HEXO (NYSEMKT:HEXO) and Green Thumb Industries (NASDAQOTH:GTBIF) rank as two of the best-performing marijuana stocks so far this year. HEXO's share price has more than doubled in 2019, while Green Thumb is up more than 90%.
Of course, like the mutual fund disclosures state, past performance isn't necessarily indicative of future results. Which of these two hot marijuana stocks is the better pick now? Here's what you need to know to choose between HEXO and Green Thumb Industries.
The case for HEXO
If you had to summarize the argument for buying HEXO stock in three words, those words would probably be "Quebec" and "Molson Coors."
Why Quebec? In 2018, HEXO landed a major supply agreement with the province for its adult-use recreational marijuana market. Quebec is the second-largest province in Canada, so this was tremendously important for the company. As a result of this supply agreement, HEXO claims a market share of 30% in Quebec's adult-use market.
HEXO also struck a major deal with Molson Coors last year. The giant beer maker picked HEXO as its partner to form a joint venture to develop and market cannabis-infused beverages in Canada. This market is expected to open later in 2019 after regulations are finalized. Lining up a big partner like Molson Coors could give HEXO a competitive advantage that most Canadian marijuana producers near its size won't have.
The case for HEXO goes beyond just these two deals, though. For one thing, the company's acquisition of Newstrike Brands will enable HEXO to market its adult-use products in eight Canadian provinces that, combined, account for 95% of the total Canadian population.
Also, the Newstrike purchase will bolster HEXO's annual production capacity to around 150,000 kilograms. That puts the combined entity in the upper echelon of marijuana producers based on capacity.
HEXO isn't as far along on the international front as some of its larger rivals. However, the company formed a joint venture in Greece that's building a production facility that will serve as a hub for shipping medical cannabis products to several major European markets.
The case for Green Thumb Industries
Green Thumb Industries (GTI) has its stock listed on the Canadian Securities Exchange, but the Chicago-based company markets its cannabis products only in the U.S. And this U.S. focus is one of the top reasons for investors to consider GTI.
The medical cannabis market in the U.S. is projected to be around $7.7 billion by 2022, according to Arcview Market Research and BDS Analytics. However, the total U.S. marijuana market, including adult-use recreational products, could top $22 billion by 2022.
GTI currently operates in 11 states: California, Connecticut, Florida, Illinois, Massachusetts, Maryland, Nevada, New Jersey, New York, Ohio, and Pennsylvania. Three of these states (California, Massachusetts, and Nevada) allow legal sales of adult-use recreational marijuana. At least three others on the list, including GTI's home state of Illinois, could be on the way to legalizing recreational pot.
The company isn't just a cannabis grower. GTI also operates 18 retail cannabis stores, with licenses for another 65 stores.
GTI recently completed the acquisition of For Success Holding Company, a California-based company that markets cannabis products under the Beboe brand. More than 125 retail locations across California and Colorado carry Beboe branded products. The Beboe lineup also includes hemp-based CBD products.
Both of these marijuana stocks are worthy of consideration. But if I had to choose just one, it would be Green Thumb Industries.
My decision comes down to market opportunities. The Canadian market opportunity is big, but it's still dwarfed by the U.S. opportunity. GTI appears to have done a good job expanding into high-growth markets. As these markets mature and as more states legalize marijuana, I think the company's sales will soar.
If GTI were a Canadian company with the same sales that it's generating and the same opportunities before it, I think the stock would be worth a lot more than it is now. The primary factor holding back the stock is that marijuana remains illegal at the federal level in the U.S.
However, I think the odds of federal laws being revised are better than ever. If significant progress is made on efforts to change U.S. marijuana laws, Green Thumb Industries could deliver a lot more green to investors.