10 Reasons to Consider Investing in Cannabis Stocks

The marijuana industry has always faced an uphill battle. Although an increasing number of states have legalized or decriminalized marijuana use, or approved marijuana for medicinal purposes, the possession of cannabis remains a federal offense. Few sectors have been left unscathed during the coronavirus lockdowns, and pot stocks have been no exception.

Even so, the cannabis industry still has plenty of room to expand during the pandemic and in a post-pandemic world. Rather than listen to the naysayers, here are 10 compelling reasons you should still consider investing in cannabis stocks.

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According to data from CannabisMarketCap, the top 100 cannabis stocks alone hold a combined market capitalization of close to $58 billion. A February 2020 report by Grand View Research estimated that the legal marijuana market will hit a $73.6 billion valuation by the year 2027. This makes investments in the cannabis space particularly attractive when contemplating a post-recession market.

ALSO READ: Are Cannabis Stocks Recession-Proof?

Some might argue that many cannabis stocks are insanely cheap right now because the economy is in freefall and marijuana companies are in a financial tailspin. On the flip side, by investing in undervalued cannabis stocks with a strong balance sheet, you can set your portfolio up for long-term growth as the market rebounds. Just take these 12 pot stocks that soared by double digits last month.

We are living in unprecedented times and some cannabis stocks have borne the brunt of the market's volatility more than others. Focus on top pot stocks with a healthy price-to-sales ratio and recession-resistant product portfolio that can weather the coronavirus storm and beyond, and are therefore more likely to afford you returns in the long-run.

Not all cannabis stocks pay a dividend yield, but some do. Dividend returns can provide a robust source of supplemental income, or be used to reinvest into your portfolio. Altria Group (NYSE:MO), the company that owns Canadian cannabis company Cronos Group (NASDAQ:CRON) pays one of the largest dividends in the industry with a yield of more than 8%. Another dividend-paying cannabis stock worthy of mention is Scotts Miracle-Gro (NYSE:SMG). Although the company's payout is more modest at 1.5%, its consistent history of boosting its yield makes the stock a tempting potential buy for marijuana investors seeking dividend returns.

5 Winning Stocks Under $49
We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by the Motley Fool. I’d be sitting on a gold mine!” And it’s true. And while Amazon and Netflix have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Simply click here to learn how to get your copy of “5 Growth Stocks Under $49” for FREE for a limited time only.

Although cannabis has been fully legalized for medicinal and recreational use in Canada, the piecemeal legalization of marijuana in the U.S. has been a different story. As a growing number of states legalize cannabis, market opportunities for retailers, growers, and ancillary marijuana companies will also expand. At the time of this writing, marijuana is only fully legal in 11 states and the District of Columbia. While the pandemic has definitely slowed down legalization efforts, states like New Jersey and Arizona could be set to go fully legal in November.

ALSO READ: Cannabis Stocks: Buy This, Not That

Cannabis stocks shouldn't be the only egg in your basket of investments. That being said, companies with consistent quarterly growth and a strong industry foothold can broaden and complement your existing portfolio.

Love it or hate it, the cannabis market isn't going away. It's true that a few companies may not survive the pandemic in the long-term, but many will ride the uncertainty to recovery and investors could reap the rewards. In fact, these two U.S.-based cannabis stocks are even looking to expand their operations during the pandemic.

One of the most fascinating qualities of cannabis stocks is the diverse array of companies you can invest in. For instance, you could invest in companies that produce medical marijuana products, which represents the vastly more legalized sector of the industry, or recreational marijuana stocks, or both.

Different companies also focus on different areas within the broader cannabis market. For example, Cara Therapeutics (NASDAQ:CARA) is one of many biotech companies that makes cannabis-based drugs and treatments. Others like KushCo Holdings (OTC:KSHB) are ancillary companies that manufacture items integral to the cannabis production and distribution process, such as packaging. A third kind of cannabis stock you can invest in is a retailer or producer, such as Aphria (NASDAQ: APHA), that actually grows and sells cannabis to consumers.

5 Winning Stocks Under $49
We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by the Motley Fool. I’d be sitting on a gold mine!” And it’s true. And while Amazon and Netflix have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Simply click here to learn how to get your copy of “5 Growth Stocks Under $49” for FREE for a limited time only.

Because the lion's share of cannabis growers and retailers have been deemed essential entities during the pandemic, pot companies have mostly been able to keep operations up and running. Widespread lockdowns in March only fueled consumer buying patterns. A study by Statista found that recreational marijuana sales in California, the world's largest legal marijuana market, were up 159% year over year on March 16, 2020 when the state was on the cusp of impending lockdown. In the middle of March, marijuana sales across the U.S. went up by well over 60%.

Two other states where pandemic demand was especially evident this past spring were Oregon and Washington, where cannabis has also been fully legalized. In May, Oregon's adult-use marijuana sales increased almost 60% on a year-over-year basis, while cannabis sales in Washington between March and May were up nearly 30% compared to the same period in 2019. Clamoring consumer demand is good for business -- and it's great news for investors too.

ALSO READ: 5 Cannabis Catalysts for the Remainder of 2020

While this certainly can't be said of all cannabis stocks, some of the biggest names in the industry have actually seen revenue surge in the pandemic market. Canopy Growth (NYSE:CGC), one of the world's largest cannabis companies, just reported its financial results for the fiscal first quarter on Aug. 10. The company reported revenue of $110 Canadian dollars in fiscal Q1, a 22% year-over-year increase. A leading producer of cannabinoid products, GW Pharmaceuticals (NASDAQ:GWPH), reported a 68% increase in revenue in its Q2 2020 financial results, totaling $121.3 million.

Aurora Cannabis (NYSE:ACB), a stock that has fallen significantly in value since the start of 2020, saw a 24% increase in consumer cannabis net revenue in the fiscal Q3. Another honorable mention is mid-cap cannabis stock Green Thumb Industries (OTC:GTBI.F). Not only are shares up about 69% year to date, but the company smashed analysts' expectations in the second quarter with a 167.5% increase in revenue to just under $120 million.

When considering a cannabis stock as a possible addition to your portfolio, carefully weigh the risks and rewards as you would with any other investment and evaluate the comparative volatility of the other stocks you currently own. It's been a bumpy year for investors across all sectors of the market and cannabis stocks have seen their fair share of ups and downs during the pandemic. But, the true stalwarts keep proving their mettle. The cannabis industry is still a viable play for long-term, risk-tolerant investors.

Rachel Warren has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Green Thumb Industries and Scotts Miracle-Gro. The Motley Fool recommends KushCo Holdings. The Motley Fool has a disclosure policy.