Roughly one year ago, the marijuana industry was in its heyday. It was coming off of a first quarter that saw more than a dozen pot stocks rocket higher by at least 70%, with virtually all eyes on the upcoming launch of derivatives in Canada (e.g., edibles, vapes, and beverages) and the expected legalization of adult-use weed in numerous U.S. states. Things were so good, in fact, that well over a dozen marijuana stocks boasted a valuation of at least $1 billion.
But what a difference a year can make.
Pretty much all expectations for the pot industry have gone up in smoke. In Canada, regulatory issues have caused everything from shortages of derivative products in some regions to supply bottlenecks of dried cannabis in others. Meanwhile, in the United States, high tax rates have made it difficult for licensed producers to compete with black-market growers. Pot stocks throughout North America are also contending with financing issues and have been adversely impacted by the coronavirus disease 2019.
With a seemingly endless slew of bad news, the 20 cannabis stocks that, at one point, had billion-dollar valuations, have now been whittled down to just seven pot stocks. And no, you won't find Aurora Cannabis or Tilray on this list, despite once sporting peak market caps of $9 billion and $26 billion, respectively.
1. Canopy Growth: $5.07 billion
As has been the case for some time, Canopy Growth (CGC -8.55%) remains the largest pot stock in the world by market cap. A big reason for this has to do with Constellation Brands' $4 billion equity investment into the company in November 2018, as well as the subsequent hiring or former Constellation CFO David Klein as Canopy's new CEO in January 2020. Despite burning through more than half of its cash over the past year, Canopy still has the largest cash balance of any marijuana stock, as well as a CEO who's not afraid to trim costs by reducing the company's workforce and closing greenhouses. Unfortunately, profitability is still a ways off.
2. GW Pharmaceuticals: $2.5 billion
Even though drug developer GW Pharmaceuticals (GWPH) dislikes being lumped in with "cannabis stocks," its focus on cannabinoid-based drugs has made it one of the more consistent pot stocks of the group.
The company's lead drug is Epidiolex, a cannabidiol (CBD)-based oral therapy approved to treat two rare forms of childhood-onset epilepsy. GW Pharmaceuticals has benefited from being able to provide the only approved treatment for patients with Dravet syndrome, as well as a newer treatment option for patients with Lennox-Gastaut syndrome. It's also had little pushback from insurers, with Epidiolex securing broad coverage. The real test for GW Pharmaceuticals is coming, with possible competition on the way from Zogenix's Fintepla.
3. Cronos Group: $1.95 billion
Like most Canadian pot stocks, Cronos Group's (CRON -5.18%) income statement has been a dud. But similar to Canopy Growth, it landed a mammoth equity investment and has been buoyed by its cash balance.
In mid-March 2019, Cronos Group closed a $1.8 billion equity investment from tobacco giant Altria Group, giving it a 45% stake in the company. With the exception of acquiring Redwood Holdings in order to gain ownership of the Lord Jones CBD-based beauty brand, Cronos was still sitting on more than $1.5 billion in cash and marketable securities at the end of calendar year 2019. While this cash does provide something of a downside buffer, Wall Street is going to want to see a serious improvement in the company's production and/or derivative sales before it has any chance of moving higher.
4. Curaleaf Holdings: $1.79 billion
The first U.S. multistate operator (MSO) to make an appearance on the billion-dollar list is Curaleaf Holdings (CURLF -3.31%), though its market-cap advantage over other MSOs in the U.S. has narrowed considerably in recent months. Curaleaf still possesses more retail store licenses, and has more operational dispensaries, than any other MSO in the U.S., which is a big reason it's on track to be the first cannabis stock to generate $1 billion in annual sales (likely by 2021). The key to hitting this psychological sales mark will be in closing its acquisition of privately held MSO Grassroots and seamlessly integrating its recently closed purchases, such as the Select brand from Cura Partners.
5. Green Thumb Industries: $1.2 billion
The next-closest MSO in terms of market cap is Green Thumb Industries (GTBIF -4.33%) at $1.2 billion. While Green Thumb has grown its dispensary count organically, acquisitions have played a big role in its recent expansion. Green Thumb's purchase of Integral Associates in Nevada gives it access to one of the most lucrative states based on per-capita cannabis spending, while buyouts in Illinois give it a front-row seat to recreational legalization in the Land of Lincoln. As one of the few MSOs with a healthy cash position, Green Thumb may have a shot at surpassing Curaleaf in market cap to become the most valuable U.S. MSO.
6. Innovative Industrial Properties: $1.2 billion
Arguably the top-performing cannabis stock of the entire industry has been real estate investment trust Innovative Industrial Properties (IIPR -4.42%). IIP acquires marijuana cultivation and processing sites, then leases them out for an extended period of time, thereby reaping the rewards of rental income. Currently, Innovative Industrial Properties has 54 assets in 15 states with a weighted-average lease length of 16.1 years and (as of its last update a few weeks ago) an average return on invested capital of 13.2%. At this rate of return, IIP should see a complete payback on its invested capital in about 5.5 years.
What's more, with access to capital remaining difficult for many U.S. MSOs, IIP has become a go-to source for sale-lease agreements.
7. Trulieve Cannabis: $1.08 billion
The seventh and final billion-dollar pot stock is U.S. MSO Trulieve Cannabis (TCNNF -5.36%), which recently regained its billion-dollar status on this short-term upswing in the market. Unlike Curaleaf and Green Thumb, which have expanded into at least a dozen states, Trulieve's focus has almost entirely been on Florida. Trulieve has 47 operational dispensaries, 45 of which are located in medical marijuana-legal Florida. By focusing its attention on a single state, Trulieve has successfully built up its brand with consumers, all while keeping expenses relatively low. This is why Trulieve Cannabis is, to date, the most profitable pot stock.