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Ride the Cannabis Wave With These 3 Stocks

Urmimala Biswas

Lately, Canada-based diversified cannabis, hemp and cannabis device company Canopy Growth Corporation CGC has been grabbing investor attention. The stock has surged 171% over the past three years, a trajectory that investors can only dream of. While this little-known stock has created a loud impact on the investment world, it is time for us to wake up to the latest buzz in healthcare — cannabis or marijuana.  

Cannabis Grabbing the Global Market Fast

It has been more than a year now that medicinal and recreational use of cannabis or marijuana has been legalized in Canada. Although the U.S. federal law has been quite restrictive in prohibiting the use of marijuana to date, it has been legalized in 33 states, District of Columbia, Guam, Puerto Rico and U.S. Virgin Islands (the State Medical Marijuana Laws).

Following Germany’s legalization of the same in 2017, Europe too has witnessed a change in stance in terms of legalization cultivation and export of cannabis of late. Portugal, Denmark, Poland and the UK are four other EU nations that have allowed the practice of medical cannabis. From 2020, France too will execute a trial run on medicinal cannabis.

 

While the legalization of medical cannabis is progressing, illegal sales of marijuana in the United States are currently estimated to be $70 billion, seven times the size of the legal market (New Frontier Data). Consequently, market watchers believe that this industry’s growth is likely to be the largest within the healthcare space in the long run.

Let us delve deeper.

Growth So Far

Cannabis stocks witnessed incredible gains in 2017 and 2018. Following the successive legalization in Canada and the United States, the industry received a boost after gaining significant support from the aged population. Going by a Gallup report, 66% of Americans now support legalizing marijuana, a new high in Gallup's trend over nearly half a century. Per Gallup, only 12% of the population supported this in 1969.

In 2018, the population sentiment related to marijuana adoption witnessed a change in the landscape, following GW Pharmaceutical’s  lead drug Epidolex, a cannabidiol (CBD)-based oral solution, which gained FDA approval for two rare and severe forms of childhood epilepsy, Lennox-Gastaut syndrome and Dravet syndrome. The approval worked wonders for the space with Cannabidiol once again becoming the focal point of discussion in the investment world.

Market On The Move

These developments led to a number of advancements in terms of cannabis investment. While Tilray TLRY was the first marijuana IPO in 2018, Cronos Group CRON was the first marijuana stock to list itself under Nasdaq. Canopy Growth on the other hand, became the first marijuana stock to enter New York Stock Exchange (NYSE). Not only this, Canopy Growth became the first cannabis stock in history to have a large-cap valuation.

Going by a 2019 Motley Fool report, in fact, “marijuana firmly shed its taboo label and became a legitimate business model last year.”

What’s Ahead?

In 2019, marijuana stock growth momentum was largely affected by oversupply of production. Many market watchers also believe that the Centers for Disease Control and Prevention (CDC) data, which stated 800 vaping-related lung injury cases, led investors to take a back seat in terms of buying cannabis stocks.

Despite these adversities, a 2019 Gallup Poll claims a gradual increase in the medicinal usage of cannabis in the United States. Per the report, currently a significant 14% of Americans say they use CBD products and this number is expected to rise significantly in the coming years.

Undoubtedly, the cannabis industry is a rewarding space for the investors who are looking for longer term gains. Going by a Wall Street forecast (published in a Motley Fool article), the ongoing legalization of cannabis is expected to help yield anywhere between $50 billion and $200 billion in worldwide weed sales per year by 2030. A 2019 Cowen & Co. estimate claims that  in the United States alone, marijuana sales could reach as much as $80 billion by 2030, if the federal government legalizes the plant.

As trading of cannabis products is becoming more and more easy, here are three companies that investors may watch out for.

Stocks Likely to Draw Investor Attention

Aphria Inc. APHA: This Canada-based medical cannabis company currently focuses on the highest-return priorities for growth.  Per the company’s announcement, at the end of its first-quarter fiscal 2020, the company planted nearly 600,000 plants at its Aphria One location. Further, its 100 acre Aphria Diamond premier greenhouse comprises 1.3 million square feet of production. The stock currently sports a Zacks Rank 1 (Strong Buy) and has an expected earnings growth rate of 250% for fiscal 2021.

Aphria Inc. Price

Zynerba Pharmaceuticals, Inc. ZYNE: This clinical stage specialty pharmaceutical company focuses on developing pharmaceutically-produced transdermal cannabinoid therapies for rare and near-rare neuropsychiatric disorders. This can also be a lucrative stock for long-term investment on the fact that the company’s prime pipeline product, Zygel CBH transdermal gel, has multi-billion dollar market potential. It also sports a Zacks Rank #1  and is expected to record earnings growth of 18.8% in 2020.

Zynerba Pharmaceuticals, Inc. Price

Gw Pharmaceuticals Plc GWPH: Following the commercial launch of Epidolex in the United States in November 2018 as the first cannabis-derived drug for patients with Lennox-Gastaut syndrome (LGS) and Dravet syndrome, there has been no turning back for GW Pharmaceuticals. Over the past few months, the company has been witnessing continued rise in receptivity and demand for the medicine in the United States. Also, a huge number of physicians are recommending the same in their prescriptions. The high level of market penetration is likely to continue in 2020.

The estimate revision trend for this Zacks Rank #3 (Hold) stock has been favorable. Over the past three months, the Zacks Consensus Estimate for the stock has improved 8.8% for 2019.

GW Pharmaceuticals PLC Price

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Click to get this free report GW Pharmaceuticals PLC (GWPH) : Free Stock Analysis Report Zynerba Pharmaceuticals, Inc. (ZYNE) : Free Stock Analysis Report Tilray, Inc. (TLRY) : Free Stock Analysis Report Cronos Group Inc. (CRON) : Free Stock Analysis Report Canopy Growth Corporation (CGC) : Free Stock Analysis Report Aphria Inc. (APHA) : Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research