The cannabis market is growing in leaps and bounds. Clever investors are gaining profits by investing in cannabis stocks. But what are the best cannabis investments today? This article will review your options.
What to Look for When Choosing the Best Cannabis Investments
- Market Cap: Market capitalization refers to the total value of a company’s common shares owned by stockholders. It equals the market price of each share multiplied by the number of outstanding common shares. It’s advisable to find a company with a market cap of over $100 million.
- Revenue: Most companies will release their total annual revenue by the end of the year. Investors can research these numbers to determine if the company is worth investing in. They should also look back over the last three year’s revenue to ensure that the company has been seeing a steady increase in profitability.
- Price to Sales Ratio: A P/S ratio compares a company’s sales price to its revenue. A low price-to-sales ratio is a sign of a good investment because it shows investors are paying less for each sales unit.
Risks Involved in Cannabis Investments
The weed market is growing, but there are many risks associated with cannabis investments. These include:
- Legal Risks: Marijuana is legal in most states, but it is still illegal on a federal level. The uncertainty means laws vary from state to state and may affect cannabis investments.
- Financial Regulations: Federal prohibition has also placed restrictions on how cannabis is handled on a financial level. Some banks are penalized for dealing with cannabis companies. Legislation is being introduced to ease restrictions, but they could pose a problem in the meantime.
- Supply and Demand Issues: Supply chain issues exist throughout the world. They are likely to occur in the cannabis industry due to a lack of regulation, agricultural issues, and other factors.
- Profitability Risks: Cannabis businesses tend to turn a profit. But high taxes, siloed state markets, and a lack of access to capital can negatively affect profitability.
- OTC Stocks: Many cannabis stocks trade in over-the-counter markets which are not required to file regular financial statements or maintain minimum market cap levels. They may have low liquidity which makes them difficult to trade.
Best Cannabis Investments in 2023
Green Thumb Industries owns over 80 retail stores and 18 manufacturing facilities across 15 United States. It holds enough additional licenses to double its retail locations. It is one of the largest cannabis operators in the country.
The company has shown consistent profitability since 2020. It continues to show strong revenue and has the potential to grow as the market expands.
Currently, Green Thumb shares can only be sold on OTC markets in the U.S. But if federal restrictions are lifted, it may cross over to major U.S. stock exchanges. This activity would make it an even more desirable choice for cannabis investments.
Cresco is a leading wholesaler of U.S. cannabis products. It operates retail stores in 10 United States including 6 of the most populous states in the country.
The company is rapidly growing thanks to its acquisitions and new locations. It recently acquired Columbia Care, a move that will make it one of the largest multi-state operators based on revenue. Once the deal closes, Cresco will operate in 18 U.S. markets including 12 states with cannabis sales of over $1 billion.
Cresco shares can only be traded on OTC markets but that will change if federal reform occurs.
Innovative Industrial Properties helps cannabis companies overcome restrictions imposed by federal banking laws. It assists them in securing capital by buying properties owned by U.S. medical cannabis dispensaries and leasing them back to them. The sale generates capital for the company, and IIP makes money through the lease agreement.
IIP has seen significant growth over the years. It owns property in 19 states and continues to generate strong revenue. Its status as a real estate investment trust (REIT) allows it to return at least 90% of its taxable income to shareholders.
Unlike some other cannabis companies, IIP can trade on the New York Stock Exchange. If reform occurs, it may be facing more competition from other cannabis companies. However, the reform will also help the market expand which is good news for all cannabis investments.
GrowGeneraion is a supplier of hydroponic indoor gardening supplies. It operates in 60 stores across 18 states. Because it doesn’t sell cannabis, it can trade on the Nasdaq stock exchange.
The demand for hydroponics products has dropped due to an oversupply of cannabis over the past years. This has been a short-term issue for the company. But its long-term prospects are positive, and it may rebound once conditions improve.
This Ireland-based pharmaceutical company acquired GW Pharmaceuticals in 2021, the company responsible for the cannabis drug Epidiolex which treats two rare forms of childhood epilepsy and tuberous sclerosis complex (a rare disease that causes benign tumors to grow on organs). The drug has seen significant commercial success with sales of $736.4 million in 2022.
Jazz continues to expand testing Epidiolex as a treatment for patients with epilepsy with myoclonic-atonic seizures. It is also working on other cannabis drugs that treat autism and related issues as well as non-cannabis drugs that treat cancer and sleep disorders.
Scotts Miracle-Gro is a well-known gardening company that has crossed over into the cannabis industry with its line of hydroponics products. Because it does not sell cannabis products, it can be traded on major stock markets. However, like Grow Generation, it is currently dealing with supply and demand issues.
The company should see long-term growth despite short-term challenges. Additionally, its many traditional lawn and gardening products can counterbalance its cannabis supplies making it a sound option when considering cannabis investments.
Now that you know more about cannabis investments, where will you put your money?