The marijuana industry is coming off what could arguably be described as its greatest year in history. Last year, we witnessed Canada become the first industrialized country in the world to legalize recreational cannabis, and saw a handful of significant advances in the U.S., be it through the legalization of hemp and hemp-based cannabidiol, the approval of the very first cannabis-derived drug, or the continued legalization of medical or recreational weed at the state level.
And yet, I say "arguably" the best year, because marijuana stock investors mostly had a year to forget. Following two years of incredible gains, most pot stock ended 2018 significantly lower from whence they began.
In 2019, marijuana stock investors could face a number of hurdles as well. Regulatory red tape in Canada has created a near-term marijuana shortage, which could drive consumers back to the black market and adversely impact sale and profit forecasts for pot stocks.
These marijuana stocks are rolling in green
In addition, even with marijuana legalized in Canada and no longer considered taboo in a number of developed countries, access to nondilutive forms of financing have been limited. This has caused most marijuana stocks to turn to dilutive means of raising money, such as stock offerings, convertible debenture sales, or issuing stock options and/or warrants.
Ultimately, cash is a very precious commodity within the cannabis space, and those pot stocks that have it presumably have the peace of mind to make their corporate strategies a reality. After perusing more than four dozen pot stocks with a market cap in excess of $200 million, three stand out as being particularly well capitalized when cash, cash equivalents, and marketable securities are taken into account.
Canopy Growth: In excess of $4.3 billion
Absolutely no pot stock is sitting prettier than Canopy Growth (NYSE:CGC) when it comes to cash at its disposal. Although the company listed close to $330 million in cash on hand at the end of its most recent quarterly filing, this didn't include the $4 billion equity investment from Corona and Modelo beer maker Constellation Brands (NYSE:STZ), which closed subsequent to the end of its reported quarter.
The largest deal in cannabis history saw Canopy Growth sell Constellation 104.5 million shares of common stock at a 51% premium to its Aug. 14 closing price, with 139.7 million warrants also being issued. As it stands now, Constellation Brands holds a 37% stake in Canopy, but could increase that stake to as much as 56% in the coming years if all of its received warrants were executed. Unlike most marijuana partnerships, the magnitude of this deal suggests that Constellation wants to do more than simply developer cannabis-infused beverage. It demonstrates that Constellation believes in the legitimacy and growth that the cannabis industry can offer.
As for Canopy, it now has quite the war chest of capital at its disposal. It'll be using this cash to complete its capacity expansion projects, market and buildup its recreational brands, and move into international markets. It would not also be surprising to see the company make acquisitions that would complement its existing business.
Cronos Group: In excess of $1.8 billion*
Another pot stock that'll soon be sitting on a mountain of green is Cronos Group (NASDAQ:CRON).
At the end of the company's most recent quarter, it had only about $30 million in cash on hand. However, this quarterly report doesn't include the Dec. 7 announcement that Altria (NYSE:MO), the tobacco giant behind the Marlboro brand, was making a $1.8 billion equity investment in Cronos Group at a 41.5% premium to the company's 10-day volume weighted average price on the TSX in Canada. When complete, Altria will own a 45% stake in Cronos and would be able to increase that to 55%, assuming the warrants it's receiving are also executed.
Why the asterisk next to the company's cash count? The simple answer is that this deal isn't yet finalized, and it won't be until sometime in the first half of 2019. However, there are no indications that Cronos' shareholders wouldn't favor Altria becoming a major stakeholder in their company, making a breakdown of this deal highly unlikely.
When complete, Altria will receive access to the fast-growing cannabis industry, which can be used to offset the volume weakness it's seen from tobacco sales in the U.S. for years. Meanwhile, Cronos will be leaning on Altria's marketing knowledge and deep pockets to help push its cannabis products into new markets.
Look for Cronos Group to utilize its newfound cash hoard to market and develop its recreational cannabis brands, further diversify its portfolio away from dried cannabis flower, and possibly make complementary acquisitions.
Curaleaf Holdings: Nearly $450 million
U.S.-based vertically integrated dispensary Curaleaf Holdings (NASDAQOTH:CURLF) is the third and final company with a mountain of cash on hand.
At the end of Curaleaf's recently reported quarter, it "only" had about $48 million in cash on hand. However, subsequent to the end of the quarter, Curaleaf completed its private placement and go-public transaction, raising approximately $400 million in the process. That suggests Curaleaf has closer to $448 million in cash on hand to facilitate its growth strategy.
As of mid-December, Curaleaf had 35 dispensaries in the U.S., 19 of which were located in Florida, with a dozen cultivation sites and 10 processing facilities. Since interstate transport of cannabis isn't allowed in the U.S. per federal law, Curaleaf needs to operate cultivation and processing sites within the same states as its dispensaries in order to maintain vertical control of its supply chain. Given that Curaleaf wants to expand to 67 open dispensaries by the end of 2019, this nearly $450 million in cash on hand will go a long way toward reaching that goal.
It also wouldn't be surprising to see Curaleaf go on the offensive and make smaller acquisitions following the passage of the Farm Bill in December. With improved access to hemp-based cannabidiol, Curaleaf may look to take advantage of an increase in interest in CBD-based products.
While cash alone doesn't guarantee success, these three pot stocks certainly have zero concerns about liquidity.