Many cannabis stocks have fallen well below their highs set earlier this year. Volatility in the overall stock market reflects a lot of uncertainty, with worries about the possibility of a recession and an intensifying trade war. The combination of these factors could make some investors afraid to buy any stock, much less a marijuana stock.
But taking a long-term view makes investing a lot less scary. If you think that the pot industry will expand dramatically over the next decade or more, investing in marijuana stocks during times of uncertainty could actually increase your returns over the long run.
Which cannabis stocks look like good picks to buy in September? Here's why I think Charlotte's Web Holdings (CWBHF 1.27%), Cresco Labs (CRLBF -9.30%), and Trulieve Cannabis (TCNNF -6.38%) stand at the top of the list.
1. Charlotte's Web
Charlotte's Web stock sank earlier this month after the company reported second-quarter results that missed analysts' revenue and earnings estimates. However, shares of the cannabidiol (CBD) leader are still up more than 50% year to date. More importantly, the prospects for Charlotte's Web continue to look very bright.
For years, Charlotte's Web operated in kind of a gray area. Federal laws were on the books that allowed states to sanction the use and sale of hemp-based products for research purposes. Charlotte's Web was permitted to sell its hemp CBD products under these regulations. But a new law went into effect in December 2018 that legalized hemp in the U.S. without the research purposes restriction. Charlotte's Web's business skyrocketed.
The company already ranks as the No. 1 hemp CBD brand in the U.S. by market share. And that market is rapidly expanding. The company has nearly tripled its acreage of hemp this year compared to 2018. Charlotte's Web's products are carried in over 8,000 retail locations, more than double the number at the beginning of this year.
Charlotte's Web continues to be consistently profitable, although it's understandably investing more in building its infrastructure to take advantage of its growth opportunities. The company's new CEO, Deanie Elsner, a former executive at Kraft Heinz and Kellogg, appears to be a great fit for what Charlotte's Web needs at this stage. I view Charlotte's Web as one of the best cannabis stocks to profit from what should be tremendous growth in the U.S. hemp CBD market.
2. Cresco Labs
Cresco Labs ranks as one of the largest vertically integrated marijuana operators in the U.S. It currently has operations in seven states that have legalized medical cannabis, notably including Cresco's home state of Illinois.
The company will soon add four more states. Cresco has binding transactions pending to acquire operations in Florida, Massachusetts, and New York. It also received approval to expand into Michigan.
But the biggest deal for Cresco is its pending acquisition of Origin House, which is the largest cannabis distributor in California. Origin House also markets a line of its own marijuana brands and owns a vape retailer in Canada.
Cresco's revenue continues to skyrocket and will soar even more with its acquisitions and moves into new states. The company isn't profitable yet, but that's mainly because its spending is increasing as it expands rapidly. Cresco thinks the Origin House acquisition will make it a "North American cannabis powerhouse." I agree.
3. Trulieve Cannabis
Trulieve Cannabis focuses primarily on the medical marijuana market in Florida. The company now operates 31 dispensaries in the Sunshine State. It also offers home delivery for patients who can't get to a physical store.
This focus on Florida makes a lot of sense. The state is projected to be the third-largest legal cannabis market in the U.S. by 2022 with annual sales of more than $1.7 billion, ranking ahead of several states with legal recreational marijuana markets.
Although Florida doesn't allow the legal use and sale of recreational pot at this point, it could be on the way to doing so. An effort is underway to put a constitutional amendment on Florida's ballot in 2020 to legalize recreational marijuana. If the amendment makes it on the ballot, the chances of passage appear to be pretty good, with a recent survey finding that 65% of Floridians support legalization.
Trulieve would have an even greater growth opportunity should these efforts succeed. But the company doesn't need a legal recreational market to grow. Trulieve reported record revenue and earnings in its latest quarterly update. It should be in a solid financial position to fund additional expansion in Florida and other states.
You might have noticed that all three of these cannabis stocks have a common denominator: They're all based in the U.S. That's not a coincidence.
I think that U.S. marijuana stocks are undervalued relative to their counterparts in Canada. This doesn't make every U.S. cannabis stock a great choice. However, the growth prospects and solid business models for Charlotte's Web, Cresco Labs, and Trulieve make these three stocks stand out as good picks for long-term investors to consider buying in September.