Marijuana stocks are on fire. Though cannabis industry is still in its infancy, it has managed to become one of the fastest-growing industries on Wall Street.
Since the legalisation of medical marijuana in Canada and 33 US states, a swirl of legal cannabis stocks have gripped the market. Looking for the best opportunities to invest in marijuana? Start with key marijuana shares, chosen by top-tier Wall Street managers.
Cannabis, marijuana, weed, pot? A huge new market to trade
Since its inception, the cannabis industry has been one to watch out for. According to the market sentiment, it seems marijuana investments have simply skyrocketed. Despite some disappointing results for the earnings season and failing to meet analysts’ expectations, few expect the cannabis market to fade away anytime soon.
The multi-billion dollar pot market is conquering the world. Medical marijuana becomes a profitable and highly popular exported good not only in progressive European countries, but also in conservative Asia. Thailand became the first country from Southeast Asia to legalise medical marijuana, followed by South Korea.
Cannabis stocks go mainstream: traders rush in
How’d you choose the best cannabis shares to trade this summer? Let’s see what Wall Street’s top managers have to say.
Mid-May, or May 15th to be exact, is a special time for investors. It’s a deadline for Wall Street money managers to file Form 13F – required by the SEC as a disclosure of investment holdings for hedge and investment funds with over $100 million worth of assets under management.
This provides investors with a clear vision of what stocks have drawn the attention of the best Wall Street minds in the previous quarter. It’s like viewing what is going on behind the scenes of the most significant investment funds in the world.
So what marijuana shares were bought by Wall Street gurus in the first quarter?
Pot pick #1. Aurora Cannabis (ACB)
According to WhaleWisdom, aggregating all the filed 13F Forms, over 1 million Aurora Cannabis shares were bought by investment funds during the first quarter, which is 1.2% bigger than in December 2018. So, why is Wall Street so excited about Aurora Cannabis?
Aurora’s performance seems strong. In April, the company announced that it is going to boost its capacity to 1.62 million square feet and produce 230,000 kilos a year, instead of the previously planned 150,000. This is almost 40% more than the industry’s average yield at the production peak.
By the midpoint of 2020, Aurora plans 625,000 kilos of annual run-rate output, which outnumbers the output of all the company’s competitors. With such huge production numbers, Aurora Cannabis is the number one contender for large-scale supply deals in the US and abroad.
Pot pick #2. Innovative Industrial Properties
Another top cannabis stock attracting institutional investors is Innovative Industrial Properties (IIPR) – a popular cannabis real estate investment trust (REIT). As of the end of March 2019, according to the same 13F forms, investment funds owned more than 6 million IIPR shares.
Innovative Industrial Properties have chosen a high-success-rate and a low-cost business model. The cannabis REIT tend to purchase facilities and/or land in order to use it for producing and processing of medical marihuana. Later on, the company leases this land and facilities to tenants for the long term, ensuring predictable levels of cash flow.
Today, the company owns 19 properties in 11 American states and conducts an aggressive acquisition policy, having bought 8 new facilities since the start of 2019. The average calculated return on the REIT’s invested capital is 14.8%, which guarantees total payback in less than 5 years.
The Innovative Industrial Properties (IIPR) 1Q operating results explain Wall Street affection towards REIT’s stocks. The revenue from rented properties grew by 146% in Q1 2019 and the company’s dividend has tripled during the last 2 years. Regarding the profit per share, IIP is the leading marijuana stock now.
Pot pick #3. Cronos Group
The third leading cannabis stock, which felt like a strong buy by the institutional investors in the first quarter of 2019, is Cronos Group (CRON). According to the filed 13F forms, the hedge and investment funds in aggregate owns 2.5 million shares, which is a 9.9% increase from the end of 2018.
Why Cronos? Well, the major reason was the company’s $1.8 billion equity investment deal with the tobacco company Altria (MO). Altria planned to invest this amount in return for 45% of Cronos’s non-dilutive stake.
Looking forward, Cronos Group is going to expand its product range, enter foreign markets and conduct some acquisitions that fit the company’s long-term strategy.
Bonus: Pick #4 and #5
Those three big companies, mentioned above, are not the only potentially profitable stocks for you to follow and trade this summer. The list of leaders can be prolonged with at least two more names: HEXO (HEXO) and Canopy Growth (CGC).
HEXO Corp. is a Canadian pot producing company. HEXO has gradually grown into one of the hottest marijuana shares in the market. Having uplisted on the New York Stock Exchange (NYSE), the company acquired Newstrike Brands and boosted its annual production to 150,000 kilos per year. HEXO’s share price has increased by an impressive 125% since the beginning of 2019.
Canopy Growth, in its turn, is the largest marijuana stock in the world by market capitalisation. The company produces and supplies both medical and recreational marijuana. The drive following legalisation triggered the demand and helped Canopy Growth – the first publicly traded cannabis company in North America – to quadruple sales in the Q4 2018.
In the end
This year, marijuana shares are considered as outstanding growth vehicles for investors. The tremendous hype on cannabis stocks, caused by weed legalisation, continues. The pot rush is still here with a number of shares going up this summer. Are marijuana stocks generally overvalued? Maybe. Still, they provide outstanding trading opportunities. Time will tell.
This article should not be construed as investment advice; it is purely market commentary.