10 Best Marijuana Stocks to Buy for 2021
Will marijuana stocks finally come to life in 2021? If so, these 10 picks could be some of the best investing options as we head into the new year.
Investors keep waiting for marijuana stocks to come to life.
In 2020, the Prime Alternative Harvest Index, which covers many of the major global cannabis companies, wasn't too good. It was off by more than 37% through the end of October, though it did pick up momentum and finished the year down "just" 16%.
But marijuana stocks have been off to the races in 2021, with the index soaring 78% through early in February.
Marijuana investors' patience is finally paying off. The index got its start on Dec. 18, 2017, and except for some excitement in September 2018 and spring 2019, it had mostly failed to deliver for investors through 2020.
But 2021 looks like it could be the year. Joe Biden was voted into the White House, then got a slim Senate majority in January giving Democrats control of Washington, which signals an improvement (from a regulatory standpoint) from the past few years.
"Cannabis businesses have been deemed essential during this pandemic," Justin Strekal, political director of the National Organization for the Reform of Marijuana Laws (NORML), said in a statement. "Unfortunately, at the federal level, prohibition compounds the problems that this emerging industry faces. Small cannabis businesses in particular are facing tough economic times and access to traditional financial tools will help ensure that they can weather this pandemic."
Here, we'll look at 10 of the best marijuana stocks, funds and other investments for 2021 should the environment continue tilting in its favor.
Data is as of Feb. 8.
- Market value: $6.0 billion
Aphria (APHA, $18.98) can sometimes be overlooked compared to some of the other Canadian cannabis stocks. That's a shame, as it's one of the industry's better-run companies.
In its most recent quarter, Aphria delivered a much larger loss of $120.6 million, versus $5.1 million in the year-ago quarter, but after backing out a number of one-time items, it actually earned a penny per share, up from a 19-cent loss. Revenues of C$160.5 million were up 33% year-over-year.
"Our market-leading adult-use cannabis brands and sales remained strong and our international medical cannabis sales are off to a solid start," chief executive officer Irwin Simon said in the earnings release. That has helped propel APHA shares 174% just a little more than a month into 2021.
"(Aphria is) the clear market share leader nationally (in Canada), and in key provinces such as Ontario, where retail sales growth should outpace the rest of the country due to under penetration of (cannabis) stores," CIBC analyst John Zamparo wrote in an Oct. 8 note to clients.
He's part of an extremely enthusiastic group of analysts. Of the 13 pros covering Aphria, nine call it a Strong Buy or Buy, versus just three Holds and one Sell. In the eyes of Wall Street's experts, APHA is one of the best marijuana stocks for 2021.
Innovative Industrial Properties
- Market value: $5.1 billion
About two years ago, Kiplinger contributor Harriet Lefton discussed four cannabis firms. One of the stocks was Innovative Industrial Properties (IIPR, $215.18), a rarity among marijuana stocks in that it's a real estate investment trust (REIT). Specifically, IIPR invests in greenhouses and industrial facilities for the medical cannabis industry.
Remember: The U.S. cannabis industry is still relatively young compared to other, more mature businesses such as the liquor or tobacco industries. Two years ago, the industry was even less mature. The risks of investing in real estate for cannabis producers, albeit of the medical variety, was still not a slam dunk.
However, since that Nov. 16, 2018, article, IIPR has delivered a total return of nearly 365%.
Currently, this REIT remains an excellent play on the growing cannabis trade in this country. In 2018, IIPR owned nine properties that it leased to medical cannabis producers. Today, that's up to 67 properties, with 5.8 million rentable square feet, boasting an occupancy rate of more than 99%. IIPR swelled by five properties between July 1 and Nov. 4, spending $43.6 million for 448,000 square feet in triple-net leases (the tenant pays for insurance, maintenance and taxes, making the REIT's profits more consistent and predictable).
IIPR is a popular stock among analysts, garnering two Strong Buys and three Buys versus just two Holds and no Sell calls of any sort. And while a soaring stock price has reduced its yield, this is still one of the few marijuana stocks that produces any income, at about 2.3% presently.
