Best Sin Stocks for Penny Stock Investors
Marijuana stocks are not exactly a new kind of sin stock—they’ve been around for years—but 2017 may be the year that marijuana stocks finally come out from under the shadows and are embraced by a wider audience of investors. Seven U.S. states have legalized marijuana use, 10 states will be debating pot reform in 2017, and the Canadian government will be tabling legislature this spring to legalize weed.
Some investors will shun marijuana stocks, just like they would tobacco stocks or military stocks, but, for investors who like the idea of actually getting in on the ground floor of a massive billion-dollar industry with enormous potential, 2017 may be the year for “Mary Jane” stocks.
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Consider the market potential in the U.S. alone. Legal marijuana sales are expected to reach $20.6 billion by 2020, a 178% increase from $7.4 billion now, with a compound annual growth rate of 29%. Only a small portion of U.S. states will have made weed legal by then. The vast majority of U.S. states will eventually follow suit. And the profit potential will soar even higher.
In Canada, a country with the population of California, the black market for weed is estimated at $7.0 billion. The government will introduce a bill to legalize and regulate marijuana this spring. While it will take longer for the bill to be studied, it is expected to pass into law by 2018 at the latest.
Again, marijuana stocks have been around for a while now, with companies waiting patiently for their product to actually be legal. The wait is over. With more and more states and countries decriminalizing and legalizing pot, there are now hundreds of millions of potential customers who no longer face jail time for taking a toke, eager to spend their money on weed.
This is great news for marijuana stocks and even better news for investors. That’s because today’s best marijuana penny stocks are no longer traded on the pink sheets or over-the-counter, they’re on major exchanges. Or, at least, some are. Others are still on the shady side of Wall Street, but even they may make the move to the NASDAQ or NYSE as more and more investors sees the growth prospects with marijuana stocks.
Global Adoption of Legal Marijuana Growing
Instead of banning the bud, more and more countries are opting to decriminalize or legalize marijuana. In 2013, Uruguay became the first (and only country so far) to fully legalize—for growing, selling, and consuming—marijuana on a national level.
Other countries have a kind of patchwork approach to marijuana. Jamaica has decriminalized small amounts of pot; in Spain you can grow and smoke pot for personal use in a private setting; and most people are familiar with so-called coffeehouses in Amsterdam. Right now, 22 countries have adopted some form of decriminalization for marijuana.
Here in the U.S., Colorado and Washington have had legal pot markets for three years. In 2015, Alaska and Oregon legalized weed for recreational use. In the red-tape District of Columbia, marijuana has been legalized for recreational and medicinal use, but is still banned for commercial sales.
During the November 2016 U.S. election, California, Massachusetts, Nevada, and Maine approved recreational marijuana, while Florida, North Dakota, Arkansas, and Montana passed medical marijuana measures.
The need for weed is picking up speed, with a large number of states debating marijuana reform in 2017: Texas, Virginia, Tennessee, Connecticut, Rhode Island, Wisconsin, New Hampshire, New York, South Carolina, and Missouri.
In Canada, Prime Minister “Doe Eyes“ (Justin Trudeau) will introduce a new law this spring that will see marijuana legalized in a regulated way.
In an effort to keep the big pot growers from monopolizing the industry, the Canadian government wants to see a strong diversity of producers. And it hopes that many underground growers will bring their operations into the light when the new law is passed.
This could be good news for the industry, as new growers create competition. Moreover, it could also be good for the industry as smaller growers, or those who simply do not want to go to the effort of getting up early in the morning, sell popular strains to established companies, thereby increasing their revenue streams.
Marijuana Penny Stocks and President Trump
There are a lot of marijuana penny stocks out there. One reason is that the industry is in its infancy and marijuana has only recently been decriminalized and, even then, only in a small number of states. If tobacco followed the same trajectory after 2014, chances are good that Altria Group Inc (NYSE:MO) wouldn’t be massive yet either.
At last count, there were approximately 75 marijuana stocks. Most trade on the OTCBB for under $1.00, have no momentum, are thinly traded, illiquid, and volatile. The vast majority also have terrible fundamentals.
Keep in mind, marijuana use remains illegal (for any reason) under federal law. Under President Barack Obama, the U.S. Justice Department pretty much refrained from enforcing current laws. President Donald Trump’s administration might take a tougher stance on marijuana, which would undermine the industry. But it’s still a big unknown.
President Trump can either kick the $6.8-billion legal marijuana industry to the side or support the states’ right to legislate their own drug policy. Trump may be president, but he’s not a lover of big government.
