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3 Surprising Stocks That Could Benefit From Marijuana's Legalization

By Sean Williams - Sep 13, 2018 at 7:51AM

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These behind-the-scenes companies could be seeing green right along with the cannabis industry.

There are plenty of intriguing investment opportunities on Wall Street, but none has been more smoking hot of late than marijuana stocks. In just under five weeks (on Oct. 17), recreational marijuana will become legal in Canada, marking the first time in history an industrialized nation had given the green light to adult-use weed. And with this legalization comes the potential for billions of dollars in added annual revenue.

As you might imagine, pot stocks directly involved in the physical cannabis supply chain -- i.e., growers, processors, distributors, and retailers -- have been the likeliest to see their share prices soar. Investors with the foresight (and luck) to hang onto marijuana stocks since prior to 2016 have probably made a quadruple-digit return on their investment.

A dollar sign shadow being cast on a pile of cannabis leaves.

Image source: Getty Images.

These behind-the-scenes stocks should benefit from the legalization of cannabis

But the thing is, the trickle-down effect of the cannabis industry means there will be plenty of winners that aren't exactly in plain view. There's an entire ancillary industry in the background helping to fuel the success of the weed industry, and many of these companies could see a boost in their sales and/or profits as a result of the success of the legal pot industry.

Some of these companies you've probably heard of, like Scotts Miracle-Gro, which is predominantly a lawn and garden care company but also has a subsidiary focused on hydroponics, lighting, soil, and nutrient solutions for the medical cannabis industry. There's also Kush Bottles, which is a leading marketing and packaging company that'll ensure producers stay compliant with local, state, or federal marijuana regulations.

However, there are other ancillary players that are perhaps even more in the weeds, so to speak. Here are three of them.

A neat stack of hundred dollar bills tied up by a thick chain and locked.

Image source: Getty Images.

Brink's Company

Even though marijuana is on its way to becoming legal in Canada and it's been given the thumbs-up for medical purposes in 30 U.S. states, this is still very much a cash business. Federal scheduling in the U.S. ensures that access to lines of credit, loans, and even a basic checking account are few and far between. Meanwhile, in Canada, only recently have banks been given the OK to work strategically with marijuana businesses. This opens the door for armored truck and ATM service companies like Brink's Company (BCO 2.93%) to succeed.

Is Brink's going to be rolling in the dough (pun fully intended) after marijuana is legalized? Well, no. It's not as if Brink's has developed a strategy to specifically target cannabis businesses. Nevertheless, as pot has proliferated throughout North America, the need for securely protecting cash within this industry has increased (especially in the United States). As demand for its services rises, it would be expected to improve Brink's pricing power, and most likely its operating margins as well. 

Though it's possible some of this pricing power could dwindle in Canada as banks begin to offer basic banking services, a legalization stalemate in the more lucrative U.S. market, along with the fact that weed has historically been a cash business, should be a net positive for Brink's.

Potted cannabis plants growing under special lighting.

Image source: Getty Images.

Cree

Marijuana stock investors might also see the light of day by dipping their toes in the water with LED and lighting system company Cree (WOLF 5.70%).

You're probably most familiar with Cree for making those long-lasting LED lights that you use in or outside your house. They're designed to be substantially more energy efficient than previous generations of bulbs, using less electricity, as well as lasting considerably longer. But what you may not realize is that the marijuana industry has its eyes on Cree's LED bulbs as well.

You see, high-pressure sodium (HPS) lights have been a mainstay in the cannabis industry for years. They deliver very predictable yields, and growers fully understand what to expect with regard to costs when using them. But they also come with two downsides. First, HPS lights tend to use a lot of electricity since they're an older-generation bulb. The other issue is that HPS bulbs generate a lot of heat, which means even more need for expensive, electricity-sucking cooling systems to keep the plant-growing environment at an optimal temperature.

Thus enters Cree. Its LED lights produce considerably less heat, resulting in lower cooling system needs, and they use far less electricity. The downside with LED lights is their higher upfront cost and somewhat unknown crop yield. When marijuana was legal only in a select few states and countries, and access to capital was challenging, LEDs weren't an option for many small-scale pot businesses. But with the industry now budding and capital becoming easier to access, Cree's LED lights are within reach. It could be a sneaky marijuana play moving forward. 

A person holding a tablet and pointing to the word legalize underneath a cannabis leaf on the digital screen.

Image source: Getty Images.

Shopify

A third behind-the-scenes company that has a chance to be even more involved than Brink's or Cree is cloud-based software-as-a-service (SaaS) provider Shopify (SHOP 0.84%).

Shopify is setting itself up to be an indispensable middleman for the marijuana industry. It'll be responsible for running the e-commerce platform that connects retailers with suppliers and consumers. Shopify's platform will be capable of recognizing consumer buying habits and trends to help retailers, growers, and suppliers maximize their profits, and can also handle supply chain orders for online purchases.

To date, the Ontario Liquor Control Board has partnered with Shopify to use its SaaS e-commerce platform in its brick-and-mortar locations, as well as for online and mobile sales. It's also working with many of the largest pot growers in the industry, including Canopy Growth Corp., Aurora Cannabis, and The Green Organic Dutchman, which, combined, might generate close to 40% of all weed produced by Canada.

To be clear, Shopify was growing like a weed well before the legal cannabis industry came along. But with marijuana in its corner, the company's e-commerce platform could be a genuine boon to its top- and bottom-line results.

Sean Williams has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Shopify. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Wolfspeed, Inc. Stock Quote
Wolfspeed, Inc.
WOLF
$90.15 (5.70%) $4.86
The Brink's Company Stock Quote
The Brink's Company
BCO
$59.00 (2.93%) $1.68
Shopify Inc. Stock Quote
Shopify Inc.
SHOP
$40.76 (0.84%) $0.34

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