- Market value: $13.3 billion
Most people know Scotts Miracle-Gro (SMG, $239.52) for its lawn care and gardening products. As well they should. SMG is America's largest such provider of said products.
Interestingly, Scotts has become something of a COVID-19 play, as more people with green thumbs stayed home to work on their careers and gardens. SMG shares are up 95% over the past year. The company's first-quarter results, released in early February, have helped extend those gains. Scotts reported a 147% increase in its core consumer lawn and garden division (55% of sales), and a 71% increase in its Hawthorne Gardening division (41% of sales), which is the largest distributor of hydroponic products in North America.
These products are vital to growers of all kinds, but especially to those looking to grow cannabis.
Scotts acquired Sunlight Supply, the largest distributor of hydroponics in the U.S., for $450 million in June 2018. Together with Hawthorne's 2017 sales of $290 million, the combined business had $600 million in annualized 2017 sales and more than 1,800 hydroponic retail stores in North America.
It was a game-changing acquisition. Hawthorne reported sales of $1.08 billion in 2020, a 61% jump from a year earlier.
With the ongoing demand for hydroponics by at-home and professional cannabis growers, Hawthorne's sales will continue to flourish. And that's what puts SMG among 2021's best marijuana stocks.
- Market value: $79.9 billion
Marlboro maker Altria (MO, $42.97) has not had a good stretch over the past few years. The stock has delivered a 5% total loss, even accounting for its large dividend, over the past five yeras.
There are risks with investing in the cigarette manufacturer. It inherited many problems when it chose to acquire a 35% stake in e-cigarette company Juul Labs in late 2018 for $12.8 billion. It was forced to take a $4.5 billion writedown in October 2019 and another $4.1 billion write-down a few months later in January 2020.
Now the e-cig business is fighting off hundreds of lawsuits, suggesting it targets teenagers in its advertising and marketing.
Bloomberg reported that U.S. District Judge William Orrick ruled in Juul's favor at the end of October. The judge ruled that the plaintiffs could not prove that Juul broke the rules under the Racketeer Influenced and Corrupt Practices Act (RICO). If the plaintiffs were successful, Altria would have had to pay triple the amount of damages awarded by a court. Thus, the judgment took some legal pressure off Juul and Altria.
So what's the cannabis connection?
Altria owns 45% of Cronos Group (CRON), one of the largest Canadian marijuana stocks. It also has warrants to take control of Cronos and holds more than half the board seats. While that investment hasn't done much of late, CRON shares are up roughly 85% in 2021, helping deliver modest gains for MO.
And in theory, Altria could use a small portion of its free cash flow to buy up the rest of the remaining stake in Cronos Group it doesn't already own.
- Market value: $44.3 billion
In the same way you can indirectly invest in cannabis by buying Altria shares, you can do the same by investing in Constellation Brands (STZ, $228.63), the purveyor of numerous beer, wine and spirits brands.
That's because the company invested in Canopy Growth (CGC) in 2017, buying a 9.9% stake for $191 million. It upped that stake to 38% in 2018 by investing $4 billion in the Canadian cannabis producer. It continues to hold warrants that, if exercised, would give it 55.8% ownership in the company.
By aligning itself with Canopy, it provides itself with a fourth revenue stream that will grow exponentially with federal legalization.
Canopy Growth shares had mostly struggled since peaking in late 2018. However, the losses STZ has suffered from Canopy's weakened performance have turned around in recent months as CGC's share price rebounded. During the third quarter, Constellation lost $12.4 million from its Canopy investment, down significantly from its $377.6 million loss in the first quarter.
The main reason to like Constellation, of course, remains its core businesses. And STZ bolstered that portfolio in September, when it acquired Kentucky-based craft brandy producer Copper & Kings for an undisclosed amount.
"As an innovative distillery regarded for its experimental attitude and highly rated craft spirits, Copper & Kings American brandy represents a significant growth opportunity for us and reinforces our continued commitment to premium spirits," Constellation CEO Bill Newlands said at the time.
As long as Constellation continues to profit from its three existing revenue streams, investors can expect to be nicely surprised at some point by the company's investment in Canopy Growth.
