The world is witnessing a revolution right now, and you might not even have realized that it’s happening. What are we talking about? Well, the wave of cannabis legalization sweeping the North American continent, of course!
The American public is increasingly accepting of cannabis, and Congress is making a new push for federal legalization. It’s already legal in eighteen states plus D.C. and has been legal in Canada since 2018.
With this wave of legalization and the medicinal marijuana market growing in Europe, now is a great time to buy some cannabis stocks.
According to Leafly, an online cannabis marketplace, legal sales of cannabis in the US alone increased by 35% in 2021 to $24.6 billion.
It’s expected that by 2030, the global cannabis market will be worth approximately $350 billion, with roughly $100 billion of that value concentrated in the US market.
With so much growth potential, investors are beginning to take notice of the growing market. In fact, seven of the one hundred most widely held stocks on Robinhood are cannabis stocks.
Sure, that’s at least in part due to the demographic of people who hold stocks on Robinhood, but it’s also because people know an opportunity when they see one.
So, what are some of the cannabis companies that you should invest in on Robinhood? In this article, we’ll take a look at some of the best cannabis stocks to hold.
Tilray (TLRY)
Currently ranked at No. 40 on Robinhood, Tilray prides itself in being a global leader in the cultivation, processing, and distribution of cannabis. They are also industry leaders in cannabis research.
Tilray was one of the very first companies to be licensed to produce medicinal marijuana in Canada, and today finds itself as the market leader in Canada’s cannabis market, with 17.3% market share, as well as Germany’s medicinal marijuana market.
Tilray was also the first company to conduct the legal export of medical cannabis products from North America to Europe and has recently acquired a cultivation license in Portugal to produce cannabis products for the European Market.
You can currently get Tilray products in pharmacies right across EU member states where medicinal cannabis is legal, and they are well placed to exploit legalization for recreational use.
The company is also beginning to position itself to enter the US market upon the advent of federal legalization, with a presence including craft beer brewer SweetWater Brewery and hemp foods maker Manitoba Harvest.
On top of this, Tilray was a trendsetter in being the first to export medical cannabis to Australia and New Zealand, where it is now established as one of the leading providers.
Tilray has recently completed a merger with another key industry player, Aphria, to create one of the world’s biggest multinational cannabis companies.
Aphria and Tilray both saw positive EBITDA (earnings before interest, taxes, depreciation, and amortization) in the last quarter prior to the merger.
Aphria did see its revenue fall in comparison to the previous quarter, but there’s every reason to believe that the newly merged mega-company Tilray will continue to be a leading player in the global cannabis industry for years to come.
Canopy Growth (CGC)
Canopy Growth is amongst the most popular cannabis stocks on Robinhood for several reasons. For starters, Canopy Growth is already a major player in the worldwide cannabis market.
It is among the market leaders in the German medicinal cannabis market and is second only to Tilray in the Canadian market for recreational use, with 15.7% market share.
As a result of that success, Canopy Growth seems to have the resources available to take advantage of the market’s rapid growth. The company is expecting to report positive EBITDA during the second half of the 2022 fiscal year, ending March 31st, 2022.
The good news continues there on out, with a positive operating cash flow and positive free cash flow projected for the coming two financial years, 2023 and 2024, respectively.
The company is optimistic about its growth, too, with an ambitious but definitely achievable net revenue growth target of 40-50% over the coming three years.
In part due to positive cash flow, but also thanks to its U.S. holdings, the company is in an excellent position to capitalize on the enormous U.S. market when the opportunity arises.
Canopy Growth already retails CBD products in the states and has in place options to buy a significant stake in Terrascend and to buy outright American cannabis firm Acreage Holdings in the event of federal legalization.
The company also has a significant partnership with Constellation Brands, one of the leaders in the market for ‘adult beverages’ in the U.S.
All in all, Canopy Growth looks like a great bet to crack the potentially $100 billion United States market when Congress finally gets around to legalization!
Even in the event that doesn’t come to fruition in the near future, the company’s focus on CBD brands should see continued growth in the U.S market and with strong growth elsewhere, the company looks a good bet for investment.
HEXO (HEXO)
Hexo ranks at No.70 in Robinhood’s top 100, and is particularly strong in the market for cannabis beverages.
