10 Best Marijuana Stocks to Buy for 2021
Marijuana stocks have come to life in what has been a volatile 2021 for the industry. These are some of the best options in the space.
Cannabis investors had been waiting for a surge in marijuana stocks since the end of 2017. They finally got one this year.
The Prime Alternative Harvest Index, which tracks the performance of some of the cannabis industry's most prominent companies, is up 46% year-to-date through this writing. Many of the best marijuana stocks in the group have performed even better in 2021, doubling or more.
These figures are relatively muted compared to earlier in this year, when investor euphoria drove the index well past a doubler in just a few short weeks. But it's a complete reversal from the index's annualized return of -5.4% since its December 2017 inception, providing hope that the cannabis gold rush predicted years earlier is back on track.
It doesn't hurt that Joe Biden was voted into the White House, then got a slim Senate majority in January, giving Democrats control of Washington. From a federal regulatory standpoint, this signals an improvement from the past few years.
Another positive sign: Several members of Congress sent a letter on March 25 to President Biden asking his administration to loosen its rules around cannabis use that have resulted in several White House staffers being asked to resign or work from home because of admitted past use.
"You have previously expressed your commitment to decriminalizing cannabis in acknowledgement that a cannabis conviction or even the stigma of cannabis use can ruin lives and prevent people from voting, gaining employment, and contributing to society," the letter states. "You can meet this moment and help end our failed punitive policy of cannabis prohibition."
While there's still work to be done, optimism is growing that the federal government is closer than ever to fully legalizing cannabis – another potential spark for a growing field of marijuana stocks.
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 April 18.
Innovative Industrial Properties
- Market value: $4.5 billion
Innovative Industrial Properties (IIPR, $189.94) is a real estate investment trust (REIT) that invests in greenhouses and industrial facilities for the medical cannabis industry. Founded in 2016, it boasts 68 properties, with 5.8 million rentable square feet, boasting an occupancy rate of almost 100%.
The REIT has a diversified portfolio of properties located in 17 states, with nine of them – including Illinois, California and Pennsylvania – accounting for more than 90% of its 5.9 million square feet of rentable space.
In March, IIPR acquired a property in San Marcos, Texas, for $3.4 million. It entered into a long-term lease with a subsidiary of Parallel, one of the country's largest multi-state operators (MSOs). The subsidiary plans to construct three buildings on the property with 63,000 square feet of space once completed. The REIT will provide $24 million to Parallel for construction, putting its total investment at $27.4 million.
Innovative Industrial Properties has invested $1.4 billion in capital to its various properties, including $127.3 million for leases with Parallel.
IIPR is a popular stock among analysts, garnering five Buys versus just two Holds and no Sell calls of any sort. And it has been one of the best marijuana stocks to own for years, delivering an annualized total return of 80.2% since this point in 2018.
That soaring stock price has reduced its yield, but IIPR remains one of the few marijuana stocks that produces any income. At current prices, shares yield 2.9%.
Altria
- Market value: $97.1 billion
Marlboro maker Altria (MO, $52.31) has not had a good stretch over the past few years. The stock has delivered a meager 1.7% annualized total return over the past five years.
Its share price has gotten knocked around in recent years due to write-downs taken from its $12.8 billion 2018 investment in e-cigarette maker JUUL Labs. The investment gave it a whole bunch of headaches in return for 35% of the company. To date, Altria has written down 88% of the investment.
However, it appears the worst is over.
In its Q4 2020 results, Altria said that it had a $100 million (5 cents per share) non-cash pre-tax unrealized gain due to the fair value increase in its JUUL investment. Since announcing its quarterly results at the end of January, Altria's shares have gained more than 23%.
As for the cannabis connection, Altria owns 43.5% of Cronos Group (CRON), one of the largest Canadian marijuana stocks. It also has warrants to acquire an additional 10% of the company, allowing it to control Cronos in the future.
CRON shares are up roughly 40% over the past 12 months; that follows a strong operational performance that has seen losses reduced from $928 million in 2019 to just $51 million in 2020.
In its Q4 2020 conference call, CEO Billy Gifford stated that he thought Cronos was positioning itself to take advantage of the U.S. government's potential move to legalize recreational cannabis use at the federal level. While he didn't go as far as stating Altria would acquire the remainder of Cronos were that to happen, reading between the lines, it seems clear the company will do so.
Also, investors shouldn't forget that Altria also owns 10% of Anheuser-Busch InBev (BUD).
