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In order to take advantage of the green rush, investors may have to think small.
The marijuana industry had a groundbreaking, yet odd, 2018, with history made at seemingly every turn and most investors ultimately disappointed.
A year of highs and buzzkills
On one hand, the cannabis industry gained legitimacy like never before. That’s because Canada tore down the curtain on nine decades of recreational marijuana prohibition and became the first industrialized country in the world to legalize adult-use weed. Given a few years, the Canadian legal cannabis industry could be generating $5 billion in added annual sales as a result of this legalization.
Success was also seen in the U.S. market, where Utah and Missouri legalized medical cannabis, and Vermont and Michigan gave the green light to adult-use marijuana. As icing on the cake, the Food and Drug Administration approved its first cannabis-derived drug in June, and President Trump signed the Farm Bill into law on Dec. 20, legalizing hemp and hemp-based cannabidiol oil.
On the other side of the coin, marijuana stocks had a terrible year. Many finished lower by 20%, 30%, or beyond 40%. Although not all pot stocks will turn out to be winners, there will clearly be survivors among the carnage. In essence, the potential is there for growth — but investors have to be patient.
The new year brings with it a period of transition. Whereas 2018 focused on capacity expansion and plenty of promises, 2019 will feature an emphasis on branding, marketing, international expansion, supply deals, partnerships, and, yes, earnings reports that actually matter!
The best marijuana stocks to buy in 2019
So, where can investors find the best marijuana stocks to buy in 2019? Interestingly, there are just as many in the U.S. as there are in Canada, which is a departure from the Canada-heavy thesis last year. The top marijuana stocks this year just might be CannTrust Holdings(NASDAQOTH:CNTTF), OrganiGram Holdings (NASDAQOTH:OGRMF), KushCo Holdings(NASDAQOTH:KSHB), and Innovative Industrial Properties (NYSE:IIPR). That’s right, folks — under-the-radar small-cap pot stocks could be 2019’s top performers.
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CannTrust Holdings is unique in that its greenhouses will rely on hydroponics for cannabis production rather than traditional soil-growing methods. Hydroponics (growing plants in a nutrient-rich water solvent), if done correctly, can be an incredibly low-cost and predictable growing option. Between its Niagara and Vaughan facilities, CannTrust should have approximately 1.1 million square feet of capacity that’s capable of more than 100,000 kilograms annually, slotting the company in as a top-10 producer at peak production.
CannTrust will also rely on moving containerized benches at its Niagara greenhouse, creating a perpetual harvest of cannabis, rather than the lumpy production we’re used to from CannTrust peers. Presumably, this’ll help the company better meet the supply needs of dispensaries, medical patients, and consumers.
Despite being a top-10 producer by projected output, CannTrust certainly isn’t priced like one at just 22 times forward earnings. If the company can indeed complete all of its capacity expansion projects and get fully licensed and permitted this year, it could surprise investors.
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Another under-the-radar grower that could be among the best marijuana stocks to buy in 2019 is OrganiGram Holdings. OrganiGram is based in New Brunswick, which is odd given that most growers hail from British Columbia, Quebec, or Ontario. But this company’s far-east location hasn’t impacted its potential.
Last March, the company updated its capacity expansion and peak production forecast. Rather than yielding 65,000 kilograms annually, OrganiGram upped its peak output to 113,000 kilograms after generating better-than-expected yields from initial harvests. Like CannTrust, this makes OrganiGram a top-10 producer when running on all cylinders.
OrganiGram also utilizes its three-tiered growing system at its Moncton facility in New Brunswick. Stacking plants in tiers across its 490,000 square feet of growing space allows OrganiGram to be arguably the most cost-efficient grower among its peers. It also doesn’t hurt that it operates a single grow site, rather than multiple grow sites throughout a province or Canada, which should help keep costs down. If OrganiGram doesn’t get acquired, it could really thrive.
To Read The Rest Of This Article By Sean Williams on The Motley Fool
Published: January 01, 2019