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3 Top Marijuana Stocks to Watch in September

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Pot stocks are blazing hot, and we can't take our eyes off these three.

In case you missed it, marijuana stocks are unstoppable once again. After a lull early in the year, all but a very small handful of marijuana stocks surged by a double-digit percentage in August. Excitement over Canada's upcoming recreational cannabis legalization on Oct. 17, along with a flurry of recent deal-making, has pushed a number of brand-name pot stocks to new heights. 

The question is: What top marijuana stocks should you be watching this month?

The good news is, there's an answer, according to three of our cannabis-focused Motley Fool contributors who are keeping their ears to the ground when it comes to marijuana developments. The pot stocks that could be all the buzz in September include Aphria (NASDAQOTH: APHQF), CannaRoyalty (ORHOF), and Canopy Growth Corp. (CGC -5.96%)

An assortment of legal Canadian cannabis products on a counter.

Image source: Getty Images.

This pot stock is checking all the right boxes 

Sean Williams (Aphria): Though the entire marijuana industry has been of interest lately, the company I'd watch in September is Aphria.

Ontario-based Aphria is coming off what I believe was an unimpressive quarterly report in August, but has nonetheless rallied extensively to the upside with its peers on the expectation that it'll land a big alcohol, tobacco, or pharmaceutical partner. I believe that, based on what pot stocks have found brand-name partners, Aphria could be next.

In terms of pedigree, Aphria checks a number of boxes off that a prospective partner would be looking for. Though production totals remain exceptionally fluid, Aphria's management has stated that the company is on track to yield 255,000 kilograms of cannabis annually, once it's fully ramped up. That would allow it to slide in as the third-largest grower in Canada. Most of its production will be generated from its organically built Aphria One facility, as well as its joint venture with Double Diamond Farms, known as Aphria Diamond. Both of these grow farms are expected to begin selling weed in January 2019, with 100,000 kilograms and 120,000 kilograms in peak yield, respectively, when at full steam.

Aphria also announced its intent to construction an extraction center that'll be capable of roughly 25,000 kilograms of cannabis-equivalent concentrate production. Along with oils, Aphria has one of the most diverse, high-margin product lines of all growers, which makes it a naturally good fit for a partner in the alcohol or tobacco industry that's looking to expand their own product line.

Lastly, Aphria's acquisition of Nuuvera earlier this year expedited its entrance into foreign markets where medical weed is legal. The buyout of Nuuvera was really an acquisition of existing infrastructure, which means Aphria has the ability to sell its cannabis in a dozen countries around the globe.

It's well capitalized, has a management team that traditionally is more conservative than most pot stocks, and is sporting a diverse product line. It's definitely worth keeping an eye on in September.

A green welcome to California highway sign, with a white cannabis leaf.

Image source: Getty Images.

Just the facts about this California cannabis leader

Keith Speights (CannaRoyalty): I stated not long ago that CannaRoyalty was the best under-the-radar marijuana stock that I've seen so far. That's still my view. But that's just an opinion. Let's look at the facts and just the facts.

CannaRoyalty is the largest marijuana distributor in the state of California. That's enormously important since California happens to have the biggest marijuana market in the U.S. -- and the biggest in the world. It's bigger than Canada's total cannabis market will be even with the legalization of recreational marijuana. It's bigger than Germany's medical cannabis market. 

The company's CEO, Marc Lustig, told me that CannaRoyalty plans to also move into Nevada. Las Vegas is a top tourist destination. CannaRoyalty should be able to leverage its operations in California relatively easily since Nevada is right next door. 

The company used to focus primarily on providing financing to marijuana businesses in exchange for royalty streams. That's how CannaRoyalty got its name. While the company still does a few streaming deals, its top priority is now distribution. 

There are two key advantages to being in the distribution business. First, CannaRoyalty is less susceptible to pricing fluctuations. Second, the company gets access to data about what brands are performing the best. In today's world, data is like gold.

CannaRoyalty faces risks associated with marijuana still being illegal at the federal level in the U.S. However, I think the facts by themselves make this a top marijuana stock to watch right now.

A flowering cannabis bud, with a dark background.

Image source: Getty Images.

A best-in-breed player

Todd Campbell (Canopy Growth Corp.): Canada's recreational marijuana market opens for business in October and there's reason for considerable excitement. According to Barclays, the global marijuana market could be worth $272 billion by 2028, if Canada's market leads to the rest of the Group of Seven countries legalizing cannabis too.

Plenty of companies are racing to profit from legal marijuana, but Canopy Growth's arguably in the lead. Its management has invested significantly in production capacity ahead of Canada's recreational market opening and it's starting to generate meaningful revenue in Germany, where a big medical marijuana market is emerging. It's also conducting clinical trials to validate marijuana's use as medicine, and inking deals to participate in budding markets in South America, Latin America, and elsewhere.

Importantly, it has the marketing and distribution expertise necessary to win sales in these markets thanks to a recently expanded relationship with beer, wine, and spirits distribution Goliath Constellation Brands. Initially, Constellation Brands acquired a nearly 10% stake in Canopy Growth last year, but it paid $4 billion to increase its ownership to 38% in August. Now that Canopy Growth is flush with cash from this deal, it shouldn't have any problem establishing itself as a market share leading marijuana company worldwide.

Admittedly, the biggest knock against buying Canopy Growth shares is its heady valuation. In Q2, revenue grew 63% to 26 million Canadian dollars, and that means investors are paying an eye-popping 107 times annualized sales to own shares. Nevertheless, the marijuana market could eventually rival the beer or tobacco market. If so, Canopy Growth's market cap may still be too low.

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