In the past few years, the marijuana industry has expanded at an unprecedented pace, and has not looked back. The recent legalization of recreational cannabis in Canada, as well as continual legalization in states has paved the way for manufacturers, wholesale distributors, and shops to take advantage of the rapidly growing market. Marijuana-based IPOs have increased, and will continue to sweep the markets this next year. In fact, the industry is doing so well that it is projected to grow by as much as 38% this year in 2019. This is a global phenomenon that many investors want to profit from. However, there are now many firms and companies vying for the same market share in the industry, so it is important to do your research with regards to picking certain investments. In this article, I will break down my top four picks for marijuana-based investments that you can add to your portfolio this year.
Aurora Cannabis Inc. (ACB)
Aurora Cannabis is my favorite marijuana stock. From a balance sheet standpoint, ACB looks healthy and even undervalued relative to the cannabis industry. With a Price/Book ratio of only 2.63, ACB is much more undervalued than its competitors such as Canopy Growth and Tilray, both of which boast P/B ratios of more than 10. Additionally, with quarterly revenue growth of over 360%, ACB has proved it can strategically expand its business at rates much higher than the aggregate industry in which it operates. When ACB becomes consistently profitable, it will be an even better company.
ACB is also a great company to invest in due to its large market share and strong advisory team. Aurora has positioned itself to have a dominating presence in the Canadian market, which has legalized recreational marijuana. By securing various licensing agreements and establishing a strong network of distribution facilities and companies, ACB will continue to be a major player in Canada. ACB has also secured experienced advisors, namely Nelson Peltz of Trian Fund Management. This move could propel ACB above the rest.
Canopy Growth Corporation (CGC)
Canopy Growth comes in close second in my opinion. Although CGC does not have as strong of a balance sheet, with a P/B ratio of 9.44, a profit margin of -265.24%, and a Debt/Equity ratio of 10.66, it is a solid company. Based purely on size alone, CGC is a behemoth in the industry. It has nearly double the market capitalization of the next biggest player, Aurora Cannabis, and has more than triple that of Tilray. CGC has the largest market share of the industry, with TTM sales of more than $70 million.
CGC is a great investment, not because of its balance sheet, which will improve with time, but because of its strategic merger and acquisition activity. Canopy Growth has played the M&A market the best out of any marijuana producer. It has acquired Acreage Holdings, Inc., a cannabis producer with one of the best exposures to the United States market. CGC has effectively positioned itself to take control of the U.S. marijuana market when more legalization occurs. Additionally, CGC has a lucrative partnership with Constellation Brands (STZ), which has invested $4 billion in the marijuana producer. Constellation Brands is a producer of liquor, so CGC has access to an entirely different and potentially valuable industry apart from cannabis. CGC has proved it can separate itself from the competition, something that will be important going forward as the cannabis industry continually changes.
Industrial Innovative Properties, Inc. (IIPR)
Industrial Innovative Properties is a company perhaps unlike any other within the marijuana industry. This is because IIPR is a REIT, or an investment trust in real estate, rather than a manufacturer or wholesale distributor. Additionally, IIPR has consistently stayed within the medical marijuana side of the industry, which allows them to position within 33 states, rather than just a few that have legalized recreational use.
IIPR has positioned itself within a niche corner of the marijuana industry: properties. In order to grow vast amounts of product, companies must purchase or rent very large spaces. Only a few plants can actually grow per square meter, meaning that the large competitors within the industry are going to have to continually acquire space that allows them to expand operations. By controlling the market for real estate rather than actual product, IIPR avoids a lot of issues with regards to regulation and allows them to truly focus on the bread and butter of their business.
IIPR also pays a dividend of 2.20%, which allows the dividend investor to open a position within the cannabis industry.
AdvisorShares Pure Cannabis ETF (YOLO)
The Pure Cannabis ETF, under the ticker symbol YOLO, is a brand new diversified marijuana ETF. It is actively-managed by one of the top ETF providers, AdvisorShares, and has a relatively low net expense ratio of 0.74%. It has holdings which present a diversified basket within the industry. If you are too afraid to take a position within one single cannabis company, this ETF should provide more safety through diversification among various companies, from small cap to large cap, as well as among various products sold. As the marijuana industry continually grows, so should this ETF.
The cannabis industry has not nearly tapped into all of its potential yet. As more and more states in the U.S. legalize both medical and recreational cannabis, there will be more opportunities for marijuana sellers, licensers, and distributors to make money. The marijuana industry has continued to grow at incredible rates, and there are investments that can allow you to profit off of the trend.
Financial data from finance.yahoo.com