If you want to know about the hottest investing sector so far in 2019, it's not hard to find. Marijuana stocks have soared out of the gate this year, and the huge growth potential from the trend toward legalization of cannabis across the globe could help many brand-new companies become ground-floor leaders of the budding industry.
However, calling a company a marijuana stock doesn't necessarily make it one. The ETFMG Alternative Harvest ETF (NYSEMKT:MJ) has given investors exposure to a wide range of companies with ties to the cannabis industry, whether it's directly through cultivation of marijuana or research into medicinal uses for the plant, indirectly through companies that support marijuana growers, or by owning existing businesses in the consumer goods industry that are, or might in the future become, involved with pot.
It's that last category that raises the most questions, as some of those companies probably won't ever really become marijuana-focused businesses. Here, we'll look more closely at three stocks that haven't participated in marijuana's push higher in 2019 and might well never get with the program.
1. Altria Group
Altria Group (NYSE:MO) is known across the globe for its Marlboro brand of cigarettes, and its businesses include not only its smokeable and smokeless tobacco divisions but also the Ste. Michelle Wine Estates unit. Add to that Altria's substantial stake in beer giant Anheuser-Busch InBev (NYSE:BUD), and you get a huge enterprise with its fingers in many different pies across the alcohol and tobacco arenas.
Altria originally got included in the Alternative Harvest ETF's holdings specifically because of its tobacco business. The ETF foresaw that tobacco companies would be natural players in the marijuana industry, and Altria bore that investing thesis out by taking a large minority stake in Cronos Group (NASDAQ:CRON). The deal arguably made Altria more of a marijuana stock, and the tobacco giant has unquestionably benefited from the big gain in Cronos Group's share price since the announcement.
However, it's important to understand that Altria's investment in marijuana thus far is minimal at best. $1.8 billion was a lot of money for the cannabis industry, but as a percentage of Altria's overall assets, it's so small that it'll be only a tiny part of the company's business for the foreseeable future. That's a big part of why Altria stock is up only 2% in 2019 even as true cannabis stocks soar -- and investors can't reasonably expect Altria to share in the kind of gains that many marijuana stocks could see in the future.
2. 22nd Century Group
22nd Century Group (NYSEMKT:XXII) hasn't even done as well as Altria so far in 2019, having seen its shares fall 4%. The company is engaged in plant biotechnology, and for most of its history, it's been focused on coming up with tobacco cigarettes that have less nicotine that most mainstream cigarette brands. In December, 22nd Century filed a modified-risk tobacco product application with the U.S. Food and Drug Administration for its Very Low Nicotine Content cigarettes, which boast a 95% lower nicotine content than the 100 top cigarette brands sold in the U.S. market.
However, 22nd Century has a couple of issues that should give investors pause. First, many worry that low-nicotine cigarettes won't have much of an audience. In addition, the company faces allegations that it failed to disclose its relationship with stock promoters, as some angry shareholders have filed suit against 22nd Century.
22nd Century's tie to the cannabis industry involves its nascent efforts to develop strains of hemp that produce high levels of desirable cannabidiol without the tetrahydrocannabinols that give marijuana most of its psychological effects. So far, though, that business hasn't made much progress, and other overhanging issues could threaten to snuff it out entirely.
3. GIMA TT
Finally, about 2% of the Alternative Harvest ETF's assets are invested in Italian company GIMA TT. The company specializes in packaging equipment and machinery for the tobacco industry, with cigarette packs, cartons, and wrappings. GIMA has also gotten into electronic cigarette manufacturing as well, including both the devices themselves and the liquids and powders that go into them. But its stock has been flat so far in 2019, missing the marijuana boom.
GIMA has potential to become involved with cannabis companies, which will also need to comply with packaging and manufacturing regulations. However, new players like KushCo Holdings (NASDAQOTH:KSHB) that specialize in marijuana-related packaging are also trying to grab up market share in that area. At this point, GIMA doesn't seem like the best way to play the marijuana packaging opportunity.
Stick with stocks that have real exposure to marijuana
True marijuana stocks will have a lot of volatility, as investors weigh their ability to tap into the fast-growing cannabis market. But picking stocks that aren't truly involved to a significant extent in cannabis won't necessarily give you the gains that you want. If you believe that marijuana stocks will keep enjoying big gains, then you can find better alternatives than these three.