With recreational marijuana now legal in Canada, along with the growing popularity of the non-psychoactive CBD strains, investors in the United States and Canada are taking a hard look at cannabis stocks.
But while these are fun to talk about, adding them to your own portfolio might be tricky because cannabis is still illegal under federal law. This ban doesn’t just apply to actual trafficking in the various products and paraphernalia, but investing in companies that grow and sell the stuff.
You will be hard pressed to get any of the major investment firms such as Wells Fargo or Merrill Lynch to talk to you or advise you about the pros and cons of investing in cannabis stocks, since many of them have their own internal rules that prohibiting them from dealing with companies involved in possible illegal activity.
However, a private individual who is a Registered Investment Advisor may be able to help you with your purchase. This might be a good place to jump in since there are investment opportunities out there for the taking.
The larger cannabis companies that have gone public are mostly based in Canada, but some do have a presence on U.S. markets and exchanges.
Constellation Brands, Inc., a Fortune 500 company based in Victor, New York, has more than 400 brands including Corona beer, Robert Mondavi, Clos du Bois, Pacifico and Black Velvet Canadian Whiskey.
Constellation Brands has also invested approximately $4 billion into Canadian marijuana grower Canopy Growth Corp. (CGC), which is setting itself up to be a big player in cannabis-infused beverages.
With overall beer consumption in the U.S. in decline due to the popularity of wine and spirits, cannabis is the next logical step.
According to Dow Jones, three big beer companies, Constellation, Heineken and Molson Brewing Co., have all developed plans for cannabis-infused beverages.
In August Molson Coors announced it will be teaming up with Hydropothecary Corp. to sell cannabis infused drinks including non-alcoholic beverages.
Heineken’s Lagunitas brand has launched a cannabis-laced hop flavored sparkling water in California.
American investors are warming to Constellation Brands. Its fiscal second-quarter adjusted earnings jumped 16 percent, aided by a 10 percent increase in net sales.
Canopy Growth has more than doubled its value since the beginning of the year, and another cannabis stock that is trading in the U.S., Cronos Group (CRON), has jumped 78 percent.
The Motley Fool said that Cronos is active in several international medical marijuana markets and is the exclusive distributor for German pharmaceutical distributor Pohl-Boskamp.
Similar to the Canopy arrangement, an investor in the U.S. can get into the Cronos market by purchasing stock in Pohl-Boskamp. Cronos has also signed a supply agreement with Delfarma to serve the medical cannabis market in Poland. Additionally, Cronos has formed a joint venture to supply medical cannabis in Australia as well as another joint venture to serve Latin America.
Cronos has secured supply agreements with British Columbia and Ontario, the two most populated Canadian provinces, for the recreational market in Canada. Additionally Cronos has accepted supplier terms with Nova Scotia and Prince Edward Island. Cronos also penned a joint venture to launch retail cannabis stores with MedMen Enterprises, the largest U.S. cannabis retailer.
In late September Coca-Cola announced it could one day offer cannabis-infused drinks, after reports that Coke was in talks with Aurora Cannabis about drinks containing CBDs.
Aurora stock, listed in Canada, surged. In October the U.S. DEA announced that it has moved some drugs with CBDs to schedule V according to Yahoo Finance. This says the U.S. government now believes that CBDs have a lower potential for abuse, which can someday open the door for pharmaceutical companies with market-ready cannabinoid products.
Another hot stock is B.C.-based Tilray, which has jumped tenfold since its IPO. Tilray had $20 million in sales in 2017, but its stock has been on a roller coaster.
The smaller Village Farms (VFFIF), a produce company in Canada, formed a joint venture with Pure Sunfarms which is busy retrofitting Village Farms’ greenhouses to grow cannabis rather than produce. Per the Motley Fool Pure Sunfarms expects to grow 7,000 to 8,000 kilograms this year, and thinks its annual production will jump to as much as 52,000 kilograms by the end of 2019. It doesn’t appear that these two stocks can be traded in the U.S. yet.
Whatever you decide to invest in, keep in mind that there is always risk of new markets, so choose carefully.
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