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.
That said, if you ignore the “green rush,” you’ll be leaving money on the table. As the marijuana industry gets frothy and approaches a top, let’s take a look at three marijuana stocks that offer a solid combination of growth and value.
The Cheapest Marijuana Stocks For 2019
If you’re in a hurry, here’s our trio of marijuana growth stocks with appealing value:
- Scotts Miracle-Gro (NYSE: SMG): A diversified traditional agribusiness with a major cannabis component.
- Cronos Group (NSDQ: CRON): Best positioned for growth.
- Canopy Growth (NYSE: CGC): Boasts a major company as an investor.
Keep reading and you’ll find out more about the cheapest marijuana stocks and our 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 U.S. 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.
Pure plays offer the greatest risk and greatest rewards. More conservatives investors may prefer to have smaller exposure to the sector.
Be vigilant. The SEC has issued warnings about fraudulent marijuana stocks.
This video explains the ins and outs of investing in 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. Marijuana has only recently enjoyed legislative and regulatory acceptance in North America, but it’s far from a done deal.
By clicking here, you’ll see a map of 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 wants 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 feature similar traits to pharmaceutical firms, in that they must constantly innovate and improve on their products 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. That said, a company that’s losing money is worthy of investor patience, if it’s pursuing a growth strategy that appears likely to pay off down the road.
What is it?
Scotts Miracle-Gro 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.
SMG moved into the cannabis industry in 2014 when it set up its Hawthorne Gardening division. Hawthorne’s 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 leverage its expertise in growing plants.
What we like about Scotts is that it isn’t a grower of cannabis. It’s what we 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 in states where pot cultivation is legal.
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 and it’s valuation is attractive. The stock’s forward price-to-earnings ratio (FPE) is 17.5, compared to 17.5 for the S&P 500 and considerably lower than most of its peers.
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 joint ventures set up in Australia, Israel, and Latin America.
Why is Cronos in such good shape? Thanks to former cigarette juggernaut Altria (NYSE: MO), 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.
Working capital also is needed for R&D. 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. Cronos’ FPE is 26.1, higher than the S&P 500 but below that of many marijuana industry leaders that carry astronomical valuations but with weak balance sheets.
Read This Story: Our Cronos Group Stock Price Prediction
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 beverage giant Constellation Brands (NYSE: STZ).
Read Also: Our Canopy Growth Stock Price Prediction
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 in America on marijuana is that none of these Canadian companies can list on U.S. stock exchanges. But the U.S. appears slowly headed toward lifting the federal ban.
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. Canopy’s FPE is -180.2, which means it’s losing money, but that should soon change as the company’s long-term growth strategy kicks in.