- Market value: $11.4 billion
If you're looking for a pure-play cannabis company in the U.S., Massachusetts-based Curaleaf Holdings (CURLF, $16.73) could be the way to go. The company got its start in New Jersey in 2010, developing one of the first vaporizers to administer a single measured medical marijuana dose. It grew from there.
Today, it operates in 23 states, and it owns and operates 93 dispensaries, 22 cultivation sites, and 30 processing sites. And Curaleaf is becoming one of the world's leading cannabis companies by using science to enhance the customer experience.
While it got its start in medical marijuana, CURLF is working to develop lifestyle brands that support adult customers' recreational use. Vertically integrated, it controls its cannabis business from start to finish. It has operations from coast-to-coast.
Thirty-seven states have legalized medical cannabis. Another dozen or so states have legalized adult-use cannabis, with several more pushing to do so.
As more states legalize adult-use, Curaleaf will continue to grow its business organically and through acquisitions. Since its IPO in September 2018, it has made 14 acquisitions.
In February 2020, it issued 55 million subordinate voting shares ($286 million) to acquire Cura Partners, a deal that was first announced in May 2019. Cura Partners' Select brand is known for its cannabis oil. It recently expanded its U.S. presence by making Select Oil available to the 131,654 medical cardholders in Ohio. Select products are available in 14 states.
Most importantly, Curaleaf has delivered six consecutive quarters of positive adjusted earnings before interest, taxes, depreciation and amortization, and is very close to profitability on a GAAP (generally accepted accounting principles) basis.
Be careful with CURLF, as it's traded over-the-counter, sometimes at very thin volumes. But it could end up being one of the best marijuana stocks of 2021.
AdvisorShares Pure US Cannabis ETF
- Assets under management: $859.0 million
- Expenses: 0.74%, or $74 annually on a $10,000 investment
One of the attractive investment features of Curaleaf is that it's entirely focused on the U.S. cannabis market.
Well, in early September, the AdvisorShares Pure US Cannabis ETF (MSOS, $51.38) launched. The actively managed ETF focuses on multi-state operators (MSOs) such as Curaleaf, which is the ETF's second-largest holding at a 10.5% weighting.
"As more states legalize cannabis for medical or recreational use and as this fragmented industry evolves, M.S.O.s are believed to be a growth opportunity based on their ability to develop operation, distribution, marketing, and research and development efficiencies in multiple states," AdvisorShares believes.
The portfolio is managed by Dab Ahrens, who also happens to be AdvisorShares' chief operating officer. Ahrens also manages the AdvisorShares Vice ETF (ACT), a fund dedicated to vice investments such as alcohol, tobacco and cannabis.
However, as pure-play, actively managed ETFs go, MSOS breaks the mold.
"MSOS is the first and only actively managed U.S.-listed ETF with dedicated cannabis exposure focusing exclusively on U.S. companies, including multi-state operators. The portfolio manager allocates across an investable universe of U.S. companies spanning a variety of cannabis-related businesses," AdvisorShares states.
For many investors who don't want to take on the risk associated with investing in individual stocks but like the idea of investing in smaller companies, this basket of about 30 marijuana stocks could be lifted by a rising tide.
Silver Spike Acquisition / WM Holding
- Market value: $748.5 million
The special purpose acquisition company (SPAC) took the investment world by storm in 2020. A total of 248 SPACs went public last year, raising $83 billion to fund future acquisitions.
Naturally, with SPACs and the cannabis industry both on a roll, it only makes sense that one of the best marijuana stocks for 2021 is Silver Spike Acquisition (SSPK, $23.95), a SPAC that raised $250 million from its August 2019 initial public offering by selling 25 million units at $10 apiece.
From the start, Silver Spike Capital, the asset management firm sponsoring the SPAC, targeted cannabis companies operating in the U.S., although its mandate gave it permission to seek out targets outside this country.
On Dec. 10, 2020, Silver Spike Acquisition announced that it was merging with WM Holding Company LLC, a cannabis-related business that has two operating segments: Weedmaps, the leading online listings marketplace for cannabis consumers, and WM Business, a subscription-based software-as-a-service (SaaS) platform for cannabis retailers and brands.