The company leads that market in Canada, and through Truss- a joint venture with brewing giants Molson Coors- also markets CBD beverages in the United States.
Growth in the states appears strong, with HEXO recently announcing plans to construct its first production facility in the U.S. through an American subsidiary.
HEXO isn’t a one-trick pony, though, as it also boasts the largest share of Quebec’s adult-use market, and is one of Canada’s largest cannabis companies with millions of sq. ft of facilities across the nation.
The company serves the Canadian market with well-known brands such as HEXO, 48North, Trail Mix, Redecan, UP Cannabis, Namaste, and more. In 2021, HEXO won both the Master Grower of the Year and the Innovative Product of the Year awards at the Grow Up Awards.
Pair all of the above with seven consecutive quarters of improvement in adjusted EBITDA, and HEXO quickly becomes an extremely tempting proposition for investors
Another factor that may attract you to HEXO is an extremely enticing valuation, especially in regards to Canadian pot companies: shares go for less than seven times trailing twelve-month sales.
Cronos Group (CRON)
Cronos is another Canadian cannabis company. Compared to the major players like Canopy Growth, sales are nowhere near as large.
To take a randomly selected quarter as an example, you can see Cronos posted reported sales of just $9.9 million compared to revenue figures for Canopy Growth of $152 million.
Like other Canadian cannabis companies, Cronos struggled through a tough 2021 which saw prices decrease by double-digit figures.
You might be wondering, then, with such comparatively small revenues and recent poor performance, how Cronos makes this list. Well, Cronos group has one significant advantage over its competitors.
Back in December 2018, Cronos announced that American Tobacco Behemoth Altria had acquired 45% of the company in a deal worth $2.4 million. Altria also ensured there was an option to buy a controlling stake in Cronos if they wish.
Armed with a cash injection and the backing of a giant of the US tobacco industry looking to diversify its business away from the stuttering tobacco, and suddenly it makes sense as to why investors would be willing to buy shares in Cronos.
Indeed, with Cronos’ comparatively low share price at the moment, many industry experts expect to see Altria take up that option to buy a controlling stake sooner rather than later.
With the 2019 acquisition of Lord Jones, Cronos Group already has a presence in the American CBD products market, and the company also boasts a potentially groundbreaking partnership with U.S. based Ginkgo Bioworks to develop cannabinoids using a fermentation process.
So, the potential to move into the American market is there, but it might require an investor with patience. Cronos isn’t profitable at the moment, and it isn’t likely to be for some time.
The company is yet to post positive adjusted EBITDA, and if we’re being honest isn’t moving in the right direction on that front at the moment.
OrganiGram Holdings (OGI)
Founded in 2013, OrganiGram began life as a provider of medicinal marijuana. As with other Canadian cannabis companies, it has been through something of a tough period over the last couple of years.
Greg Engel stepped down as the company CEO in May 2021, having seen Covid-19 related impacts hit growth. In fact, revenue actually fell in the quarter immediately preceding the announcement that Mr. Engel would be vacating his position.
Nevertheless, OrganiGram has been generally successful since it started operations in Canada.
The company has been successfully pursuing opportunities in the Canadian adult-use cannabis market and is increasingly targeting the Cannabis 2.0 market with news of its acquisition of cannabis-infused candy company The Edibles and Infusions Corporation.
That being said, the company has yet to really invest in significant operations outside the Canadian market, which could mean comparatively limited opportunities for growth compared to larger companies that are well placed to exploit the U.S. and other emerging cannabis markets.
That said, the company is still popular with investors on Robinhood, coming in at 41 in the top 100, just behind Tilray. There are a couple of potential reasons for this.
For one, stock trades (see also ‘Stock Trading For Beginners‘) at roughly 9x sales, which makes it a comparative bargain if you look at other cannabis companies. The second, and possibly more important, reason that the company punches above its weight in terms of its popularity is a big-name partner.
Like Cronos Group, OrganiGram is partnered with an American tobacco giant: in their case, British American Tobacco. Of course, that relationship could open a wide range of opportunities for the company in the future.
Sundial Growers (SNDL)
Back in 2021, Sundial Growers burst out of nowhere to become one of the most valuable cannabis stocks available on Robinhood.
Largely as a result of the Reddit community, Sundial skyrocketed by more than 500% before eventually correcting and gradually trending downwards.
