As sweeping changes to cannabis laws in the United States start to pick up steam, more and more investors are getting excited about the prospects of companies in the industry. While we don’t know exactly how long it will take to see these legal changes come into effect, it doesn’t hurt to start looking into the best of the best when it comes to cannabis stocks. With several states including New Jersey, Arizona, and Montana approving ballot measures to legalize recreational marijuana use last November and Senator Chuck Schumer advocating for reforms that might end federal prohibition, there are plenty of catalysts that are sending the share prices of cannabis stocks higher.
Regardless of your stance on cannabis, familiarizing yourself with some of the leading cannabis stocks can help you to take advantage of what is expected to be an industry worth billions in the coming years. Here are 3 smoking hot cannabis stocks that are worth adding now.
If you are interested in a cannabis company that can already sell its products legally on a federal level, look no further than Canopy Growth Corporation. Since the company is Canada-based, Canopy Growth can produce and sell its cannabis products in the medical and recreational Canadian marketplaces because cannabis was federally legalized in the country back in 2018. The company has plans to expand into the United States, as Canopy Growth can acquire U.S. cannabis company Acreage Holdings once federal legalization occurs. That means investors can own a company with experience selling cannabis on a large scale if federal legalization becomes a reality in the United States.
Canopy Growth is one of the largest cannabis companies by market capitalization and exports its products globally. It’s also worth noting that Constellation Brands (NYSE:STZ), which owns and distributes well-known alcohol brands like Corona, Modelo, and Svedka Vodka, owns a 38.6% stake in this company. Canopy has even partnered up with Martha Stewart to launch health and wellness CBD products for humans and pets. While Canopy Growth is an unprofitable company thus far, keep in mind that it is investing a lot of capital towards expansion. The fact that the stock is up 71% year-to-date makes it one to consider adding if you are interested in exposure to this burgeoning market.
Village Farms International (NASDAQ:VFF)
Another cannabis stock that has been hot over the last few months is Village Farms International. This company is one of the largest and longest-operating vertically integrated greenhouse growers in North America. Village Farms produces and distributes fresh produce like tomatoes, bell peppers, and cucumbers to supermarkets and fresh food distribution companies. However, the company also is involved in cannabis growing operations through its wholly-owned subsidiary, Pure Sunfarms. Pure Sunfarms has been experiencing strong sales growth and was the best-selling brand of dried flower products in Ontario, Canada in Q3.
The company is well-positioned to take advantage of legal cannabis markets in the U.S., Canada, and Australia. Village Farms even has a Texas greenhouse that is ready for multi-state outdoor hemp cultivation and CBD extraction. In Q3, Village Farms saw year-over-year sales growth of 12.3% to $43 million and the stock is up 37% year-to-date.
Last on our list is a company that debuted in December and has already delivered significant gains in the short time that it has been publicly traded. Hydrofarm Holdings is a leading independent distributor and manufacturer of hydroponics equipment and supplies for controlled environment agriculture. This company essentially supplies the products that allow cannabis growers to cultivate high-quality cannabis on a large scale.
While Hydrofarm isn’t necessarily a direct play on cannabis, the fact that 70% of Hydrofarm equipment end-users are part of the cannabis industry means that investors gain exposure to cannabis without having to deal with many of the issues that impact pure-play cannabis companies. As the U.S. expands its legal cannabis industry, the demand for Hydrofarm’s products should see a steady uptick as well. The stock has been a hot option in the cannabis sector to start 2021 and is up over 43% year-to-date.
Final Thoughts
With President Joe Biden expected to decriminalize cannabis in 2021 and prominent Democrats pushing for legalization at the federal level, each one of these stocks is worth adding if you want to gain exposure to the industry. Just keep in mind that cannabis stocks have a history of volatility and make sure your risk profile is suited for these types of speculative investments before buying.
Before you consider Canopy Growth, you'll want to hear this.
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