Hot Pot Stocks: Sizzling Opportunities Or Just A Bubble?

The legalisation of cannabis in various states and countries has led to a surge in interest in cannabis stocks. The industry is expected to grow at a minimum compound annual growth rate of 34% through to 2030, with the global market already worth around $59 billion in 2023. Cannabis stocks can include companies involved in every stage of the production and marketing process, from greenhouse cultivation to retail dispensaries, and even ancillary services like lighting equipment and fertiliser.

While there is heightened volatility and regulatory risk involved in trading cannabis stocks, there are several companies that stand out in this burgeoning industry. These include Curaleaf Holdings, Green Thumb Industries, Trulieve Cannabis, Verano Holdings, Glass House Brands, The Cannabist Company Holdings, and WM Technology.

Nasdaq-listed marijuana stocks could also benefit from expected U.S. decriminalisation. Despite 77% of the U.S. population living in a state with some form of legalised cannabis, its use and possession are still illegal at the federal level. However, Senate Democrats recently revealed the Cannabis Administration and Opportunity Act, which would lift federal prohibitions.

Other top marijuana stocks on the Nasdaq with the best value, fastest growth, and best performance include Aurora Cannabis Inc., OrganiGram Holdings Inc., and Cronos Group Inc.

Cannabis stocks to watch

Cannabis stocks have been on a wild ride over the past few years, with legislative changes and market forces causing both big rallies and substantial declines. Here are some of the cannabis stocks to watch:

Curaleaf Holdings (CURLF)

Curaleaf Holdings is the largest publicly traded cannabis company, with a market capitalisation of $1.3 billion in revenue last year. The stock jumped 44% in 48 hours after the US Department of Health and Human Services recommended easing restrictions on marijuana, but it is still down 34% over the last year. Curaleaf Holdings produces cannabis products for retail and wholesale distribution and provides professional services. The company's revenue for the final quarter of 2022 increased by 14% as it opened eight new retail dispensaries.

Green Thumb Industries (GTBIF)

Green Thumb Industries is a US-based cannabis consumer packaged goods company with more than 80 retail locations and 15+ manufacturing facilities across the country. Founded in 2014, the company crossed the $1 billion mark in revenue last year, a 13.9% jump from the previous year. The stock jumped 37% in 48 hours following positive regulatory news but is still down about 15% over the past year.

Verano Holdings (VRNOF)

Verano Holdings is a US company that operates under the brands Encore, Alexia and MUV. The company went public in February 2021 and is a relatively new name in the industry. Verano Holdings struggled last year, with its stock falling 42%.

Trulieve Cannabis (TCNNF)

Trulieve Cannabis is a US cannabis provider that has performed poorly for investors, with its stock down 56% in the last twelve months. However, the company has seen formidable growth in sales, with a 32% revenue jump last year. Trulieve Cannabis operates in several parts of the US and its brands include Cultivar Collection, Muse, Roll One, Sweet Talk and Momenta.

Cresco Labs (CRLBF)

Cresco Labs is the largest US wholesaler of branded cannabis products, operating in seven states. The company opened five new stores in the second quarter of this year, bringing its total to 68. Cresco Labs' revenue has seen limited growth, with a thin increase last year. The company's brands include Cresco, Remedi, High Supply, Wonder Wellness Co, Mindy's, Good News, Sunnyside and FloraCal Farms.

Glass House Brands (GLASF)

Glass House Brands is a vertically integrated cannabis company based in California with one of the smallest market capitalisations on this list. The stock returned 19% in the last twelve months, with Q2 earnings showing marked progress. Net sales jumped 171% year-over-year and gross margin was 55%, compared to only 2% a year earlier.

The Cannabist Company Holdings (CBSTF)

Formerly known as Columbia Care, The Cannabist Company called off a mega-deal with Cresco Labs that would have created one of the biggest cannabis companies. The company's stock is down 79% in the last year, but revenue growth has been strong. The Cannabist Company trades as a Canadian ADR on the US OTC market.

WM Technology (MAPS)

WM Technology is a provider of technology and software infrastructure for the cannabis industry. It is the smallest company on this list and trades on the Nasdaq. The company has shown interesting growth, with revenue increasing last year and beating analyst expectations. However, the stock is down nearly 90% since the start of 2021.

