Opportunities for investors in the cannabis field.
The legal marijuana market has emerged as companies are acquired in the U.S. and Canada while others choose to go public to raise more capital. As more states pass laws legalizing the adult use of cannabis, competitors are increasing their regional footprints to operate in more than one state. Ancillary businesses such as technology companies provide software systems to streamline operations for efficiency and boost margins for cannabis cultivation facilities, says Aaron Raub, senior equity analyst at Ambria Capital. Here are seven top U.S. and Canadian marijuana stocks and exchange-traded funds for 2020.
Aleafia Health (ticker: ALEAF)
Aleafia Health, a Canadian company, operates cultivation and research divisions and medical clinics. In the third quarter, the company reported medical cannabis sales rose 43% from the previous quarter while adult-use cannabis sales increased 53%. The company is well-positioned to be a top performer in 2020, says Michael Berger, founder of Technical420, a Miami-based company that conducts research on cannabis stocks. â€śThe company has proven to be able to execute on the outdoor cultivation market in Canada and we expect this to be an even more significant growth driver in 2020 and beyond. Aleafia Health is also expected to see higher revenues from international markets and we find the risk-reward scenario to be attractive at current levels.â€ť
1933 Industries (TGIFF)
This Vancouver-based cannabis company will be moving into a facility that is 10 times the size of its previous facility, which should ramp up revenue. The company is in the process of entering the California market, which is expected to be a major value driver for the operation, Berger says. â€ś1933 represents a multi-faceted growth opportunity and is selling CBD products in 46 states,â€ť he says. â€śWe believe that the company has an attractive growth profile and this is an opportunity we are watching.â€ť
One World Pharma (OWPC)
One World Pharma, a Las Vegas-based licensed cannabis and hemp producer which cultivates and grows them in Popayan, Colombia, is an opportunity that investors should keep an eye out for, Berger says. The company recently received a quota for 2020 production of THC, a main psychoactive compound in marijuana, in Colombia and is among the first companies to be issued an amount. â€śThe Latin American market represents an attractive opportunity due to the economics associated with the production of cannabis,â€ť he says. â€śFollowing the issuance of government licenses, the company is positioned to record strong growth in 2020.â€ť
ETFMG Alternative Harvest ETF (MJ)
The MJ fund holds stocks from more than 30 marijuana companies and rebalances each quarter with an expense ratio of 0.75%. Compared to other marijuana ETFs, MJ is attractive, says Jason Spatafora, co-founder of Marijuanastocks.com and a Miami-based trader and investor. Shares of MJ will likely move after investors conduct tax-loss selling, he says. â€śWhile the biggest positions in the ETF have been hammered, expect the ETF to make positive moves into the new year,â€ť Spatafora says. The top 10 holdings in the ETF that lost the most value are Canadian companies that ran into hurdles from Health Canadaâ€™s regulators.
The Cannabis ETF (THCX)
This ETF is actively managed and rebalances monthly with an expense ratio of 0.7% THCX holds stocks from 37 companies currently and launched in July. The advantage of an ETF that portfolio managers evaluate is that its positions on stocks that do not add value are dropped from the fund, Spatafora says. Instead, portfolio managers add shares of companies expected to return value to shareholders. The top three holdings in this ETF are Canopy Growth Corp. (CGC), Cronos Group (CRON) and GW Pharmaceuticals (GWPH). Novice investors can lower their risk and get exposure to the industry through cannabis ETFs.
Grow Generation Corp. (GRWG)
Based in Denver, this chain of specialty retail hydroponic and organic garden centers is considered an â€śattractive ancillary play that has been executing despite challenging headwinds dominating the cannabis industry over the last several months,â€ť Raub says. The company has 25 locations in eight states and uplisted to the Nasdaq composite in December. â€śGrow Generation consistently added top-line organic revenue growth in 2019 with three straight quarters of positive EBITDA and recently raised 2020 revenue guidance after handily beating the streetâ€™s expectations,â€ť he says.
KushCo Holdings (KSHB)
KushCo, a Cypress, California-based producer of ancillary products and services to the cannabis and CBD industries, added four new brands to its CBD brand/retailer partnership with CA Fortune in December. â€śThis service is another offering in KushCo's 'one-stop shop' model that creates customer stickiness and strong barriers to entry, allows participation in the growing CBD space and is highly margin-accretive,â€ť wrote Owen Bennett, an analyst for Jefferies, in a research report. â€śEarly execution is encouraging, ahead of our expectations for sales to begin in the second half and we continue to see KushCo fiscal year 2020 sales ahead of consensus.â€ť CBD is used in many medicinal and consumer products.
Marijuana stocks to grow in 2020:
Aleafia Health (ALEAF)1933 Industries (TGIFF)One World Pharma (OWPC)ETFMG Alternative Harvest ETF (MJ)The Cannabis ETF (THCX)Grow Generation Corp. (GRWG)KushCo Holdings (KSHB)