Please ensure Javascript is enabled for purposes of website accessibility

The 5-Minute Guide on How to Invest in Marijuana Stocks

By Eric Volkman - Updated Apr 12, 2018 at 11:00AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Do you have a few moments? Interested in marijuana stocks? Here's a brief look at the numerous titles available on the market.

For those wondering how to profit from the nearly $10 billion marijuana business, a fine place to look is the stock exchange. Even at this early stage of the cannabis industry, several companies in the sector are already on our markets, and their shares can be purchased as easily as those of more traditional enterprises.

As with many classes of equities, there is quite a bit of variety in pot-related stocks. Here's a quick read on a handful of publicly traded marijuana businesses you can buy shares in at the moment.

Marijuana leaf

Image source: Getty Images

Oh. Canada!

The first group of marijuana stocks is comprised of the growers/suppliers. This isn't surprising, given that the legal pot business is in its infancy; like many early stage industries, weed is populated by entities that directly provide the good.

This is a thriving business in Canada, which legalized medical marijuana throughout the country in 2001. On top of that, the federal government is (theoretically) mere months away from legalizing recreational use on a nationwide level. This was originally slated to take place in July; the government recently announced that it would occur a bit later than planned

Several companies have sprouted up to handle the supply, and a handful of these are on the stock exchange. The largest in terms of market capitalization is Canopy Growth, which has expanded rapidly due in no small part to strategic acquisitions. Several of these have been of peer companies abroad, as Canopy Growth has a license from the Canadian government to export some of its product.

Canopy Growth's latest quarterly revenue figure was 21.7 million Canadian dollars ($17.0 million), which was more than double what the company made in the same period the previous year. It was also a new quarterly record.

The company has become prominent enough to attract a deep-pocketed partner, namely spirits conglomerate Constellation Brands, which bought a nearly 10% equity stake in it last year. 

Lining up behind Canopy Growth are fellow suppliers Aphria, Aurora Cannabis, and MedReleaf. All three have seen top-line growth thanks to expansion, although profitability has been spotty.

Green medicine

Cannabinoids, the chemical compounds in marijuana, appear to have medicinal properties. So it's no surprise that a number of biotech companies are developing treatments utilizing them.

The leader of this gang is GW Pharmaceuticals (GWPH). Based in the U.K., GW Pharma is largely a development-stage biotech. The one product it has on shelves is Sativex, a spray medication that treats spasticity in patients suffering from multiple sclerosis. GW Pharma has received approval in 30 markets for the drug (the U.S., however, is not among them).

A drug currently in the pipeline, Epidiolex, is promising. Clinical trials show the drug has potential to fight two types of childhood-onset epilepsy. And in March the company received the good news that the U.S. Patent and Trademark Office (USPTO) bestowed notices of allowance on five of the company's Epidiolex patents. Meanwhile, the FDA has set June 27 as the date by which it'll rule on approval of the drug for the U.S. market.

GW Pharma's stock has been a bit of a see-saw, but it has potential to skyrocket if Epidiolex fulfills its promise.

Other biotechs that concentrate exclusively or partially on pot chemical-based treatments are Zynerba Pharmaceuticals, Axim BiotechnologiesCorbus Pharmaceuticals Holdings, Arena Pharmaceuticals (ARNA), Cara Therapeutics, and Insys Therapeutics (INSY).

Picks, shovels, and funds

The third, and smallest, category of pot stocks is varied enough to label "miscellaneous." The leading stock in this little grab bag is Scotts Miracle-Gro (SMG 6.23%), the veteran supplier of lawn and garden care products.

Scotts Miracle-Gro is rolled up with marijuana stocks not only because its goods help the plant grow better. The company also owns Hawthorne Gardening, a collection of brands that service the market for hydroponics (growing plants in water, a classic method of pot cultivation).

The subsidiary, which has been fattened by acquisitions, saw 20% growth in sales in its parent's Q1 results, although its organic sales declined. Scotts Miracle-Gro is still bullish on Hawthorne, characterizing its organic sales decline as "temporary."

Outside of Scotts Miracle-Gro, Medical Marijuana, Inc. is essentially a collection of marijuana-related assets. These are both publicly traded (Axim Biotechnologies) and not (distributor HempMeds).

Finally, Canada-based Cronos Group also goes the collection-of-assets route, owning two smallish businesses outright, and holding a strategic stake in another. All three are producers and sellers.

Pot boom... or bust?

The big caveat to investing in any aspect of the marijuana business is the drug's legal status. In the U.S., although marijuana has been legalized for recreational use in eight states, and for medicinal purposes in 28, it is still technically illegal at the Federal level. Attorney General Jeff Sessions has indicated that he will get tougher on pot, although this doesn't appear to enjoy much popular or political support.

And as previously mentioned, although Canada aims to go the full recreational route, marijuana is still not yet legal there for this purpose.

Potential investors in the sector need to bear these legal points fully in mind and realize that any marijuana stock carries a higher degree of risk than many other types of companies they might buy into. 

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Arena Pharmaceuticals, Inc. Stock Quote
Arena Pharmaceuticals, Inc.
The Scotts Miracle-Gro Company Stock Quote
The Scotts Miracle-Gro Company
$80.86 (6.23%) $4.74
INSYS Therapeutics Stock Quote
INSYS Therapeutics
GW Pharmaceuticals plc Stock Quote
GW Pharmaceuticals plc

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/10/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.