With 65 percent of marijuana stocks losing value in November, last month certainly was not the easiest for cannabis investors. However, the holiday season brings news of three stocks that bucked November’s downward trend. Not only did these stocks finish November higher, each one experienced double-digit percentage gains.
These three stocks are being fueled by recent landmark events like the legalization of recreational cannabis in Canada, as well as an increasing number of U.S. states that have voted to legalize medical and recreational marijuana. Additionally, CBD stocks, in particular, are set to take off, influenced by this summer’s FDA approval of Epidiolex, the first plant-derived CBD product.
Another factor is the imminent approval of the 2018 Farm Bill, which will very likely make agricultural production of hemp legal in the United States because the bill will likely remove its drug designation under the Controlled Substances Act.
So, what are the three best marijuana stocks heading into the holidays?
Charlotte's Web Holdings
One thing that will always drive a stock price higher is great earnings and a legitimate profit, which is why Charlotte's Web Holdings (NASDAQOTH:CWBHF) is up 18.9 percent. As a producer of hemp-derived CBD, Charlotte’s Web is the world’s leading brand by market share, and the company reported strong third-quarter earnings that were up nearly 60 percent from the third-quarter in 2017. In total, Charlotte’s Web Holdings shows year-to-date revenue of $48 million.
Charlotte’s Web has product in over 3,000 retail locations around the United States, and the company’s stock price benefits from the fact that its CBD is derived from hemp rather than cannabis. With passage of the farm bill appearing to be imminent, the federal government’s new relaxed status on hemp can only strengthen the company’s position in the marketplace.
"During the third quarter we completed a successful initial public offering and private placement that generated significant capital for the Company that is being deployed to accelerate our growth in the hemp-derived CBD sector," said Hess Moallem, President and Chief Executive Officer in a statement. "This capital is being used primarily to expand the Company's cultivation and production capacities to meet the increasing demand for our industry-leading Charlotte's Web products, both domestically and internationally.’
As one of the very few pot stocks to show an actual profit, the stock is definitely worth keeping on your radar screen as we head into the holidays.
Innovative Industrial Properties
Real estate investment trust Innovative Industrial Properties (NYSE:IIPR), was up 20 percent in November. Once again, IIPR followed the trend with a great third quarter earnings report which was the driver for a double-digit shares gain.
The company more than doubled its revenue from this time last year —up $3.93 million from just $1.56 million last year —. REITs are bound to pay out earnings in the form of dividends to avoid the normal corporate income tax rates, and their costs are relatively fixed.
The company has been steadily acquiring assets doubling the amount of greenhouses and processing facilities it holds. IIPR is leasing the facilities for 15 to 20 years, with annual rent increases built into the contracts, giving investors a very predictable cash flow.
In particular, during the summer, the company made several strategic acquisitions, including a 55,000 square-foot cannabis cultivation and processing facility in Massachusetts, and a 56,000 square-foot industrial processing facility in Michigan. In October, IIPR acquired a 58,000 square foot cannabis cultivation facility in Colorado and entered into a long-term lease agreement with The Green Solution, LLC.
Cronos Group (NASDAQ:CRON) (TSX:CRON) at over 23 percent double-digit growth in November, is the performing cannabis stock heading into the holidays. The company has its sights set on becoming a top-10 producer by annual output, but unlike the other three companies above, Cronos did not achieve its double-digit growth through strong earnings reports.
Instead, there were two catalyst events that sent the stock soaring. First, Cronos greatly benefited from the midterm elections. Thirty-two states have now legalized medical cannabis, and Cronos is certainly a beneficiary. Second, Jeff Sessions resigned as U.S. Attorney General, so a staunch cannabis opponent was removed. Sessions’ removal signaled to the industry that the federal legalization of cannabis may be in the cards, although industry insiders may just be a bit too hopeful in that regard.
Cronos recently confirmed that it is in talks with the tobacco giant Altria Group regarding a potential investment. Rumors abound that Altria might buy Cronos outright or make a significant equity investment through a partnership agreement, but the rumor is that Altria has also contacted both Aphria (TSX:APHA) and Tilray (NASDAQ:TLRY).
Cronos does have some issues to resolve, like its high costs associated with rapid expansion, but the stock has a significant deep presence in the market, regardless of what happens with the Altria deal.
There is some caution to note. Cronos’ stock has been boosted in the last week by the Altria rumors, but it has a very high valuation at over 17 times projected 2019 sales. Therefore, Cronos is not necessarily a cheap stock to buy, but it does have a core value proposition that investors may want to look at.
“We are encouraged with our third quarter results, which reflect the meaningful progress we are making on our strategic initiatives. In the quarter, we announced a number of landmark partnerships to expand our reach beyond the flower and beyond Canada and launched our second differentiated recreational cannabis brand,” said Mike Gorenstein, CEO of Cronos Group in a recent statement. “The recent legalization of cannabis sales for adult recreational use in Canada was a watershed moment for our industry and our Company. We are energized by the opportunities this creates for Cronos Group in Canada and look forward to leading the industry forward responsibly.”
Part of this expected growth is attributed to Cronos’ decision to buy Cove, a flagship premium brand aimed at the top of the Canadian market. The company also has mainstream brands Original BC and Spinach, so they have all bases covered.
Cronos also made another very strategic move with Ginkgo Bioworks to synthesize rare cannabinoids, and this could turn out to be the gem that seals their solid value in the market as they build a platform to enable production of these less common cannabinoids on a commercial scale and at a reasonable price.
If successful, Cronos would have a unique line of cannabis products targeting ailments from anxiety to sleep disorders, and it would be a huge market differentiator, so investors may want to take notice and follow the progress during the holiday season.