Best marijuana stocks to watch

Marijuana stocks are currently drawing more attention than ever before, as, despite frequently shifting legislative initiatives and operating parameters, the cannabis industry is growing rapidly.

Marijuana stocks
Source: Bloomberg

Why is there increased interest in marijuana stocks?

Marijuana stocks have experienced quick and consistent growth over the past few years. This impressive expansion is largely a result of legislative changes that have swept across North America and beyond. 

For instance, 29 states across the US now allow use of the controversial plant for medicinal purposes. In addition, nine of these states, plus Washington DC, have legalised cannabis for recreational purposes. This takes on extra significance when you factor in that California – the most recent state to legally approve recreational marijuana usage, at the beginning of 2018 – lays claim to the sixth largest economy in the world. 

In another positive development for the cannabis sector, US polls have shown a marked shift in the American populace’s attitude towards marijuana in the last 12 months. From the uniformly high levels of approval registered in these surveys, it seems clear that public opinion in the US is turning firmly in favour of removing more restrictions and making marijuana legal in more jurisdictions and even nationwide.

July is likely to bring further good news for the sector, with Canada widely expected to legalise cannabis for recreational purposes. A move that is one step closer to reality with the Canadian legislature’s vote on 7 June to approve the Cannabis Act. While parliament still must deal with dozens of amendments to the legislation, it shows every sign of heading towards passage. If this occurs, it would open the floodgates to as much as $5 billion in additional annual sales.

With all this and more affecting the cannabis sector, it’s easy to see why marijuana stocks have been on a meteoric rise.

Find out more on how to trade stocks

Is the marijuana industry set for further growth?

As more and more states and countries legalise cannabis – fuelled in part by greater acceptance in public – there’s reason to believe that the marijuana sector’s prospects for continued growth look good.

In fact, some projections foresee the cannabis industry expanding by as much as 25% to 35% annually, over the next five years at least, and possibly beyond. Also, certain experts have predicted that the US marijuana industry alone could be worth as much as $75 billion by 2030. With forecasts like these, it’s no wonder that savvy traders have been flocking to this market, eager to capitalise on the latest trending marijuana stocks.

Yet, alongside the relatively rosy outlook for the marijuana industry, there are some caveats about potential pitfalls that could adversely affect the sector and pose added risk for those considering trading marijuana stocks.

For example, although a steady stream of US states have legalised cannabis, the substance remains illegal at federal level. This fact becomes even more problematic in light of US President Donald Trump’s administration’s plans to reverse an Obama-era policy of federal non-interference in states’ marijuana laws, coupled with its stated intention to impose stricter enforcement of federal anti-marijuana regulations. 

These policy changes could inhibit or even halt the progress of additional legislation aimed at opening up paths to legalise cannabis within the US. This could put a significant dampener on market growth and have a somewhat chilling effect on marijuana stocks.

What are the different types of marijuana stocks?

Marijuana stocks fall into three main categories:

  • Growers - These companies cultivate, sell and distribute cannabis to consumers and businesses. Unsurprisingly, because of legal constraints, US-based growers are not presently large players in this space. However, some Canadian growers have relatively substantial market caps and definitely do represent marijuana stocks to monitor
  • Biotechs – These firms are dedicated to developing, gaining approval for and bringing to market pharmaceutical products that utilise components of marijuana – known as cannabinoids – in their chemical makeup. Though they often technically do not even work with cannabis at all, since many of their drug creations rely on synthetic forms of the substance, biotechs still count as marijuana stocks
  • Supply providers - These companies do not grow or use any element of cannabis – real or artificial – in their products. Instead, these businesses provide all the tools and materials that are needed to physically grow marijuana, such as light systems, hydroponics, special soils and fertilisers

What are the best marijuana stocks to watch?

In tandem with the relatively fast expansion of the cannabis industry overall, there has been a matching explosion of marijuana stocks. The rapid-fire appearance of more than 100 marijuana-related equities over the past several years gives traders plenty of choice.

Here are some of the noteworthy marijuana stocks that you may want to consider:

  • Canopy Growth – Boasting vast, and still expanding, cultivation capabilities that allow for a massive production capacity rumoured to surpass 300,000 kilograms of dried marijuana per annum – in addition to a well-established and widespread network of distribution channels – this Canadian company is an undeniable frontrunner in this sector
  • Aurora Cannabis – After pulling off one of the largest marijuana-related acquisitions ever with its purchase of CanniMed Therapeutics – a move that has positioned the company to increase its annual output to 283,000 kilograms – Aurora Cannabis seems to be committed to further expansion
  • Cannabis Wheaton Income – This streaming company plays a vital role in the cannabis industry. It furnishes marijuana growers with the critical operating capital that they need, in return for royalties in the form of a percentage of product, which the company then sells at market rate. With an estimated annual take of about 230,000 kilograms of dried cannabis – all accessed without having to worry about the complexities associated with actually having to grow the plant – this marijuana stock might offer a comparatively safe bet for those looking to trade the sector

Alternatively, if you’d feel more comfortable trading on the performance of the industry as a whole, rather than concentrating on individual marijuana stocks, you might want to cast a glance in the direction of Horizons ETF. Officially known as the Horizons Medical Marijuana exchange traded fund (ETF), and informally as the ‘Weed ETF’, it tracks some of the predictable top players in all three phases of the industry – growers, biotechs and supply providers – along with a selected group of up-and-comers.

How to trade marijuana stocks

If, after some thought, you’ve decided to explore trading marijuana stocks, IG offers a range of ways for you to do so. See which one of these options best suit your needs and matches your preferences.

Spread betting

Spread betting gives you the opportunity to speculate on whether the price of marijuana stocks (or any other asset) will rise or fall. The amount of profit or loss that you stand to make will depend on how far the market goes in either direction.

CFDs

CFDs enable you to trade the difference between the opening and closing price of an asset. They’re particularly useful for hedging existing positions in your portfolio. And as they’re free from stamp duty, you can offset losses against future profits.1

Share dealing

If you want to take a longer-term view of the marijuana industry, you can buy and sell key cannabis stocks or invest in cannabis ETFs with our share dealing service.

1Tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK.

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