There's no doubt that cannabis investing has never been more popular. Many high-profile companies serving the marijuana market have posted amazing gains to start 2019, and the prospects for further growth in the budding industry are only looking brighter as the year goes on.
The race to profit from the booming marijuana market has led to dramatic share-price increases for key players in the industry. Although huge numbers of companies with exposure to cannabis have seen their stock prices soar, four stand out for having delivered a double to their shareholders in just the first two and a half months of the year. Below, we'll look more closely at these four top performers and whether their early success points to even better times ahead.
Cronos Group (NASDAQ: CRON) tops the list with a return of 107% so far in 2019. The cannabis company built up considerable momentum coming into the year when it announced that cigarette giant Altria Group (NYSE: MO) would take a 45% stake in the company for $1.8 billion. Altria ended up paying about $12.25 per share for that stake in Cronos, retaining the right to take majority control within the next several years by purchasing an extra 10% at around $14.25 per share.
Since then, the stock has soared above the $20 per share mark on hopes that Altria's partnership will lead to brand-new opportunities for Cronos. Yet skeptics point out that Cronos can't match its larger rivals in terms of current production capacity or sales. If Cronos' growth can't justify its current valuation, then the stock's gains could start to evaporate.
Image source: Getty Images.
Next on the list, CannTrust Holdings (NYSE: CTST) has posted returns of 103% year to date. CannTrust isn't the household name that some of the other companies on this list are, but it recently jumped into the spotlight when it uplisted to the New York Stock Exchange in late February.
CannTrust's success so far has been due largely to its emphasis on higher-margin cannabis-derived products. Rather than simply focusing on maximizing volume of dried cannabis sold, CannTrust has worked to boost production of cannabis oil extracts, which fetch more favorable prices on the market. More than half of CannTrust's revenue comes from these value-added products, and if that continues, then CannTrust could use its profitability advantage to jump out in front of more recognized names in the marijuana space.
HEXO (NYSEMKT: HEXO) is the next-best performer among these four marijuana stocks, climbing 102% in the first two and a half months of the year. The Canadian company, headquartered in Gatineau on the Quebecois side of the Ottawa River just north of the nation's capital, has made a big splash in its home province. HEXO gets the vast majority of its revenue from sales in Quebec, and it's increasing its production capacity to serve that fast-growing market.
Investors are also excited about HEXO's recent strategic move to purchase Ontario-based peer Newstrike Brands. By doing so, HEXO will get a broader reach across the nation while also adding nearly half a million square feet of production capacity to its already impressive footprint. That could vault HEXO closer to the top of the industry -- and lead to long-term stock gains as well.
Finally, industry giant Aurora Cannabis (NYSE: ACB) completes the list with gains of 101% this year. The Edmonton-based marijuana company is among the top producers of pot, with growing capacity that's nearly unparalleled. In its most recent financial report in February, Aurora said that production and sales volume came in around 7,000 to 8,000 kilos, and although the rollout of recreational products led to some margin pressure, the company sees itself continuing to expand both in capacity and market coverage in North America and around the world.
The biggest news from Aurora came earlier this month, with the arrival of billionaire investor Nelson Peltz as a strategic advisor to the cannabis company. Investors hope that means that Aurora will finally find a partner worthy of its position in the marijuana market -- and that the price it's paying Peltz in the form of stock options will be worth it for Aurora's future prospects.
Are more gains coming?
It's rare for stocks to double in such a short period of time, and even in an industry as dynamic as this, obstacles will inevitably come up that will lead to corrections in stock prices in the future. Nevertheless, all four of these companies have a lot going for them, and if they can continue to follow their successful strategies and grow along with the rest of the marijuana market, then there's a good chance that their shareholders will keep enjoying solid returns.
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