What a difference a few months make. After ending the fourth quarter of 2018 on a sour note, and on the cusp of the first bear market in a decade, the broad-based S&P 500 has rallied 16% since the year began. Of course, if you think that's impressive, take a gander at the Horizons Marijuana Life Sciences ETF, the first tradable cannabis exchange-traded fund, which is up 43% through April 16, leaving the broader market eating its dust.

This massive outperformance for marijuana stocks suggests that investors are very much buying into the long-term growth potential of the green rush. Depending on your preferred source, this is an industry that could grow to as much as $75 billion in global sales by 2030, up from $12.2 billion in worldwide sales in 2018.

A tipped-over cannabis bottle filled with dried buds that's lying next to a messy pile of cash bills.

Image source: Getty Images.

An in-depth look at marijuana stock gross margins

But while there have been ample gains for investors throughout the pot industry, one aspect that's been very different among marijuana stocks is their gross margin, which can be calculated by dividing their gross profit (i.e., revenue minus cost of goods sold) into their net revenue, prior to any fair-value adjustments on biological assets.

With most growers and vertically integrated dispensary operators spending aggressively on expansion, gross margin isn't exactly expected to be robust. However, a quick glance of gross margin data from more than a dozen of the largest pot stocks, based on their most recent quarterly data, does reveal some interesting surprises. Here's a look at the most recent gross margin data for 14 prominent marijuana stocks, ranked in descending order and rounded to the nearest whole number:

  • Charlotte's Web Holdings (CWBHF 3.06%): 72%
  • Curaleaf Holdings (CURLF 1.68%): 63%
  • OrganiGram Holdings (OGI 4.35%): 60%
  • Trulieve Cannabis: 58%
  • Aurora Cannabis: 52%
  • HEXO: 52%
  • Harvest Health & Recreation: 50%
  • Green Thumb Industries: 46%
  • MedMen Enterprises: 44%
  • Cronos Group: 44%
  • CannTrust Holdings: 35%
  • Canopy Growth (CGC -2.43%): 22%
  • Tilray (TLRY): 20%
  • Aphria (APHA): 18%
Gloved pair of hands holding a vial of cannabidiol oil with a dropper, with hemp plants in the background.

Image source: Getty Images.

The king of the mountain: Charlotte's Web

Perhaps it's no surprise that the pot stock with the best pound-for-pound gross margin of the group is Charlotte's Web, which is also the most profitable marijuana stock.

Charlotte's Web, which sells hemp-derived cannabidiol (CBD) products -- CBD is the nonpsychoactive cannabinoid best known for its perceived medical benefits -- was in nearly 3,700 retail doors at the end of 2018, and should have no trouble vastly expanding its retail network moving forward thanks to the Farm Bill becoming law in December. The Farm Bill legalized commercial hemp production, as well as the extraction of CBD from hemp plants, thereby giving the company's entire line of products a green light in all 50 states. Although some clarification is needed by the Food and Drug Administration with regard to adding CBD to food, beverages, and dietary supplements, the Farm Bill gives Charlotte's Web free passage to thrive.

After growing organic sales by 74% in 2018, Wall Street is looking for the company to more than double its sales in 2019 and again in 2020. 

A large dispensary store sign, with a cannabis leaf and the word dispensary underneath it.

Image source: Getty Images.

The best gross margin among dispensary stocks: Curaleaf

Among the highly competitive vertically integrated dispensary operators in the United States, Curaleaf Holdings takes its seat at the head of the table with a 63% gross margin. However, it is worth pointing out that Curaleaf generates revenue from its owned retail stores, as well as via management fees. With specific regard to cannabis, the company's gross margin was a more modest 50%.

Right now, no dispensary operator has a larger retail footprint (i.e., currently open stores) than Curaleaf, with 43 open stores, 13 growing sites, and 11 processing facilities, spanning a dozen states. Of course, more than half of its retail stores are currently open in Florida. The Sunshine State's appetite for medical marijuana has been robust, which is expected with a population that's older than the national average.

Looking a bit further down the road, Curaleaf has 71 retail licenses, and will aim to have closer to 70 retail locations open by the end of 2019. As its base of open locations grows, cannabis margins should improve.

An up-close view of a flowering cannabis plant.

Image source: Getty Images.

The surprising gross margin leader among growers: OrganiGram

Sometimes great stocks come in small packages, which is the case with the only major Atlantic-based grower, OrganiGram Holdings. Among Canadian pot growers, none has delivered a more robust gross margin.

OrganiGram, which expects to yield 113,000 kilos at its peak, likely slotting the company in as a fringe top-10 producer, has a laundry list of competitive advantages. Chief among them is the expectation that it'll yield more than 230 grams per square foot, which is over double the industry average. By using three growing tiers at its Moncton campus in New Brunswick, the company is able to maximize its growing space better than any of its peers.

To build on this point, OrganiGram only has a single grow site (Moncton), which allows its supply chain costs to be minimal. Add this to its geographic advantage in the Atlantic, a region with a higher percentage of cannabis users than more populated provinces in Canada, and it's easy to see how this company has been such a success.

A hand reaching for a neat stack of hundred-dollar bills in a mouse trap.

Image source: Getty Images.

The laggards: Canopy Growth, Tilray, and Aphria

On the other hand, three of the most popular pot stocks -- Canopy Growth, Tilray, and Aphria -- had the most anemic gross margin in their most recent quarters.

Canopy Growth, the largest pot stock in the world by market cap, is sparing no expense in its effort to secure market share. Canopy's cost of goods sold includes the impact of operating costs at growing facilities that aren't fully commissioned, such as the 1.7-million-square-foot Delta greenhouse, which serves as a major drag on the company's gross margin. Not surprisingly, investors are going to need to wait until 2021 before this stock has any shot at recurring full-year profits. 

Unlike Canopy Growth, Tilray's pitiful gross margin is a result of the company having to purchase marijuana at wholesale prices, because its organic production isn't yet up to snuff. Recently, Tilray CEO Brendan Kennedy noted that his company would deemphasize Canada in favor of Europe and the United States, with supply chain issues in Canada potentially playing a role. However, this strategy shift could push Tilray to annual losses until 2021.

Bringing up the rear is Aphria, a company that looks cheap on the surface but has lost the trust of shareholders in recent months. Most of Aphria's sales in its most recent quarter were derived from distribution revenue, courtesy of its CC Pharma acquisition. This is a considerably lower-margin business than selling cannabis. Then again, it's sort of hard to mask that Aphria sold almost 23% fewer kilos of cannabis in the third quarter than in the sequential second quarter, which makes little sense. 

These may be popular pot stocks, but their margins have "avoid" written all over them.