From a February 2021 high of nearly four dollars a share, at the time of writing Sundial Growers sits at just under 39 cents a share.
Nevertheless, Sundial remains a highly popular choice with investors on Robinhood, ranking at a hugely impressive 13th place.
This makes it the most popular pot company on the platform by some distance, and also puts it ahead of corporate behemoths like Amazon and Disney. So why is SunDial Growers so popular?
It’s a question worth asking, since Sundial’s reported sales continue to slide. In 2021, the company reported that revenues declined by some 30% quarter over quarter.
They did, however, post a positive adjusted EBITDA, although much of that came from cannabis-related investments.
The key to Sundial’s potential lies in its financial flexibility. Having raised some serious capital in 2021, roughly $873.5 million in the first quarter, Sundial has the capital to pursue some serious inorganic growth.
In May 2021, for example, Sundial announced that they were acquiring Inner Spirit for $131 million.
Inner Spirit was a successful operation in its own right, with 86 stores open at that time and some $9.2 million in revenue (and a very healthy adjusted EBITDA) in 2020’s fourth quarter.
It’s not an ideal growth strategy for investors, for sure, coming at a relatively steep price for shareholders. However, it may pay off in the medium to long term.
Sundial’s CEO has recently boasted that they are in an ‘enviable position’ as huge changes, even a ‘reckoning’, seems to be afoot in the industry.
A Key Industry Trend
Sundial CEO Zach George had a reason to be positive about the company’s prospects when he made those comments on May 16, 2022. The cannabis industry is changing, possibly irrevocably.
It’s not exactly news that there’s been a reckoning in the industry. Share prices have been on the slide for a year. So what’s going on? To find out, you have to direct your attention to the Federal Reserve’s move to raise interest rates.
This increases the cost of borrowing, which naturally makes investors less likely to gamble on smaller, early growth-stage businesses which are inherently riskier. Into that bracket falls most cannabis companies.
So, cannabis companies are struggling to attract investment at this time and are burning through cash reserves just to keep the lights on.
The result is consolidation, as smaller companies increasingly need to seek investment from larger competitors, or, failing that, merge (see also ‘What Happens To Stocks When Companies Merge?‘) with or get bought out by them.
A key example of this is the Tilray-Aphria merger, but it’s happening up and down the food chain.
Those that survive this reckoning will be the ones to be the beneficiaries in the medium to long term as conditions improve. So, generally speaking, you want to invest in those companies that will survive.
That’ll be companies with plenty of cash and little debt, and preferably profitable with growing earnings and revenue.
Frequently Asked Questions
Can You Buy U.S. Cannabis Stocks On Robinhood?
No, it’s not just coincidence that all of these stocks are for Canada-based cannabis companies. American cannabis companies cannot list their shares on major U.S. stock exchanges due to the fact that cannabis has not been legalized under federal law.
As a result, you cannot buy cannabis stocks on Robinhood. They don’t deal with the vast majority of over the counter stocks, so U.S. pot stocks cannot be sold on the platform.
Will Cannabis Be Legalized Soon?
Cannabis is currently legalized for recreational use in eighteen states, and legalized for medical use in thirty-eight states. However, it remains illegal at the federal level.
Nonetheless, the consensus is that it is simply a matter of time until this is reversed. Public support is on the up, and states are increasingly beginning to realize the potential tax revenues to be reaped upon legalization.
In fact, the U.S. House of Representatives passed a bill in April 2022 that would legalize marijuana across the country. However, it looks unlikely that the Senate will take a vote on the legislation.
Should I Invest In Cannabis Stocks Right Now?
The simple answer is yes, you should! Now is an excellent time to invest in cannabis companies.
The growth potential in the sector is massive, standing at a compounded annual growth rate of roughly 16%, and the global market is expected to be worth approximately $61 billion by 2026.
Nevertheless, valuations are currently incredibly low, with cannabis stocks tumbling pretty consistently over the last year.
Much of the excitement over a potential Democratic move in Congress to legalize cannabis federally has dissipated, and the global tide of legalization seems to have slowed. That’s what makes it such a great investment opportunity.
Although things look tough in the short term, the medium to long-term potential remains massive, and provided you buy the right stocks you should be in a position to profit when the tide of legalization eventually comes in.
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