors. The March market dip caused by the novel coronavirus, also known at the “Covid-19 Crash,” sent shares tumbling to a 52-week low of $9.12. They now trade at a healthier $15.15, which gives the Connecticut-based company breathing room to cross the finish line with Korsuva, its cannabis-based therapeutic.
Korsuva goes after an obscure disease known as chronic kidney disease-associated pruritus (CKD-aP), which is characterized by pain and itching. Giddy with prospect of the drug’s eventual approval, investors sent shares soaring last year but have since grown impatient.
But those with attention spans beyond investor lemmings will note that on Dec. 28, Cara announced that it had submitted a New Drug Application to the FDA. If granted, that would kick-off a six-month review process with Korsuva’s approval coming as early as Summer 2021.
Those who get in now could ride a mighty big wave of investor enthusiasm in the months ahead.
Merck & Co. (MRK)
Source: Atmosphere1 / Shutterstock.com
What’s a nice big pharma like Merck doing on a pot stocks list like this? Lest you conjure images of well-heeled suits lighting up in the executive washroom, consider this. The New York-area company has made a veritable stealth entrance into the cannabis stock club. It now holds 35 cannabis-related patents.
MRK stock investors should know the company’s interest lies in high-end medical applications, and in May 2019 it entered into an agreement with Intec Pharma Ltd. (NASDAQ:NTEC). Together, the companies are collaborating on a medication, now in phase-3 trials, that uses cannabinoids to treat symptoms in advanced Parkinson’s disease patients.
Year over year, MRK stock hasn’t done so hot; it’s down almost 12%. But since the Covid-19 crash, it has shot up over 15%. Currently, 7 of 8 analysts on TipRanks call Merck a buy, making it definitively overweight in the field of cannabis stocks.
Source: nitpicker / Shutterstock.com
The one overseas player on this list, Paris-based Sanofi, tipped down 5% year over year. That’s not so bad given all the pandemic pandemonium. But part of it is the company’s own doing. News broke in early December that a lab mistake with its Covid-19 vaccine candidate would set back delivery by four to five months.
Still, Sanofi stock remains profitable for investors. Rewind two years and it’s up 12% overall. Look ahead to 2021 and you’ll see some tremendous potential as cannabis stocks go. It holds 39 medical cannabis patents, second worldwide only to Abbvie (NYSE:ABBV), which has 59.
As for what those patents mean in the short term, investors will have to sit tight.
There’s no news of anything in the pipeline just yet, though in 2019 Sanofi entered into an agreement with Opiant Pharmaceuticals (NASDAQ:OPNT) to manufacture drinabant, a drug used to treat acute cannabinoid overdose (ACO).
On the date of publication, Lou Carlozo did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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