U.S. Markets closed

2 Marijuana Stocks to Buy Heading into Q2 Earnings and Beyond

Mitchell Moore

The marijuana industry is projected to grow at an annual rate of about 17% until it reaches $55.8 billion a year in 2025. The cannabis market has roughly tracked the S&P 500’s expansion in 2019. A popular ETF representing the cannabis market, called Alternative Harvest MJ, is up 13.2% YTD, while the S&P has climbed 13.6%.

Industry Outlook

Marijuana is not yet federally legal in the U.S., although it is many some states and Canada. Cowen estimated in an April 2018 report that the global cannabis industry rested at about $50 billion annually, including black-market channels.

With many 2020 presidential candidates supporting federal legalization, or at least easing of marijuana restrictions, it seems likely that legalization will come within the next few years. If this happens, a large portion of the black market will theoretically move to the legal market.

Cannabis is already recreationally legal in 11 states, D.C., and Canada, and a bill in Congress was recently passed by the House to prevent federal authorities from interfering with state legalizations. It is also medically legal in 33 states and D.C.

Data suggests that consumers will treat federally legalized marijuana like alcohol, as a collaborative study published by three universities showed that alcohol sales decreased by 15% where medical marijuana is legal. This is good news for the cannabis industry, because if it could imitate the $250 billion U.S. alcohol industry it will end up in a great spot.

Let’s take a look at some promising cannabis stocks reporting earnings in the next week and see how they look on the growth front.

Canopy Growth Corporation CGC

Canopy is a cannabis company headquartered in Smith Falls, Ontario that produces a large selection of products. The company is vertically integrated and operates in every stage from growing marijuana to retail. It is currently the largest cannabis company in the world with a market cap of $11.2 billion. The stock has shot up 350% in the last 2 years but has dropped of from its highs recently.

Constellation STZ brands in August 2018 purchased 38% of Canopy for $4 billion. This gave Canopy some much-needed capital to expand and become an international company, and exposed the Corona and Modelo maker to the emerging cannabis market.

Canopy also signed a deal in April that gave the company the right to buy Acreage Holdings for $3.4 billion, contingent on the U.S. federally legalizing marijuana. This will be a huge deal for Canopy if completed, as Acreage has operations and dispensaries in many U.S. states, which would give Canopy instant access to the U.S. market. The thought being that Canopy wouldn’t have to spend time building out operations in the U.S. and risk losing market share in the process.

Canopy currently holds a Zacks Rank #3 (Hold) and very impressive growth estimates. CGC reports earnings after close on Wednesday, August 14.

Our Zacks Consensus Estimates call for year-over-year top line growth of 327.9% that would see it hit $86 million. Estimates for Q3 call for 530% gains over Q3 2018 to reach $112.46 million. Full year revenue growth is projected to surge 198% to $511.48 million, with fiscal 2020 revenue expected to hit $1.02 billion.

Tilray Inc. TLRY

Tilray is a pharmaceutical and cannabis company headquartered in Toronto. It went public last July and produces and sells medical and recreational marijuana. Tilray stock is up 87.2% since its IPO, but is down YTD from its astronomical highs.

In December 2018, Tilray signed a deal with Novartis NVS subsidiary Sandoz to co-brand and distribute non-combustible cannabis products in legal markets worldwide. This was big pharma’s first partnership with the cannabis industry. Tilray also partnered at the end of 2018 with Anheuser-Busch InBev BUD in a $100 million deal to produce non-alcoholic THC and CBD infused beverages to sell in legal markets. These have the potential for huge popularity if the cannabis market starts to pull heavily from the alcohol industry.

Tilray is currently a Zacks Rank #3 (Hold) and is set to report its earnings after the closing bell on Tuesday, August 13. Our Zacks Consensus Estimates call for top line growth of 313.06% that would see it reach $40.23 million.

Like Canopy, estimates for Q3 show even stronger growth, with 408.5% gains expected over last year to $51.1 million. Full year revenue growth projections show 320% growth to reach $181.2 million. Plus, 2020 revenue is predicted at $394.3 million.

Bottom Line

Tilray and Canopy are both projected to post losses through at least fiscal 2020. But investors should not be too worried as both companies pour money into growth opportunities and prepare for U.S. marijuana legalization. Tilray and Canopy also appear to be trending in the right direction as their projected losses are set to shrink moving forward.

Both of these companies are poised to jump on U.S. cannabis legalization though partnerships with other companies. The cash infusions from these deals have allowed Canopy and Tilray to expand at a tremendous pace and the partnerships will provide them already established distribution channels if and when the U.S. legalizes.

This Could Be the Fastest Way to Grow Wealth in 2019

Research indicates one sector is poised to deliver a crop of the best-performing stocks you'll find anywhere in the market. Breaking news in this space frequently creates quick double- and triple-digit profit opportunities.

These companies are changing the world – and owning their stocks could transform your portfolio in 2019 and beyond. Recent trades from this sector have generated +98%, +119% and +164% gains in as little as 1 month.

Click here to see these breakthrough stocks now >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Novartis AG (NVS) : Free Stock Analysis Report
 
Constellation Brands Inc (STZ) : Free Stock Analysis Report
 
Anheuser-Busch InBev SA/NV (BUD) : Free Stock Analysis Report
 
Canopy Growth Corporation (CGC) : Free Stock Analysis Report
 
Tilray, Inc. (TLRY) : Free Stock Analysis Report
 
ETFMG Alternative Harvest ETF (MJ): ETF Research Reports
 
To read this article on Zacks.com click here.
 
Zacks Investment Research