Cannabis stocks to buy

Cannabis stocks are considered highly risky due to the nature of the industry, but they can also offer high growth potential. Here is a list of some of the top cannabis stocks to buy:

• Curaleaf Holdings (CURLF): Curaleaf is the largest publicly traded cannabis company, acting as a bellwether for the industry. It is based in Wakefield, Massachusetts, and its stock is listed on the Canadian Securities Exchange (CSE).
• Green Thumb Industries (GTBIF): Green Thumb Industries is a US-based cannabis consumer packaged goods company with over 80 retail locations and 15+ manufacturing facilities across the country. It has shown impressive growth since its founding in 2014, crossing the $1 billion mark in revenue last year.
• Trulieve Cannabis (TCNNF): Trulieve Cannabis is a US cannabis provider that has shown strong sales growth, with a 32% revenue jump last year. Its stock price has suffered, however, dropping 56% in the last twelve months.
• The Cannabist Company Holdings (CBSTF): Formerly known as Columbia Care, this company has licenses in 15 US jurisdictions and operates over 120 facilities, including dispensaries and cultivation/manufacturing sites.
• Glass House Brands (GLASF): A vertically integrated cannabis company based in California with one of the smallest market caps among its peers, making it a risky but potentially rewarding play for investors with a higher risk tolerance.
• WM Technology (MAPS): WM Technology is a provider of technology and software infrastructure for the cannabis industry. It is the smallest company on this list and trades on the Nasdaq, making it an option for those seeking higher risk.
• Ascend Wellness Holdings Inc. (OTC: AAWH): A vertically integrated cannabis operator with licenses and assets in seven states.
• Cresco Labs Inc. (CRLBF): A vertically integrated company operating in eight states with 13 production facilities and 71 dispensaries. It is also involved in wholesale distribution, and its branded products are sold in thousands of dispensaries across the US.
• Verano Holdings Corp. (VRNOF): A vertically integrated MSO active in 13 states with over 1 million square feet of cultivation capacity. It sells its products in over 130 company-owned dispensaries and hundreds of other retail locations.
• TerrAscend Corp. (TSNDF): A company with vertically integrated operations in Pennsylvania, New Jersey, Maryland, Michigan, and California, as well as retail operations in Canada.
• Canopy Growth (CGC): A leading cannabis company that has benefitted from Germany's legalization of cannabis.
• Tilray Brands (TLRY): A Canadian cannabis producer and market leader that has introduced new products and is awaiting the reclassification of cannabis in the US.
• Cronos Group Inc. (CRON): A Canadian cannabis company that has reached settlement agreements with the US Securities and Exchange Commission and the Staff of the Ontario Securities Commission.
• OrganiGram Holdings Inc. (OGI): A Canadian producer of medical and recreational cannabis that has shown strong revenue growth.
• Aurora Cannabis Inc. (ACB): A Canadian cannabis company serving both the medical and recreational markets with several brands, including Aurora Drift, Daily Special, MedReleaf, and CanniMed.

These companies offer exposure to the rapidly evolving cannabis industry, which continues to expand globally. However, it is important to note that investing in cannabis stocks comes with unique risks, including legal, political, and financial constraints.

Cannabis stocks and federal reform

Cannabis stocks have been experiencing a downward trend, but experts believe that the legalisation of cannabis is inevitable, which could lead to a boom in the industry. Medicinal marijuana is currently legal in 37-38 states, and recreational use is permitted in 23-24 states. Despite this, cannabis remains illegal at the federal level in the US, creating challenges for businesses in the industry.

There are three potential pathways that could lead to marijuana legalisation and provide a boost to cannabis companies:

• The SAFER Banking Act: This legislation would allow banks to provide financial services to cannabis companies, making it easier for them to expand. It has received bipartisan support in the past but faces opposition from the current House Speaker.
• Lawsuit against the Controlled Substances Act: A group of cannabis businesses in Massachusetts filed a lawsuit arguing that the federal Controlled Substances Act infringes on the power of states that have legalised cannabis. A favourable ruling would ease restrictions on cannabis businesses.
• Rescheduling of marijuana: The Biden administration has requested a review of marijuana's Schedule I status. A recommendation to reclassify it as Schedule III would likely lead to significant changes, including the ability of cannabis firms to take business deductions.

With the expectation of federal reforms, here are some cannabis stocks to consider:

Aurora Cannabis (ACB)

Aurora Cannabis is a Canadian company serving both the medical and recreational markets. It has a presence in Germany, one of only three firms allowed to grow marijuana in the country. Aurora's revenue rose 5.4% in its fiscal third quarter, and its EBITDA increased year-over-year.

Canopy Growth (CGC)

Canopy Growth is establishing a US-based holding company to acquire multiple American cannabis firms. This positions them to benefit from the SAFER Banking Act and the relaxation of cannabis restrictions. Canopy's revenue climbed 6% year-over-year, with an impressive 81% growth in revenue from cannabis outside of Canada.

Tilray (TLRY)

Tilray is one of the largest medical cannabis businesses in Canada and Europe. With the expected growth in the US medical marijuana sector due to reduced restrictions, Tilray is well-positioned to benefit from its expertise in this area. Their price-to-book ratio is an attractive 0.50.

It's important to note that investing in cannabis stocks comes with unique risks, including legal, political, and financial constraints. These stocks represent highly risky growth stocks, and it may take years for meaningful reforms to be implemented.

