An oversupply of product has led to difficulties in the marijuana industry, where many companies have seen significant declines in stock prices recently. A Centers for Disease Control report of 800 vaping-related deaths and injuries has also likely scared investors away.
Despite the volatility and negative news of the past few months, the pot industry is still a potentially lucrative space for investors, thanks to its growth potential. Use of cannabidiol (CBD) in the U.S. is growing, with 14% of U.S. customers reporting the use of products with cannabis-based oil. As cannabis products become more and more mainstream, here are three related companies that deserve investors' consideration.
Some investors are bearish on high-profile pot purveyor Aurora Cannabis ( ACB 2.58% ) because of its poor performance over the past few months. That said, while Aurora's shares have recently slumped, the stock is still one of the most popular on stock-trading app Robinhood.
Aurora isn't profitable yet, with quarterly losses at CA$2.3 million and 2019 expenses already totaling CA$425 million, according to Macrotrends. However, the corporation had a mostly positive Q4 2019 earnings report, with revenue of CA$99.5 million, an increase of 52% from Q3 2019. The growth was partly thanks to a surge in medical and recreational pot sales in Canada.
Chief Corporate Officer Cam Batley touted Aurora's success in its most recent earnings report, saying it has had "continued growth across all our distribution channels, Canadian medical, Canadian consumer, and international medical, [and] a massive increase in kilograms produced, increasing 86% quarter-over-quarter." With growth in repeat medical marijuana customers and international outreach, Aurora's stock could potentially bounce back.
Tilray ( TLRY ) is a top medical marijuana company that has seen growth by catering to customers overseas. While the business missed Wall Street's earnings estimates in its most recent report, it did beat revenue expectations with a showing of $49.5 million. The current oversupply of marijuana means that Tilray's stock has tumbled, but it's still a corporation with potential for growth.
The company's Q2 revenue increased thanks to its $318 million purchase of Manitoba Harvest, the world's largest hemp-based food company. CEO Brendan Kennedy said the acquisition helped drive up Tilray's Q2 profits. "We are pleased with our second-quarter results, which included the first full quarter of Manitoba Harvest sales," Kennedy said. Revenue increased 371% year over year to $45.9 million.
Another potential boost to Tilray's stock price could come from its $100 million partnership with alcohol behemoth Anheuser-Busch to produce non-alcoholic CBD-infused drinks later in 2019. These strategic partnerships and expansion into other markets could prove lucrative for the company and its investors.
It may not be the most likely cannabis play, but Scotts Miracle-Gro ( SMG 3.60% ) has benefited from its investment in cannabis subsidiary Hawthorne Gardening Company. The latter's hydroponic systems, which facilitate marijuana growth, helped Scotts Miracle-Gro's stock surge 39% over the past year. Third-quarter revenue was $1.17 billion, an improvement from third-quarter 2018 revenue of $994.6 million.
Because Scotts Miracle-Gro is invested in marijuana products instead of growing the plant itself, it can benefit from the industry's expansion without suffering the downside of direct exposure. Scotts Miracle-Gro shows that investors can slowly delve into pot stocks and still benefit from the potential explosive growth in cannabis.
Keep an eye on the long term
With their strong earnings reports and diversified investments in the future, Aurora, Tilray, and Scotts Miracle-Gro offer the potential for healthy returns for marijuana investors. Various factors -- for example, government regulations or cannabis oversupply -- might make short-term results somewhat volatile. But if investors are patient and stay focused on the long term, there's growth to be found in this burgeoning industry.