While no industry is perfect, if you've purchased marijuana stocks at some point over the past year, you're probably seeing green right now. Of the 14 largest marijuana stocks by market cap, the average gain among them over the trailing 12 months is a better than 100% return.
Why such love for pot stocks among investors? To begin with, sales growth estimates for the weed industry are off the charts. Marijuana Business Daily's newest report, "Marijuana Business Factbook 2017," is forecasting that legal U.S. cannabis sales will soar by approximately 300% to around $17 billion annually by 2021. A compound annual growth rate in the mid-20% range moving forward is simply something that investors can't overlook.
We've also seen a discernible shift in the way the American public thinks about cannabis. Gone are the days where the federal government waged its War on Drugs campaign. Today, according to a CBS News poll and a Quinnipiac University poll, both conducted in April, a respective 61% and 94% of Americans want recreational and medical marijuana to be legal across the United States. This strong support suggests that growing pressure on lawmakers in Congress could coerce action. As a reminder, cannabis is still a Schedule I (and illegal) substance at the federal level even though eight states have legalized it recreationally and 29 states have OK'd its medical use.
Two marijuana stocks with greater than 200% annual sales growth
Expansion in the North American legal pot industry -- Mexico recently legalized medical marijuana, and Canada is debating legislation to legalize recreational weed next year -- has led to some rapid growth in a number of marijuana stocks. In fact, two marijuana stocks have grown their annual sales by north of 200%, which is a growth figure that's bound to catch the attention of opportunistic investors.
Let's take a brief look at these rapidly growing marijuana stocks, and I'll show you why these sales growth figures should probably have asterisks next to them.
Canopy Growth Corp.
One of the quickest-growing marijuana stocks on the planet right now is Canadian grower and retailer Canopy Growth Corp. (NYSE:CGC). According to the company's fourth-quarter earnings report, it grew sales in fiscal 2017 by 214% over the previous year to $32.18 million from $10.24 million. Of course, this wasn't the only figure that jumped out in the company's full-year report, with total kilograms of cannabis harvested rising by 80%, and Canopy Growth ending the year with a healthy $82.1 million in cash and cash equivalents on its balance sheet.
However, it should be noted that this 214% year-on-year sales growth comes with an asterisk. Namely, the company has been an avid acquirer of businesses and land, which have positively affected its sales. Don't get me wrong: I'm not faulting Canopy Growth one bit for gobbling up Canadian producers to expand its capacity and give it greater access to an eligible patient pool that's grown by 10% per month, according to Health Canada as of May 2017. Its purchase of Mettrum Health, which closed earlier this year, gives it access to about half of Canada's medical-marijuana patients. But it's worth pointing out that this 214% sales growth figure is probably far from the company's organic growth rate, which it doesn't break out in its full-year reports.
The two biggest catalysts moving forward for the company involve Canada's recreational legalization efforts and expansion efforts in ex-Canadian countries.
Beginning with the former, the Canadian government has estimated that legalizing recreational weed would boost legal pot sales by $5 billion to $7 billion annually. Even with Health Canada relaxing its regulations and boosting the number of licensed producers, Canopy's superior market share and the influx of demand from consumers should provide ample growth opportunities.
The company is also among a very small handful of suppliers that have been given the green light to export dried cannabis to foreign countries that have legalized medical cannabis, such as Germany. Germany's medical-cannabis industry has next to nothing grown domestically, and until the industry matures, Canopy Growth would be expected to play a leading role in providing medical cannabis to patients.
Long story short, expect Canopy Growth's exceptionally high growth rate to continue, but also look for the company to keep growing by acquisition as well.
Not surprisingly, the other marijuana stock growing at an exceptionally quick rate also comes from the Canadian medical industry: Aurora Cannabis (NASDAQOTH:ACBFF). And like Canopy Growth, it sales figures come with an asterisk, but for an entirely different reason.
Aurora didn't commence retail sales until Jan. 5, 2016, meaning its sales are in many cases up against $0 or a minuscule amount in the previous year. For instance, here's a look at its sales totals, rounded to the nearest $0.1 million, over the past five quarters:
- Q3 2016: $0.2 million.
- Q4 2016: $1 million.
- Q1 2017: $2.5 million.
- Q2 2017: $3.2 million.
- Q3 2017: $4.2 million.
The growth is undeniably impressive and organic -- but it's also being compared with practically nothing in sales before Q3 2016, so we have to keep that in mind when evaluating Aurora Cannabis.
What investors should really be paying attention to is the ongoing development of the Aurora Sky project, Aurora's investments in the EU, and the recreational debates in Canada. Aurora has a decent chance to perhaps carve out around 10% market share in the recreational market if Canada moves forward with its efforts to legalize adult-use weed by July 2018.
In terms of future growth prospects, the company is counting on its Aurora Sky project, an 800,000-square-foot facility that's being tagged as one of the most advanced and automated facilities in the world, to really boost production. Aurora will need this project to remain on track and budget if it hopes to effectively compete against the likes of Canopy Growth and its peers. The projected cost for Aurora Sky is a staggering $110 million.
The company also made waves in May, when it acquired Pedanios GmbH for a little less than $17 million in cash and stock. Pedanios is a medical-cannabis distributor in the European Union, which gives Aurora an intriguing stepping stone in burgeoning EU medical cannabis markets, such as Germany, where domestic production is still nascent.
Taking into account its various growth channels, Aurora has a chance to deliver triple-digit sales growth for a few years to come.