But he does love voters. In 2016, support for legalized marijuana hit an all-time high of 60%. In 2005, that number stood at just 35%. Even in some traditionally Republican states (Florida, Arizona, Arkansas, Montana, and North Dakota), more and more voters are in favor of legalizing marijuana. (Source: “More Americans than ever before favor outright marijuana legalization,” Business Insider, October 19, 2016.)
Best Marijuana Penny Stock
Canopy Growth Corp (CVE:CGC, TSE:WEED) is a diversified cannabis company that is hoping to become the Procter & Gamble (NYSE:PG) of pot. Through its subsidiaries Tweed Inc., Tweed Farms Inc., and Bedrocan Canada Inc., Canopy produces and sells legal marijuana in the Canadian medical market.
It actually now supplies marijuana to half of Canada’s current medical marijuana patient base since it acquired its rival producer Mettrum Ltd. in January 2017. The Canadian medical marijuana industry hauled in $869.0 million in legal sales in 2016. After Prime Minister Trudeau opens up the recreational market, sales are projected to reach $22.6 billion. To put that into perspective, sales of beer in Canada top $9.0 billion annually. (Source: “Legal weed could be a $22.6 billion industry in Canada,” Business Insider, October 27, 2016.)
Canopy is also focusing on producing and selling marijuana in the recreational market in Canada.
Tweed’s commercial license covers approximately 168,000 square feet of its Smiths Falls facility and allows Tweed to produce and sell approximately 3,540 kg of medical marijuana per year. The Bedrocan production facility (medicinal-grade) in Toronto covers over 52,000 square feet.
In early February 2017, the company changed its Toronto Stock Exchange (TSX or TSE) stock ticker to WEED, and continues to trade on the TSX. In 2016, Canopy’s market cap surpassed the $1.0 billion level. It currently has a market cap of $1.6 billion.
In November 2016, Canopy announced that revenue for the second quarter of 2017 increased 245% year-over-year and 22% sequentially to $8.5 million. During the quarter, the company sold over one metric ton of marijuana. (Source: “Canopy Growth Corporation Reports Second Quarter Fiscal 2017 Financial Results,” Canopy Growth Corp, November 14, 2017.)
Net income for the quarter ended September 30, 2016 was $5.4 million, including a non-cash unrealized gain of $16.1 million, compared to net income of $3.9 million in the same period last year, including a non-cash unrealized gain of $12.5 million. That basically means the company didn’t post any net profits.
The company ended the quarter with $45.5 million in cash and cash equivalents.
In addition to strong growth in Canada, Canopy has been expanding its international footprint. In May 2016, it announced a partnership with Auscann Group Holdings Ltd (ASX:AC8), an early leader in the nascent Australian medical cannabis industry. (Source: “Investor Handout,” Canopy Growth Corp, last accessed February 2, 2017.)
In June, Canopy Growth announced the closing of a joint agreement which will see its Bedrocan Canada subsidiary launch in Brazil. In July, Canopy announced that Tweed Inc. received approval to begin exporting medicinal cannabis for sale to Germany.
Granted, Canopy’s share price has tripled over the last 12 months, and it is up 147% since the beginning of October 2016 and is trading near $10.00 per share. It has been trading sideways since the beginning of 2017. Third-quarter earnings are expected later in February. If results aren’t positive, Canopy could give up serious ground. But its long-term outlook remains robust.
Canopy isn’t the only decent penny stock that could benefit from the legalization of marijuana. Trading near $0.30 per share, California-based Terra Tech Corp (OTCMKTS:TRTC) is well positioned to take advantage of the legalized pot trade in California, Washington, Oregon, Nevada, and Colorado, for starters.
Stocks That Could Benefit from Marijuana Sales
Investors looking to get rich off the budding marijuana industry might want to take a cue from the gold rush. When everyone is looking for gold, you sell shovels. There is a large number of excellent companies that are associated with cannabis.
GW Pharmaceuticals PLC- ADR (NASDAQ:GWPH) is a pharmaceutical company that is developing a portfolio of cannabinoid medicines to treat multiple sclerosis (MS) and cancer pain, as well as childhood epilepsy.
Cara Therapeutics Inc (NASDAQ:CARA) is a clinical-stage biotech company focused on developing novel drugs to treat diseases associated with pain, inflammation, and pruritus.
Even Scotts Miracle-Gro Co (NYSE:SMG) could benefit from increased marijuana sales because of its indoor growing products.
Investors don’t need to focus on pure-play marijuana stocks if they want their portfolio to benefit from the legalization of marijuana.
