Just when you thought the bullish phase in marijuana stocks is losing its momentum. Last week, Canada became the second country to legalize cannabis. Meanwhile, beer companies are looking to get in on the action. Bloomberg recently reported that Molson Coors (NYSE:TAP) is in talks with several weed companies about the possibility of marijuana-infused beverages. In October, Constellation Brands (NYSE:STZ), the makers of Corona and Modelo brand beers, purchase a 9.9% stake in Canopy Growth Corporation (NYSE:CGC).
With all of this activity and a multi-year decline in beer demand, it seems like just a matter of time before beer companies begin acquiring smaller marijuana companies. Unless tastes change and beer is back in favor again, Molson Coors or Ambev S.A. (NYSE:ABEV) will need to diversify its business. This ambition carries risk: the marijuana stocks are relatively expensive and the market is unproven. The recent legalization in Canada is a positive catalyst to be sure, but the companies have no initial sales numbers yet and won’t until later this year when they are permitted to start selling.
However, if a multi-billion company makes a deal and starts a consolidation in the industry, it may set off a chain of events that will lift all marijuana stocks. For investors interested in this nascent sector, what marijuana stocks have the highest potential? Although there are many to choose from, investors should stick to companies whose market capitalization is around $500 million or more and whose share price is over $1.00 a share. They tend to be less volatile.
Here are 5 marijuana stocks to buy as beer companies explore acquisition.
Marijuana Stocks Ready to Bud: Aurora Cannabis (ACBFF)
Aurora is already a massive company that grew through dozens of acquisitions in the last few years. Its mission is to ‘create a preeminent global cannabis company’. It views the base market as a $5 billion to $9 billion annually. The ancillary market, which includes growers, infused-product makers, testing labs, and security, adds another $14 billion to the market.
Since Canada is ahead by three to four years compared to other countries in building the Marijuana market, this company is a bellweather for the industry and definitely poised to profit as the industry grows.
Marijuana Stocks Ready to Bud: Canopy Growth (CGC)
Canopy Growth Corporation (NYSE:CGC) wants to differentiate itself from other marijuana companies. The company is applying for patents and has nearly 40 in total. Canopy is taking its time in building capacity. Still, its two greenhouse facilities in British Columbia have over one million square feet. Its e-commerce strategy will complement its physical presence on the market. Called the Tweed Main Street online marketplace, this marijuana stock is like an online storefront having around 30 products to offer customers.
Last year, sales slowed to the single digits (in Fiscal 2018 Q1) while R&D expenses were on the low side at $133,000. In its quarter ending Dec 31 2017 , revenue double year-over-year but missed analyst expectations. Active registered patients rose 138 percent to 69,000.
Investors should keep their eye on Canopy Growth’s revenue and profit numbers as marijuana is legalized. Ideally, the company will report strong revenue growth in the quarters ahead.
Marijuana Stocks Ready to Bud: GW Pharmaceuticals (GWPH)
GW Pharmaceuticals plc (NASDAQ:GWPH) is not your typical marijuana stock company. But at a $4.24 billion market capitalization, it gives investors an indirect exposure to the industry. It has cannabis oil that treats epilepsy patients. This product is legal in most European jurisdictions except the U.K. If the company wins its fight against the government in legalizing it in the U.K., that would remove a headwind.
The FDA received an NDA submission for priority review on June 27 for Epidiolex. The drug has the potential to treat other diseases, too, including Infantile Spasms, Tuberous Sclerosis Complex and Dravet Syndrome.
Marijuana Stocks Ready to Bud: Cronos (CRON)
Cronos Group, Inc. (NASDAQ:CRON) is a medical marijuana manufacturer. Due to the growth in the sector, the company reported an incredible 473% year-over-year increase in sales in the first quarter, to $2.9 million. But at a $4.24 billion market cap, the over 260 times price-to-sales ratio on this marijuana stock could prove expensive. Cronos’ B2C business, which accounts for 33 percent of sales, could face pricing pressures as more competitors come to market. For the quarter, Cronos lost $1.085 million, up from a loss of $161,000. Unless the company controls its costs as it increases its output, the shareholder returns from this company are questionable…on its own.
In addition to being a potential takeover target for beer companies, Cronos could become a takeover target for Aurora Cannabis, since Aurora acquired Cannimed and is now only slightly smaller than Canopy by market capitalization.
Marijuana Stocks Ready to Bud: Organigram (OGRMF)
Organigram Holdings, Inc. (OTCMKTS:OGRMF) is a profitable company that is targeting three segments of the market. The Edison Cannabis Market targets the premium market. This unit has a primary focus on spending its efforts on research and development. ANKR Organics is working towards an organic certification. Sales in this area will depend entirely on the receptiveness for organic pot.
The Trailer Buds brand targets budget-conscious customers, unlike the other two premium products. That name is not a joke nor will it offend its customer. The brand is synonymous with the television show “Trailer Park Boys.” When more cannabis suppliers come online, bringing more competition to the market, this lower-priced product will have a better chance of keeping its customers. But lower-priced alternatives could take Trailer Buds sales if the customers are not loyal to the brand and instead care only about the price paid.
Disclosure: Author does not own shares in any of the companies mentioned.
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