The global cannabis market is ballooning and should continue to inflate more in the coming years. Recent reports suggest that the global market could reach a value of $73.6 billion by 2027.
The boom and its potential have scores of cannabis stocks listing on various global exchanges. Interested investors have a plethora to choose from. It can be challenging to gauge which will win out with many to choose from in the end. At this time, there is no one clear-cut dominant stock in the emerging cannabis space.
However, through a variety of matrices, experienced stock leaders determine what they consider to be leading options in the market. A few of these investors offered various takes on leading stocks and sectors to consider.
Various Methods To Determining Best Stocks
Veteran cannabis investors use a variety of approaches to designating their best picks in the market. As such, several investors were hesitant to offer up specific stock picks. Instead, most touched on their most influential metrics, as well as some leading those data points at the current moment.
Joseph Hogue, a former Wall Street analyst and founder of My Stock Market Basics, highlighted market cap and size as prime factors. With a $2.3 billion market cap, the analyst singled out Cronos Group.
“Another advantage of Cronos over peers is that it’s got a huge cash reserve,” added Hogue. He noted that having a $1.8 billion investment from Altria Group and no debt are significant advantages for growth and acquisition.
Hogue brought up Canopy Growth‘s and its industry-leading $6.4 billion market size as one of his favorite plays. He said American federal legalization plays a significant factor in the determination.
“Canopy closed a deal last year to buy U.S. Acreage contingent upon federal legalization, and this kind of foresight could be about to pay off,” said Hogue, adding that Acreage holds licenses for over 100 dispensaries and cultivation sites across 20 U.S. states.
Dennis O’Neill, a former investment banker of over 30 years and current president of BioMediCan, discussed estimated net incomes. He said, “The best stocks are the companies that are profitable and have significant revenue and profitability.”
He mentioned Trulieve ($78.3 million), Innovative Industrial Properties ($47.8), The Valens Company ($40.4) and Harvest Health & Recreation ($40.3) as current market leaders.
Others focused on sectors over data points when making their choices.
Jeff Siegel, the managing editor and co-founder of Green Chip Stocks, focused on a market both Hogue and O’Neill see winners in, multi-state operators (MSOs). Siegel, a managing partner of the psychedelics and plant-based medicine JLS Fund, described what he looks for in a viable MSO.
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“You have to go with the ones that have the largest war chests of capital and the least amount of unsustainable debt,” he said.
His top pick was Curaleaf, with MariMed and Red, White & Bloom considered bargains at their prices. He said the low prices are due to overselling and trading the stock at discounts compared to peers.
Would-be investors should avoid red flags, including those that don’t provide benefit to its shareholders as well as those that took on an unsustainable amount of debt in recent years.
“They’ll be gone by the end of the year,” Siegel predicted of the debt-saddled companies.
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Vice Ventures Founding Partner Catharine Dockery also finds value in the retail space while adding that she’d avoid cultivation stocks. “These companies tend to be capital intensive and, more importantly, are really at the mercy of wholesale cannabis prices,” she said. Dockery added that vertically integrated companies have a degree more protection but are still at risk as legalization increases in the U.S.
“Cannabis price declines have been a fact of life in legal markets,” said Dockery.
Don’t Rule Out ETFs
Exchange-traded funds (ETFs), an investment fund composed of several securities typically under one index, are also worthwhile for some investors.
Stock novices may be one group to benefit. “If you’re expecting the entire sector to move higher and don’t have strong research or fundamental views in the space, you’d probably be best served by looking at an ETF or one of the larger players,” said Dockery.
O’Neill offered a similar take. “ETFs are fine if you are a novice and just want some exposure to the market,” he said. “Otherwise, the well informed will buy individual stocks.”
Other well-informed investors detailed benefits they found in ETFs. Dockery liked how an ETF shields from some adverse market happenings. “It also leaves you less exposed to bad news, like disappointing earnings or poorly received M&A, in any specific company,” she added.
Both Hogue and Dockery enjoyed the ease and less-intensive tasks involved with ETFs. Calling it “stress-free investing,” Hogue said ETFs like market leader ETFMG Alternative Harvest ETF could help build exposure.
However, he added that investors could recreate the fund and its 37 accounts on their own without the 0.75% expense fees. “That’s not a deal-breaker, but you can easily recreate the same returns by investing in a dozen or so of the individual companies,” he said.
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Like a single stock, investors need to do their research to see which securities are in the fund. Research into ETFs led Siegel to steer clear of the funds despite their ease. He said that individual ETF options could contain questionable holdings and unnecessary risks.
Investors must consider the pros and cons of each stock and ETF before investing. That said, investors believe that those options will continue to flourish in the years to come with America embracing a slightly more liberal-leaning federal government for the next two to four years.