Constellation Brands
- Market value: $46.2 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, $238.86), 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 36.6% in 2018 by investing $3.9 billion in the Canadian cannabis producer. In May 2020, it exercised the warrants it got in 2017, buying 18.9 million shares for $173.9 million, or $9.20 a share – about one-third where they traded less than a year later – to increase its stake to 38.6%.
It continues to hold warrants to exercise 88.5 million shares by Nov. 1, 2023, and 51.2 million by Nov. 1, 2026. If exercised, they would give it more than 50% ownership in the company.
The November 2018 warrants were modified by Canopy Growth in June 2019 to take into account its plans to acquire Acreage Holdings (ACRHF) once federal legalization becomes a reality. It finished fiscal 2021 with an $802 million increase in the fair value of its Canopy investments and a $1.1 billion unrealized gain from the warrant modifications.
By aligning itself with Canopy, STZ provides itself with a fourth revenue stream that will grow exponentially with federal legalization. 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.
Curaleaf Holdings
- Market value: $9.4 billion
If you're looking for a pure-play cannabis company in the U.S., Massachusetts-based Curaleaf Holdings (CURLF, $13.84) 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, including Arizona, Florida, Illinois and Massachusetts. It owns and operates 104 dispensaries, 23 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.
Thirty-six states and Washington, D.C., have legalized medical cannabis. Sixteen states and D.C. have legalized adult-use cannabis, with New York the latest to do so. As more states legalize adult use, Curaleaf will continue to grow its business organically and through acquisitions.
Its most recent acquisition saw it move into the European market paying $286 million for EMMAC Life Sciences, the largest vertically integrated independent cannabis company in Europe. It paid for the purchase with $50 million in cash and 17.5 million Curaleaf shares.
Curaleaf created Curaleaf International Holdings Limited to guide its European expansion. An unnamed strategic investor has invested $130 million for a 31.5% equity stake in the European subsidiary.
Meanwhile, Curaleaf's own Select brand is in 17 states, with five more on the drawing board. The company believes it is the most widely distributed cannabis brand in America.
Curaleaf finished fiscal 2020 with record adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $144.1 million from $653.0 million in sales.
Be careful with CURLF, however. Like many marijuana stocks, Curaleaf is traded over-the-counter, sometimes at very thin volumes. That means limit orders and stop-losses are a must when investing. But for those willing to deal with the additional difficulty, CURLF could end up being one of the best marijuana stocks of 2021.
Cresco Labs
- Market value: $3.0 billion
Cresco Labs (CRLBF, $12.17), like Curaleaf, is a multi-state operator with operations in nine states, 29 retail licenses, 15 production facilities, and 24 operational dispensaries. Its national brands include Cresco, Reserve, Remedi and Mindy's (edibles).
Like many of the larger MSOs, Cresco is growing its business through a combination of organic and acquisitive growth.
On April 12, Cresco announced Wonder Wellness's launch, a line of low-dose edibles for the wellness-minded consumer. The line of gummies is currently available in Illinois but is expected to be available in all states where it operates soon.
"Effect-forward, 5 mg gummies represent one of the largest market segments, and Wonder Wellness offerings address some of the most desirable consumer needs of relaxing, getting better sleep, and being happy," stated Chief Commercial Officer Greg Butler in its press release.
Cresco continues to grow its edibles portfolio to cater to market and consumer needs.
In terms of acquisitions, Cresco announced in March that it would acquire Cultivate Licensing LLC and BL Real Estate LLC for $90 million plus an earnout worth as much as $68 million. It's expected to close later in 2021. The purchase gives Cresco a top-three leadership position in the Massachusetts marketplace.
Of the $90 million upfront, $15 million is in cash, with the rest in Cresco stock. Assuming the full $68 million earnout, it will pay out 12.5% of that in cash and the remainder in Cresco stock.
Cresco reported record full-year revenues and adjusted EBITDA at the end of March. Sales jumped 271% in 2020 to $476.3 million. Adjusted EBITDA of $116 million was 1,350% higher than in 2019. It still reported a net loss of $36.6 million, but that was 44% narrower than it was a year ago.
GrowGeneration
- Market value: $2.7 billion
GrowGeneration (GRWG, $47.10), the largest operator of hydroponic garden centers in the U.S., has been on quite the ride over the past year. Even though it's well off its February highs around $65 per share, GRWG stock is up more than 1,000% over the past 52 weeks, putting it among the best marijuana stocks during that time period.
