Investing legend Peter Lynch coined the term "10-bagger" to describe a stock that delivers a tenfold return. Relatively few stocks ever earn the moniker.
But a couple of marijuana stocks have done just that and then some. Both of these stocks have turned an initial investment of $10,000 into at least $120,000. Which stocks belong to this elite group -- and are they smart picks to buy now?
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1. Cronos Group
Cronos Group (CRON 0.81%) has ranked as the best-performing marijuana stock of all time for quite a while now. Since its initial public offering (IPO) in 2016, Cronos' shares have skyrocketed more than 5,000%. If you had bought $10,000 worth of stock around three years ago (and held onto the shares), you'd have roughly $500,000 right now.
If that sounds good, consider what Cronos' return would have been at its peak level set earlier this year. In early March, the stock was up close to 14,260% over its lifetime. That initial investment of $10,000 would have turned into over $1.4 million.
Probably the main reason why Cronos' performance trounced its Canadian cannabis producer peers is that its initial share price was really low. Cronos was the first pure-play Canadian pot stock to list on a major U.S. stock exchange, a move that gave it greater exposure to U.S. investors.
The biggest catalyst for Cronos, though, was its monumental deal with Altria. In December 2018, the tobacco giant announced that it was investing $1.8 billion in Cronos in exchange for a 45% stake in the company.
2. GW Pharmaceuticals
GW Pharmaceuticals (GWPH) stands as the world's premier cannabis-focused biotech. It's also the second-greatest marijuana stock in terms of lifetime performance, with shares soaring more than 1,100% since the company listed its shares on the Nasdaq stock exchange in 2013. This performance would have turned an initial $10,000 investment into more than $120,000.
The company's early success stemmed from its cannabinoid drug Sativex. GW first won approval for the drug in the United Kingdom and Spain in 2010 for treating spasticity due to multiple sclerosis. The drug later won additional approvals in 23 other countries, but not in the U.S.
But Sativex hasn't been an overwhelming commercial success so far. It generated only $2.8 million of net product sales in the third quarter. However, GW Pharmaceuticals' cannabidiol (CBD) drug Epidiolex is another story altogether.
Epidiolex won FDA approval for treating two rare forms of epilepsy, Dravet syndrome and Lennox-Gastaut syndrome (LGS), in 2018. Sales have consistently beaten expectations in each of the quarters since Epidiolex's U.S. launch. GW also recently launched its CBD drug in France and Germany, with plans to begin commercialization in the United Kingdom this year and in Italy and Spain in 2020.
Are they buys?
I think that Cronos Group and GW Pharmaceuticals could both be quite successful over the long run. Does that mean the stocks are good picks to buy right now? No.
The adult-use recreational marijuana market in Canada has been limited by a lack of retail stores. While that situation should be remedied over time, it's uncertain how long it will take for enough new retail locations to open in key provinces to make a big difference for Cronos.
My view is that Cronos could be a better pick in the future, though. It's possible that the company's cannabis edibles and vapes could be a hit in the new Canadian "Cannabis 2.0" market. Cronos and Altria are also eyeing the potentially lucrative U.S. hemp market.
It's a similar story for GW Pharmaceuticals, in my opinion. Although some were skeptical about the prospects for Epidiolex, I fully expected the CBD drug to be a success. However, I think that GW's valuation largely reflects the sales prospects for Epidiolex in its currently approved indications.
The biotech hopes to win FDA approval next year for Epidiolex in treating tuberous sclerosis complex (TSC). It's also exploring the potential for the drug in treating Rett syndrome and plans to initiate a pivotal study in the U.S. to try to snag FDA approval for Sativex. A victory or two on these fronts would make me reevaluate my take on GW, but for now I'm watching the stock from the sidelines.
