It's been quite a year for marijuana stocks. Canada's recreational market opened for business in October; Canopy Growth and Cronos Group secured multibillion-dollar investments from S&P 500 consumer goods companies; the number of U.S. states with adult-use laws climbed to 10; and Congress paved the way for a surge in cannabis farming when it removed hemp from the controlled substances list in December. The flurry of activity has sent marijuana stocks soaring so far in 2019, and that could have you considering which marijuana stocks are best for your portfolio. You've got a lot of options, but if you want to start separating the best from the rest, you might want to narrow your research to the biggest cannabis companies.
The biggest players
There's always a chance that a dark horse comes out of nowhere to claim the cannabis crown, but it's more likely that the early movers that have already been able to establish themselves have the best shot at dominating a market expected to rival the alcohol and tobacco markets in size.
Image source: Getty Images.
Early investments by these top stocks have put them in the best position to accelerate cannabis production to meet growing demand, and since they've been pocketing the most cash from sales so far, they arguably have the greatest financial flexibility to take advantage of new market opportunities, such as legalization in Europe or the U.S.
We're already seeing this dynamic play out. Thanks to Canopy Growth leveraging its 30%-plus market share in Canada's medical marijuana market, it was able to ink a $4 billion investment from beer, wine, and spirits giant Constellation Brands. In turn, that gave it deep enough pockets to secure recreational marijuana licenses in every Canadian province; boost marijuana production to address better-than-expected demand when the adult-use market opened in Canada in October; and win a license to grow and process hemp in New York state last month.
Aurora Cannabis has also taken advantage of its status as an early leader, using its shares to orchestrate multiple acquisitions that have catapulted sales and potential peak marijuana production capacity. In January, Aurora's management reported preliminary quarterly sales of 50 million Canadian dollars in the calendar fourth quarter because of its deals.
The story is similar at competing growers Aphria, Cronos Group, Tilray, and CannTrust, which arguably also make the cut as top-tier cannabis companies.
Who is the winner?
In the future, operating profit and, eventually, net income will be key to determining what marijuana stocks deserve your hard-earned investment dollars, but until then, ranking these cannabis companies by sales could be the best bet to narrowing your investment options.
Although many companies haven't yet reported results that include tailwinds associated with Canada's recreational market opening on Oct. 17, 2018, some have, so here's how these big players stack up to one another:
| Ranking Big Marijuana Stocks by Revenue ($, USD) | ||
|---|---|---|
| Company (Symbol) | TTM Sales | MRQ Sales |
| Canopy Growth (CGC 20.65%) | $73 million | $18 million |
| KushCo Holdings (KSHB) | $69 million | $25 million |
| Aurora Cannabis (ACB 12.87%) | $61 million | $24 million |
| CannTrust Holdings (CNTTQ) | $59.7 million | $13 million |
| Aphria Inc. (APHA) | $44 million | $17 million |
| Tilray Inc. (TLRY) | $33 million | $10 million |
| OrganiGram Holdings (OGI 2.19%) | $17 million | $10 million |
| Cronos Group (CRON -0.41%) | $9.1 million | $3 million |
TTM=Trailing 12 months. MRQ=Most recent quarter. Data source: Yahoo! Finance. Conversion from $CAD to $USD on 2/1/2019.
There are some caveats to keep in mind, though.
For instance, unlike these other stocks, KushCo Holdings isn't a grower but a supplier of packaging and chemicals used by cannabis companies. Furthermore, the list doesn't include MedMen, a dispensary chain that hasn't yet been publicly traded for one year. In January, MedMen issued preliminary sales of $29.9 million last quarter. Additionally, the list doesn't include preliminary figures, including Aurora Cannabis' numbers, because they're subject to change.
Perhaps the most interesting takeaway from this ranking comes from considering the annualized quarterly figures, which clearly demonstrate that the pace of sales across the industry are quickening. That's likely to continue as Canada's market matures and companies see greater demand from overseas and, possibly, in the United States. Worldwide, the United Nations estimates $150 billion is spent annually on marijuana, including $50 billion that's spent in America. As more markets end prohibition, the revenue reported by these companies could skyrocket.
Check out all our earnings call transcripts.
What to watch now
Since some stocks haven't yet reported fourth-quarter 2018 results reflecting initial recreational sales in Canada, investors will want to keep an eye out for updates to see if leadership is changing hands. It will also be important to keep an eye out for updates that could help support significant revenue growth in the future. For instance, Canopy Growth is the only big marijuana company so far to announce plans to enter the U.S. market following the passing of the U.S. Farm Bill, and I think it's very likely that other marijuana stocks will follow suit.