Between 2021 and 2023, WM Holding expects to grow revenues and EBITDA margins by 40% and 55%, respectively.
Based on a multiple of 6.8 times WM Holding’s estimated 2021 revenue of $205 million and 150 million shares outstanding post-merger, the combined entity had an enterprise value of $1.5 billion as of its December announcement. Three months later, the combination’s enterprise value was $3.7 billion, or 147% higher.
On Jan. 13, 2021, Silver Spike shareholders voted to extend the 18-month requirement for consummating a business combination to July 10, 2021. That will give the SPAC’s shareholders more time to evaluate the proposed merger with WM Holding.
ETFMG Alternative Harvest ETF
- Assets under management: $1.9 billion
- Expenses: 0.75%
Anyone who invests or is interested in the cannabis industry knows the ETFMG Alternative Harvest ETF (MJ, $25.48).
Launched in December 2015, the ETF is approaching its fifth anniversary with almost $2 billion in total net assets. There isn't another U.S.-listed marijuana ETF that comes close, and that's an extraordinary amount of growth.
MJ tracks the Prime Alternative Harvest Index's performance, which targets the global cannabis industry – one that's expected to grow to $55.8 billion in annual revenue by 2025, from $11.4 billion in 2015.
Unlike MSOS, many of MJ's top 10 holdings are Canadian cannabis companies, such as the aforementioned Canopy Growth and Aphria. Top 10 holdings account for nearly three-quarters of assets, with the remaining 23 stocks accounting for the rest.
The Prime Alternative Harvest Index looks to embrace a broad strategy that not only invests in companies that grow or manufacture cannabis-related products; it also invests in those businesses that are likely to benefit from increased cannabis use worldwide. For example, a company such as Scotts Miracle-Gro will benefit from the sale of lawn care, gardening and hydroponics equipment to cannabis enthusiasts. It represents just less than 2% of MJ's total portfolio.
While future decriminalization of cannabis at America's federal level would no doubt benefit its U.S. holdings, MJ's Canadian investments would benefit significantly, too. Canopy Growth, for instance, has the option to buy Acreage Holdings (ACRHF) should cannabis be legalized at the federal level.
The only downside of MJ is that its expense ratio is 0.75%. While that's just one basis point (a basis point is one one-hundredth of a percentage point) higher than MSOS, remember: MSOS is actively managed. This is an above-average price for a passive ETF, albeit one in a growth industry.
Merida Merger Corp I
- Market value: $175.67 million
It wouldn't be 2021 if one of the 10 best marijuana stocks on this list weren't a special-purpose acquisition company (SPAC). It is, after all, the year of the SPAC – one in which a record number of "blank-check companies" have gone public.
However, Merida Merger Corp I (MCMJ, $10.73) didn't go public in 2020. Its initial public offering (IPO) happened on Nov. 4, 2019, when it tried to raise $120 million by selling 12 million units to investors. The management team behind this SPAC, which is past its first anniversary (it has 24 months to complete a combination), as a considerable amount of experience in the cannabis industry.
"Merida Capital Partners III LP, our sponsor, and its affiliated funds, which we collectively refer to as 'Merida,' have worked diligently over the past 10 years to identify and complete transactions within the legal cannabis industry," according to the SPAC's IPO prospectus.
"Merida targets specific investments in the emerging cannabis industry as well as products and services associated with the evolution of cannabis as an agricultural product, a natural plant-based medicine, a constituent in pharmaceutical formulations, and an adult-use consumer product."
One of Merida Capital Partners' current holdings is GrowGeneration (GRWG), a specialty retailer of hydroponics and other gardening needs. In April 2017, it invested $1.65 million in the company to help the retailer expand its operations on the West Coast. As part of the investment, Merida got additional warrants to buy shares for $2.75 each in the future.
As of the end of June, Merida owned 4.86 million shares of GrowGeneration, worth approximately $314 million at current prices.
If anyone can find a good cannabis acquisition, it ought to be Merida.