Many US marijuana stocks will see more upside in the fourth quarter while others remain undervalued by investors who are wary of the burgeoning industry.
The trading season for so-called pot stocks is cyclical and typically kicks off in the fall, but got a jump-start this year when Constellation Brands (ticker: STZ) purchased a 38 percent stake in Canadian cannabis company Canopy Growth (CGC) in August for $4 billion. The sector’s seasonality means a surge in volume and liquidity from October through April while the highs tend to occur in January.
Here are nine marijuana stocks and an exchange-traded fund that be good to add to a portfolio.
GW Pharmaceuticals (GWPH)
GW Pharmaceuticals, a U.K.-based biotech company, received approval by the Food and Drug Administration in June for its cannabis-based epilepsy drug Epidiolex, which treats two rare forms of epilepsy. The approval for the syrup, which contains cannabidiol or CBD, came after the company tested 500 children and adults who have seizures.
“GW Pharma recently came off its all-time high of $174.50 after the DEA rescheduled its Epidiolex product to schedule V on Sept. 27,” says Michael Berger, founder of Technical420, a Miami-based company that conducts research on cannabis stocks. “This was a major development and allows GW Pharma to start selling to the U.S. GW Pharma has a deep pipeline of products in advanced stages of FDA testing and is a company to watch.”
Federal law prohibits the use of marijuana, although the medicinal use of marijuana has been passed by 31 states, the District of Columbia, Guam and Puerto Rico. Nine states and the District of Columbia also have approved the adult or recreational use of cannabis.
GW Pharma is trading at less than $150 after declining from its 52-week high of $179.65.
AbbVie, a North Chicago, Illinois-based biopharmaceutical company that was founded in 2013 after being spun off from Abbott Laboratories and developed drugs to treat cancer, Parkinson’s disease and others, may not viewed as a pot stock by some investors, but it could acquire companies such as GW Pharma for Epidiolex, or Insys Therapeutics (INSY) and Cara Therapeutics (CARA) to bolster their pipeline of drugs, says Jason Spatafora, co-founder of Marijuanastocks.com and a Miami-based trader.
Insys is a Phoenix company that developed Syndros, the first FDA-approved liquid cannabinoid to help with chemotherapy-induced nausea and vomiting and chronic diseases like AIDS. Cara Therapeutics, based in Shelton, Connecticut, is a biopharmaceutical company that develops and commercializes pain relief drugs.
AbbVie offers a 4 percent dividend, conducted $28 billion in revenue in 2017 and has $70 billion in assets, he says. “If any company wanted to dominate the cannabis pharma side, AbbieVie would be my pick,” Spatafora says.
The stock’s prices have been volatile in recent months and traded this week near $90, compared to its 52-week high of $125.86.
Sunniva, based in Calgary, Canada, it is one of the few companies to have leverage to both the United States and Canadian cannabis markets, Berger says. The company is constructing a massive facility in California and has a strategic relationship with Canopy Growth for its Canadian operations. Sunniva trades in over-the-counter markets.
“Sunniva recently announced a capital raise and is trading at oversold levels,” he says. “We think this is a very attractive play on the North American market and we are watching this one.”
ETFMG Alternative Harvest ETF (MJ)
This Summit, New Jersey-based exchange-traded fund allows traders to “play the seasonality and industry catalysts on a greater scale and gives investors a study guide to see where funds want to put their money within the cannabis sector,” Spatafora says.
KushCo, a Garden Grove, California-based company, is able to scale its operations globally, Spatafora says. KushCo trades on over-the-counter exchanges.
“In pot stocks, investors always hear the term ‘picks and shovels’ and this is exactly what we mean, except this is ‘bags and bottles’ to store and keep cannabis in childproof containers and also vaporizer products, packaging, supplies and accessories,” he says. “The beauty with KushCo is that they can scale their operations. This is one of the only OTC companies I think will uplist in the near term.”
Trulieve Cannabis Corp
Trulieve is a Quincy, Florida-based medical cannabis company that currently dominates the Florida market in dispensaries, cultivation and patients, Spatafora says. The company, which trades in OTC markets, has 16 dispensaries in operation, 83,000 patients and its revenue increased from $15.2 million in the first quarter to $23.3 million in the second quarter.
“Trulieve is a true seed-to-sale company and they are the prototype for vertical integration,” he says.
Halo Labs is a cannabis oil company which started in Oregon and recently expanded into Nevada and California. The company has generated more than $20 million in revenue from the sale of cannabis oils since inception, Berger says.
Halo recently went public and represents an “attractive early opportunity,” he says. “The focus on the smokeless products is significant and we are favorable on the recent move into California and Nevada. The company is easily able to replicate it proprietary extraction process in new markets and we expect fundamentals to improve significantly going forward.”
Next Green Wave
Next Green Wave is a California cannabis company that has secured the licenses required to capitalize on all aspects of the cannabis industry, Berger says. The company currently has two sites totaling 85,000 square feet that have been permitted for medicinal and recreational marijuana operations in Coalinga, California. The company is led by a management team with a proven track record.
“We are favorable in their ability to create value for shareholders,” he says. “Next Green Wave is a multi-faceted growth opportunity and we are closely monitoring this one.”
Plus Products, a San Mateo, California-based company, filed for its initial public offering on Aug. 27 and seeks to raise $15 million and list its shares on the Canadian Securities Exchange. It is one of the best-selling edible brands in California and is generating millions in revenue per month, Berger says. The edibles manufacturer and distributor is going public in the next month and represents an attractive early stage opportunity and also received a strategic investment from Tiger Global, one of the largest hedge funds to enter the cannabis sector.
“The company is focused on increasing production capacity and has been executing flawlessly,” he says. “Plus Products is an attractive play on the smokeless product market and has massive growth potential.”
Source: U.S. News & World Report
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