Top 3 Cheapest Marijuana Stocks to Buy Now? (2019 Review)
Let’s be clear: marijuana stocks are for speculators only.
Even the cheapest marijuana stocks are some of the worst stocks in the market. Marijuana stocks offer ownership positions in companies with limited operating histories and uncertain regulatory situations.
Marijuana stocks are going through a strange phase. They are all the rage because of various law and regulation changes, and increasing acceptance of the drug. There’s no guarantee that this will last.
Marijuana is also a commodity. The only issue for buyers is quality. Once the bad players are weeded out (pun intended), there will be a fight over market share. In commoditized businesses, that results in price wars.
Price wars lead to declining prices, which is not what you want as a stock owner.
Thus, marijuana stocks should be ignored by all but the most experienced traders.
So while I will make some suggestions of the cheapest marijuana stocks, I am not suggesting you buy any of them.
Carefully investigate all investments, and determine if they are worthy of more due diligence.
The Cheapest Marijuana Stocks For 2019
If you’re in a hurry, below are suggestions for additional due diligence and careful investigation for the cheapest marijuana stocks as of this writing.
- Scotts Miracle-Gro:A diversified traditional agribusiness with cannabis component.
- Cronos Group: Best positioned for growth.
- Canopy Growth: Has a major company invested in it.
Keep reading and you’ll find out more about the cheapest marijuana stocks and my thoughts on each.
What are marijuana stocks?
Marijuana stocks are companies that have some kind of exposure to the medicinal or recreational cannabis market, either in the US or elsewhere.
Some of these companies are “pure play” stocks, in that they grow, market and sell cannabis products exclusively. Others provide some form of infrastructure for those businesses. Still more have cannabis elements as a part of a diversified business focused entirely on other things.
Pure plays offer the greatest risk and greatest rewards. More conservatives investors may prefer to have small exposure to the sector.
Be vigilant. The SEC has issued warnings about fraudulent marijuana stocks.
How Do You Determine What Qualifies As The Cheapest Marijuana Stocks?
The cheapest marijuana stocks will have at least one of these three characteristics, and it’s unlikely that any stock would have all three.
- A legal market to sell into
- Substantial working capital
- Positive net income
A legal market
The biggest challenge for the least expensive marijuana stocks is finding and maintaining legal markets to sell their product into. Marijuana has only recently enjoyed legislative and regulatory acceptance in North America, but it’s far from a done deal.
This map shows where marijuana is permitted on a broad recreational basis, where it is permitted medically, and where it remains illegal.
But there’s a bigger problem. Marijuana is illegal under federal law. Enforcement has been whimsical.
This creates enormous risk for all marijuana stocks. With the flick of a pen, marijuana use and even cannabis by-products, like oils, could be outlawed. That could wipe out tons of business.
Canada is only the second country to legalize recreational and medicinal marijuana (after Uruguay). However, there are limited numbers of Canadians who use marijuana.
Substantial working capital
Any company that is going to move into the cannabis space in a meaningful way will need a lot of working capital. The capital isn’t just needed to produce and distribute the product, but to engage in R&D and survive price wars.
Cannabis companies are going to have similar traits to pharmaceutical firms, in that they must constantly innovate and improve on their product to maintain competitiveness.
Positive net income
Any successful marijuana stock will eventually have to make a profit. There’s a danger with commoditized businesses because they can throw tons of money at selling their product, but the margins are so low that profits may be difficult to come by.
Here’s a video that provides additional information on investing in marijuana stocks.
What is it?
The Scotts Miracle-Gro Company is a 150-year-old company that manufactures and sells consumer lawn and garden products. While it is best known for its famous “Miracle-Gro” lawn products, it offers many other agricultural products as well.
It moved into the cannabis industry a few years ago via its Hawthorne Gardening division. The focus is to provide hydroponics products to marijuana producers in the U.S.
What makes it a good stock?
Scotts has long been a major player in agriculture, and its flagship products have been a core income producer for decades. Yet it moved into cannabis in order to take advantage of that opportunity, and use its expertise in growing things.
What I like about Scotts is that it isn’t a grower of cannabis. It’s what I call an “infrastructure” play, much in the same way that the people who made money in the gold rush weren’t the miners, but the folks who sold picks and shovels.
Scotts provides hydroponic products for the growers, and right now, California is its largest market. As mentioned above, Scotts can provide equipment for the 30 states that have legalized marijuana for medicine and the ten that permit it recreationally.
Based on the way the states are voting, look for other left-leaning states like New York, New Jersey and Illinois to join the list of permissible jurisdictions.
Meanwhile, Scotts’ core business is in solid shape. Analysts estimate 5-year annualized growth of 8.9% for net income growth. It has a solid 18% EBITDAmargin, It also pays a 3.45% yield, utilizing only about 50% of its net free cash flow.
What is it?
Cronos produces and sells cannabis and cannabis derviatives in several countries. It also invests in companies that are either licensed, or actively seeking a license, to produce medical marijuana pursuant to Canada’s regulations.
What makes it a cheap stock?
Cronos is well-positioned in the cannabis market because of its presence in numerous countries. Various estimates put the Canadian market at $5 billion to $7 billion by 2022.
However, it’s Europe where the bigger opportunities await. Over in Germany, Cronos has a supply deal, and the Germans are projected to be the fastest-growing marijuana market in the world over the next four years.
Cronos also set up a supply agreement for Poland, as has JVs set up in Australia, Israel, and Latin America.
Why is Cronos in such good shape? Thanks to former cigarette juggernaut Altria, Cronos now has a partner invested in its success – to the tune of $1.8 billion.
That’s the kind of working capital that Cronos needs to succeed. Altria has plenty of experience in a similar market and certainly has an understanding of the different regulatory structures around the world.
That working capital is also what I suggested is needed for R&D. Thus, with that money, Cronos teamed up with Ginkgo Bioworks in an effort to produce genetically-engineered high-purity cannabinoids.
Better product leads to better sales.
What is it?
Canopy Growth is an apt name. The company grows cannabis through multiple subsidiaries, and does so under the canopy of both legal licenses and actual physical canopies.
The company mostly does business in Canada, but has plenty of opportunity in other countries. It also has a massive $4 billion investment from Constellation Brands.
What makes it a cheap stock?
Canopy Growth has no fewer than 12 subsidiaries or partners to produce cannabis. With this massive supply capability and the working capital from Constellation to back it, Canopy is probably the best positioned in terms of having both capital and access.
Meanwhile, Germany, Australia, and Latin America have come onto the company’s radar. That big cash pile from Constellation is funding acquisitions in these countries.
Constellation is best known as an alcohol provider, so when consumables become legalized, the company will be in great shape to roll out cannabis-infused beverages when Canada’s next round of regulations are finalized.
The downside to the federal ban on marijuana is that none of these Canadian companies can list on U.S. stock exchanges. But the country appears slowly headed into a new direction in that manner.
That remains the biggest challenges for Canopy and the others, but Canopy does have the Constellation capital if and when the U.S. gives in.