Marijuana hasn't come by the nickname "the green rush" by accident. If we take a closer look at the performance of marijuana stocks, most have had investors seeing a lot of green over the trailing year. In many instances, pot stocks have rallied by 100% or more as sales growth for legal weed soars and expansion opportunities into new U.S. states and foreign countries appears promising.
At the heart of this surge can be found a major shift in the way consumers view cannabis. Gallup, which has taken national surveys on pot for 48 years, found that 64% of respondents support the idea of legalizing the drug nationally as of Oct. 2017. Comparatively, just 25% supported the same idea in 1995, the year before California became the first state to legalize medical cannabis for compassionate use. The industry has come a long way in a relatively short period of time, and it's translated into big wins for most marijuana stock investors.
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The largest pure-play marijuana stocks
In fact, some pot stocks are now sporting market caps large enough -- in excess of $1 billion -- that they could garner the attention of Wall Street and longer-term investors. Here's a brief look at the four largest pure-play marijuana stocks by market cap, through Nov. 10, 2017. You'll note the use of the term "pure-play," which excludes companies like Scotts Miracle-Gro and Arena Pharmaceuticals, which have respective market caps of $5.76 billion and $1.05 billion, but only have a small portion of their business devoted to cannabis.
Canopy Growth Corp: $3.02 billion
Don't let your eyes deceive you -- there really is a new king of the hill when it comes to the largest marijuana stock in North America, and its name is Canopy Growth Corp. (TWMJF +6.13%). Canopy Growth has the highest individual market share in Canada's medical cannabis market, which is absolutely booming at the moment. According to Health Canada in May, the number of eligible patients has been growing by about 10% a month.
But the real allure with Canopy Growth Corp. -- and all Canadian pot growers as you'll see below -- is the potential that Canada may become the first developed country in the world to legalize recreational weed by July 1, 2018. Legislation introduced by Prime Minister Justin Trudeau hasn't hit any critical roadblocks yet that would derail the bill, leading some pundits to believe the recreational market could add billions in additional revenue.
As icing on the cake, Canopy Growth Corp. also is one of just a handful of growers that's been given the OK to export dried cannabis to countries like Germany, which have legalized medical cannabis. While its profitability has been derailed by costs tied to acquisitions and capacity-expansion investments, it appears to have the makings of a rapidly growing and soon-to-be profitable company.
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GW Pharmaceuticals: $2.84 billion
Losing the top spot in terms of market cap among pure-play marijuana stocks is GW Pharmaceuticals (GWPH +0.00%), the only non-grower on this list. U.K.-based GW Pharmaceuticals is focused on discovering cannabinoids from the cannabis plant and utilizing them to effect positive biologic change.
The biggest positive working in the company's favor has been its pivotal-stage trial results involving Epidiolex, an oral cannabidiol-based drug. Cannabidiol is the non-psychoactive component of cannabis. In two separate phase three studies, each for two rare forms of childhood-onset epilepsy, Dravet syndrome and Lennox-Gastaut syndrome, Epidiolex demonstrated a statistically significant reduction in seizure frequency. If approved by the Food and Drug Administration (FDA), it would become the first cannabinoid-based drug to hit the market and potentially top $500 million in peak annual sales.
Of course, with competition for Dravet syndrome and Lennox-Gastaut syndrome picking up, GW Pharmaceuticals isn't assured a cakewalk.
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Aurora Cannabis: $1.47 billion
There's a pretty sizable drop-off to the third-largest marijuana stock, Aurora Cannabis (ACBFF +3.00%), which is about half the size of GW Pharmaceuticals. Nonetheless, this Canadian medical cannabis grower has grown like a weed over the trailing year, with a 103% gain.
Of the major Canadian medical cannabis players, Aurora Cannabis is the only one that hasn't put together a string of profitable quarters. But it's getting somewhat of a free pass on account of its megaproject known as Aurora Sky. When complete, this 800,000 square-foot facility should be capable of producing 100,000 kilograms of dried cannabis annually. It should also be heavily automated, which is expected to translate into some of the lowest growing costs and highest margins in the industry.
To put this into context, Aurora Cannabis, even with a 40,000 square-foot facility acquisition, doesn't even have 100,000 square feet of growing capacity at the moment. But when Aurora Sky is complete, and if Canada moves to legalize recreational weed, it'll be set to possibly capture around 10% of the country's adult-use market share.
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MedReleaf: $1.24 billion
Canadian medical cannabis producer MedReleaf (NASDAQOTH: MEDFF), which only went public about six months ago, has already become the fourth-largest pure-play marijuana stock. It also has the most reasonable trailing 12-month P/E of all pot stocks, albeit it's still well above the average for the S&P 500.
Like Canopy Growth and Aurora Cannabis, MedReleaf has benefited from growth in the medical market and the expectation that adult-use weed will be legalized. But there's a bit more going on here than just that. MedReleaf also has two advantages over its peers.
First, it offers a segment of higher-priced cannabis strains for a more affluent clientele. Secondly, it holds nearly half of all market share in cannabis oils in Canada. Cannabis oils sport a higher price point and margin than traditional dried cannabis, which has played a key role in pushing MedReleaf's profits higher by more than 400% in 2017 from the prior-year period.
Following its initial public offering and the cash raised from that offering, MedReleaf is focused on expanding growing capacity at its Bradford, Ontario facility.