Cannabis stocks and the vaping crisis

The vaping crisis has had a punishing effect on cannabis stocks. The health scare, which involved a wave of lung illnesses, caused shares in cannabis companies to slide. The crisis was linked to vaping products containing THC, the psychoactive ingredient in cannabis. The CDC launched a multistate investigation into the illnesses in August 2019, which particularly affected Canada's Canopy Growth Corp., the largest cannabis company by market value. Its shares fell by 29% in the period following the investigation's launch.

The crisis also highlighted the regulatory risks involved in trading cannabis stocks. The crisis was exacerbated by the availability of black-market THC oils and cartridges, which are often packaged to look like legitimate licensed products. These black-market products are sold at a deep discount and are popular because they can be used discreetly, for example, in classrooms or offices. The ease of access to these unregulated and potentially dangerous products poses a significant risk to the legal cannabis industry.

The vaping crisis also comes at a time when the cannabis industry is facing other challenges. Cannabis stocks have been struggling, with the New Cannabis Ventures Global Cannabis Stock Index rebounding by 79% from its record low in March 2020, but still down 28% in 2020 and 83% since early 2018. The industry was already facing a capital crunch, and the vaping crisis has only added to the difficulties faced by cannabis companies.

However, there are reasons for optimism in the cannabis sector. The pandemic has boosted demand for cannabis in the legal market, with consumers stocking up and spending more time at home. The crisis has also accelerated the adoption of new modes of delivery, such as curbside pickup and online ordering, which benefit legal cannabis companies. The crisis has also highlighted the dangers of the illicit market, with contaminated products causing health issues.

The future of the cannabis industry also looks promising in terms of legalization. More states are expected to legalize cannabis, either through ballot initiatives or legislative processes. This will open up new markets for cannabis companies and reduce the regulatory burden.

In conclusion, while the vaping crisis has negatively impacted cannabis stocks, the industry has the potential to recover and prosper. The legal market is growing, and the benefits of technology and changing consumer behaviour are being realised. However, the regulatory environment remains complex, and the illicit market continues to pose a significant challenge.

Cannabis stocks and the global market

Cannabis stocks have been gaining traction as more countries and states move to decriminalize or legalize cannabis for medical or recreational use. The industry's growth is twofold, driven by the increasing demand for both recreational and medical cannabis. The global cannabis market is projected to be worth $57 billion in a decade, with the U.S. market alone projected to hit $23.4 billion by 2022.

The marijuana industry's expected growth rate is an impressive 34% annually through to 2030. This growth is further supported by the U.S. Drug Enforcement Administration's (DEA) move to reclassify marijuana, reducing its potential for abuse and dependence. As of July 2024, cannabis is now legal in 37 states for medical use and 23 states for recreational use in the U.S. However, it is still illegal at the federal level, which poses some challenges for cannabis companies and investors.

Despite the challenges, there are several cannabis stocks that investors can consider. Here are some of the top marijuana stocks to watch and buy:

• Green Thumb Industries (OTC:GTBIF): With operations in 14 states and a strong balance sheet, Green Thumb ranks among the largest U.S. cannabis companies. It has been profitable since 2020 and continues to deliver revenue growth. Its shares are currently traded on over-the-counter (OTC) markets, but federal reforms could allow listing on major U.S. exchanges, boosting its performance.
• Trulieve Cannabis (OTC:TCNNF): Trulieve is the largest cannabis company in the U.S., with a strong market presence in Florida, Arizona, and Pennsylvania. With federal reforms and the potential legalization of recreational marijuana in Florida, Trulieve is well-positioned for significant growth. Its shares are also traded on OTC markets.
• Innovative Industrial Properties (NYSE:IIPR): IIP is a unique cannabis-focused real estate investment trust (REIT) that helps U.S. cannabis companies secure much-needed capital by buying their properties and leasing them back. This business model has allowed IIP to generate solid revenue and earnings, and it already trades on the New York Stock Exchange (NYSE).
• Quest Diagnostics (NYSE:DGX): Quest Diagnostics is one of the world's largest providers of laboratory testing services. With the legalization of cannabis in more states, there is an increasing demand for drug testing in the workplace, and Quest is well-positioned to meet this demand. It is a lower-risk option for investors looking to profit from the legalization of cannabis.
• Turning Point Brands (NYSE:TPB): Turning Point Brands supplies smoking accessories and oral tobacco and has significant growth opportunities with the legalization of cannabis. They estimate an addressable market of around $200 million in the alternative market for head shops and cannabis dispensaries.

Other notable mentions include Curaleaf Holdings (CURLF), Verano Holdings (VRNOF), Glass House Brands (GLASF), and The Cannabist Company Holdings (CBSTF).

While the cannabis industry presents attractive investment opportunities, it is essential to remember that it is still a nascent industry with significant investment risks. These include legal and political risks, financial constraints, supply and demand irregularities, and profitability concerns. Therefore, investors should carefully consider these risks before investing in cannabis stocks.

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