Unless you've been hiding in a cave somewhere, you're probably aware that the marijuana industry is booming. With many U.S. states legalizing medical marijuana, several legalizing recreational marijuana, and Canada considering making recreational marijuana legal nationwide, demand is greater than ever. Promising marijuana-based drugs could be on the market in the near future.
There are several reasons to think that marijuana stocks still have plenty of upward potential. But what are some marijuana stocks to consider for investors who have yet to jump on the bandwagon? Here's why Scotts Miracle-Gro Company (SMG 0.38%), GW Pharmaceuticals (GWPH), and Canopy Growth Corporation (CGC 20.65%) are three marijuana stocks you could buy if you've never bought a marijuana stock before.
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Scotts Miracle-Gro
Scotts Miracle-Gro doesn't cultivate marijuana. It doesn't develop marijuana-based drugs. Technically speaking, Scotts Miracle-Gro isn't a marijuana stock. But it might as well be.
Much of Scotts' focus and fortune is tied directly to the marijuana industry. Scotts Miracle-Gro provides key supplies for marijuana growers, including fertilizers, hydroponics, and lighting. The company's business currently skews toward small recreational growers, but Scotts also has a solid presence among professional growers and a strategy to build its relationships with larger players.
Of course, not all of Scotts Miracle-Gro's business is connected to marijuana; that's what makes it a compelling choice for an investor who is new to investing in marijuana stocks. Buying Scotts Miracle-Gro shares allows you to participate in the growth of the marijuana industry, but with more stability than you would get buying a micro-cap marijuana stock.
GW Pharmaceuticals
GW Pharmaceuticals is, for now at least, the largest biotech specializing in the development of marijuana-based drugs. The company has one cannabinoid product on the market already in 16 countries outside of the U.S. -- the muscular-sclerosis spasticity drug Sativex. However, the greatest opportunity for GW Pharmaceuticals lies in a cannabinoid drug that hasn't been approved yet.
The biotech reported positive results last year from late-stage clinical studies evaluating cannabidiol drug Epidiolex in treating Dravet syndrome and Lennox-Gastaut syndrome (LGS). GW Pharmaceuticals is on track to submit Epidiolex for U.S. regulatory approval soon and for European approval later this year.
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Some analysts project that Epidiolex could reach peak annual sales of up to $3 billion if approved. GW Pharmaceuticals' market cap now is around $2.5 billion. Should Epidiolex achieve the level of success that some think it can, this is a marijuana stock that would have a lot of room to move higher.
Canopy Growth Corporation
With Canada seemingly on course to legalize recreational use of marijuana by next summer, Canopy Growth Corporation could be a good way for investors to profit from the anticipated growth in the Canadian marijuana market. Canopy Growth already ranks as one of the largest providers of medical marijuana in the country.
Just how big could the Canadian marijuana market be? Professional services firm Deloitte released a report that projected the retail marijuana market in Canada could grow to $8.7 billion annually. To put that into perspective, Canopy Growth's revenue last year was only around $30 million.
Canopy Growth should be in a great position to become an authorized provider of recreational marijuana if Canada implements the legislation currently under consideration. The company has already made several acquisitions. It wouldn't be surprising to see Canopy Growth buy smaller operations to expand its presence in Canada and other countries.
Exercise caution
If you haven't yet bought marijuana stocks, it's probably because you're relatively cautious. Don't throw that caution to the wind. Even these three stocks, which are probably more steady and stable than most marijuana stocks, have plenty of risks.
Valuation is a big consideration. Tremendous growth expectations are baked into the share prices of GW Pharmaceuticals and Canopy Growth. Scotts Miracle-Gro stock trades at 20 times expected earnings, which isn't too pricey but also isn't cheap.
There's also the possibility that Epidiolex doesn't pan out as expected for GW. Canada might not legalize recreational marijuana. The U.S. federal government could crack down on marijuana growers, hurting sales for Scotts Miracle-Gro.
The bottom line is that investing in marijuana stocks is no different than investing in any kind of stock. Do your homework, and only move forward after evaluating the potential risks and rewards.
