The best cannabis stocks to invest in today are from companies that sell cannabis oil and hemp oil (CBD). Seed to sale companies with medicinal dispensaries in the US have performed well in 2019.
Finding and picking the best cannabis stocks requires knowledge that Wall Street analysts are just beginning to acquire. This page reveals some of the key things you must know before investing in cannabis stocks.
Today’s cannabis stocks are dominated by individual traders, thus the extreme volatility. Everyone knows this. But what must be considered is that the volatility will recede in a year or two. The catalyst will be banks, mutual funds and other institutions investing billions of dollars. This will begin when US banks can accept accounts for cannabis businesses. And the FDA finalizes cannabis oil and CBD regulations after the Farm Bill legalized hemp and hemp oil.
The Best Cannabis Stocks: My Strategy
My long term strategy is to invest in companies in two or more of the key business models of cannabis companies. And to choose one or more that operate in different regions. The core business models are marijuana growers, hemp growers who extract CBD from hemp, medicinal dispensaries (“seed to sale,”retail sales in shops and online). Others include CBD extraction, exporters, distribution, technology, B2B and packaging.
And I look to get in cheap. Either by finding an established company that recently went public and is still relatively unknown, or an established company whose stock is temporarily down 5-10% for reasons not associated with its revenue growth, which must be surging quarterly. (Sometimes the entire sector gets dragged down because a big cap Canadian was hit by bad news.) I also look for companies that are already profitable, which are rare. And for those with excellent management, especially board members with political connections and clout.
Top Cannabis Stocks of the Year
In the first few months of 2019, some of the best cannabis stocks have been those of seed to sale companies who operate in several US states. These are called MSOs, for Multiple State Operators. Every cannabis stock portfolio should have at least one of these stocks. Make the second one that focuses on a different region. For example, Trulieve has almost 70% of the Florida market, while Harvest Health has 90% of Arizona.
Cresco is doing very well in the northeast and expanding in the midwest. MedMen is worth considering right now at under $3. Even with its sorry management problems that have led to major lawsuits still pending. In February, Seaport Global issued a buy signal with a $7 target for MedMen.
Hemp and Hemp Oil Will Zoom in 2019
Hemp and hemp oil will soon profit immensely due to their legalization in the US. Charlotte’s Web and CVSI share prices have begun falling since Canopy Growth, Tilray, Aphria and Aurora expressed interest in growing hemp in the US. Canopy already has a license to do so in New York. Veritas Farms’ recent financial report saw this under the radar stock rocket 24% on a day when almost all cannabis stocks were in the red. They cultivate 140 acres of hemp in Colorado, where full spectrum hemp oil as well as hemp have been legal for years.
Other Cannabis Business Models
CBD-infused foods and beverages have high potential. But they remain risky until the FDA issues new rules on this.One of the safest stocks (if such a thing exists) is Dixie Brands. Dixie’s line of more than 1,000 CBD-infused products go on sale in Canada after October. And Dixie products will soon be produced and distributed in South America by Khiron. Hexo, besides becoming a big Canadian grower, has a deal with Molson to research cannabis-infused beer.
B2B companies provide software, transportation, distribution, security, consulting and other services for the cannabis industry. That’s a good way to diversify by business model. Kana Flow is apparently doing well distributing Humboldt County cannabis throughout California.
“Pick and shovel” companies that never even touch cannabis are another option for diversification. Kushco does packaging for retail products. And produces gases needed to extract CBD. Based on revenue in the last quarter, it is one of the best cannabis stocks today.
Why Diversify Regionally?
Cannabis businesses operating in Canada, Europe, and Latin America. Medicinal and recreational cannabis, even edibles, are legal in most of these nations, so businesses are not affected by events in the US, such as potential negative rulings by the FDA or local health officials. (However, changes in FDA regulations about CBD have hit prices of overseas operators, even though their businesses are not affected by the FDA.) Different states with legal hemp or marijuana in the US have laws and regulations, and different demographics.
Foreign operators don’t have to wait for the US to pass the STATES Act, which would enable banks to accept accounts from cannabis companies. Or for federal legalization of medicinal marijuana and CBD, and for recreational marijuana use to be federally legalized.
Latin America (LATAM)
South America, Colombia in particular, is a good way to diversify regionally. Colombia’s population is greater than Canada’s, and several countries have legalized cannabis for recreational and medicinal purposes. Colombia, as I see it, is the future of cannabis. Growers can harvest 4-5 crops a years, and the climate is perfect. It costs five times less to produce CBD. Plus Colombians have been growing outstanding marijuana for years before it was legal. This means they know what they are doing and possess many unique strains that are patented or registered.
Khiron was first mover in Colombia. They also operate in Uruguay, Chile, Peru, Argentina and soon, southern Brazil. They also have CBD products approved for sale in Mexico. And in mid-March, Khiron introduces its Kuida line of CBD-infused cosmetics and skin care products to Europe. (Vicente Fox, former president of Mexico and Mexico Coca Cola, is on Khiron’s board.)
Several new Colombian growers will bring in their first harvests late this year or in 2020. You can get in cheap and hope for a big time payoff in 1-2 years. Blueberries Medical and Organto Foods are worth researching. Pharmacielo has a head start of both of them. Watch for these three to announce EU-GMP certification (so they can export to Europe). Also completion of extraction facilities, and development of farms.
Mexico is promising, though I don’t know of a Mexican corporation involved in cannabis. Aurora, which owns 1,000 pharmacies in Mexico for selling CBD products, is a good bet. They are also licensed by Mexico to grow cannabis, extract CBD and export. And recently began exporting CBD oil from Canada to Germany. Khiron already has three CBD skin and health products approved for sale in Mexico.
Building a Cannabis Stocks Portfolio
Begin by deciding how much money you want to invest. It doesn’t all have to go into stocks right away. You might have $5,000 in a savings account that would certainly have a chance at making a lot more money in the right cannabis stocks than in interest. If so, you can start off with four stocks right away, or at least have the money in your trading account so you’ll be ready to go. Or you might have $500-1,000 to start with and plan to save up more every month and deposit it into your trading account so you can continue building your portfolio.
Pick four to six stocks that earn most of their revenue in Canada, the United States and Latin America that your due diligence tells you have an excellent chance to run up 50-100% in the next year. They should be operating in the most successful sectors of the industry, which in early 2019 was MSO dispensaries and CBD products, with hemp stocks beginning to give these two a run for their money. You could make one of your main stocks a “pick and shovel” outfit that never even touches the plant, for further diversification.
Gradually invest 75% of your cash into these stocks. The other 25% can be invested on more speculative stocks that you think can be traded over the short term to generate cash. Or if one or more really takes off, you might add on and make such stocks part of your long term portfolio.
This approach provides the ability to swap out one of the stocks in your core portfolio that, after at least two quarterly reports, is underperforming, with one of the stocks in the other 25% of your portfolio.
With this model portfolio and $10,000 to invest. Not necessarily all at once, as you could just invest $1,000 a month. You might put 60% in two US companies, 30% in a Canadian company, and 10% in one LATAM country. Or you could invest it in three or four US companies, for example.
Keep risk/reward in mind at all times. How much are you will to risk on each stock?
As things change, which can be overnight in cannabis stocks, adjust your portfolio accordingly. Add on to stocks that are making the most gains, drop those that aren’t working out. Even if it means a loss. And especially if you have another one you think will do well and need cash to buy it. Keep some cash ready to buy when the market corrects, when many people panic sell.
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