Its YTD gains, however, are a much more modest 12%.
GrowGeneration is chasing growth in numerous ways: same-store sales, new store openings, private-label wholesale sales and acquisitions. In 2020, revenues of $193.0 million were 143% better than they were in 2019. It expects another 119% jump in sales this year, to $422.5 million, at the midpoint of its guidance. If GRWG keeps up this pace, it will hit $1 billion in annual sales by sometime in 2023.
Not bad for a company that was founded in 2014 and went public in 2016.
There are more than 1,000 hydroponic stores in the U.S., but the market is highly fragmented. GrowGeneration currently has 52 stores in 12 states with plenty of room for growth – it's looking to expand in Missouri, Illinois, Arizona, Pennsylvania, New York and New Jersey. GRWG intends to have 60 stores in 15 states by the end of 2021, with that number swelling to 100 by 2023. (You'll notice that all its stores are in states where cannabis is legal for medical or recreational use.)
A hydroponics store's typical acquisition costs the company approximately 0.3 times sales and 2.7 times trailing 12-month EBITDA. GrowGeneration will pay back the capital investment of the purchase within 2.25 years. The typical new store opening is 10,000 square feet and requires just under $1 million to open (including the inventory).
Given the industry's fragmented nature, combined with the growth of cannabis over the next few years, it's likely that GrowGeneration will continue its balanced approach to store openings and acquisitions of existing stores.
Tilray
- Market value: $2.9 billion
Consolidation in the cannabis industry is getting busy in 2021 on both sides of the 49th parallel. In Canada, two of that country's largest cannabis producers have recently voted to come together under one roof to take on the world.
In actuality, Aphria (APHA) is buying Tilray (TLRY, $17.20), the British Columbia-based producer whose brands include The Batch, Canaca, Dubon and several others. In a reverse merger, Aphria shareholders will get 0.8381 shares of TLRY for every APHA share they own. Once the deal is completed, Aphria shareholders will own 62% of the combined company, with Tilray shareholders holding the rest.
While Tilray is the surviving company post-merger, Aphria CEO Irwin Simon will lead the combined entity. Its December merger presentation stated it will have 874 million Canadian dollars ($697 million) in revenue for the latest 12 months, controlling 17.3% of the Canadian recreational cannabis marketplace. That's ahead of Canopy Growth, Aurora Cannabis (ACB), Hexo (HEXO) and Village Farms International (VFF) and all the other big Canadian players.
Investors for both companies got a bit of a scare just days before the merger vote, when Aphria reported Q3 2021 results that weren't what the analysts expected. The consensus for revenue in the third quarter was C$161.3 million, but Aphria delivered only C$153.6 million. It also lost 15 Canadian cents per share on an adjusted basis, which was three times worse than what the pros were expecting.
However, most of Aphria's increase in losses in the third quarter had to do with the fair value adjustment of its convertible debentures due to a higher share price, which resulted in an unrealized loss of C$264.8 million in the quarter.
For now, whether TLRY emerges as one of the market's best marijuana stocks primarily rests on the merger – one that, as Simon has said before, makes sense on so many levels.
"We expect Aphria and Tilray's complementary cultures of innovation, brand development, and cultivation to further set us apart from others in the industry along with the strength of our balance sheet and cash availability as we enhance value for all stakeholders," he says.
Silver Spike Acquisition II
- Market value: 250.5 million
Silver Spike Acquisition II (SPKBU, $10.02) is the second special purpose acquisition company (SPAC) from Scott Gordon, the founder and CEO of Silver Spike Capital, an investment firm providing equity and debt capital to the plant-based and alternative health & wellness industry.
In August 2019, Silver Spike raised $250 million for its first SPAC, Silver Spike Acquisition (SSPK). It's in the process of merging with WM Holding Company, the holding company that owns Weedmaps, the leading online marketplace for cannabis consumers. Also, Weedmaps provides a software-as-a-service (SaaS) subscription for cannabis retailers and brands.
On March 10, 2021, SPKBU raised $250 million in a SPAC IPO. The units gave buyers one share of Class A common stock and one-fourth of a warrant to buy a second share for $11.50 in the future.
Like with SSPK, Gordon & Co. will focus their Silver Spike Acquisition II search on the cannabis industry.
The group believes that several businesses could benefit from Silver Spike's experience, including non-plant touching companies related to the cannabis industry but aren't directly involved in the plant's cultivation. Other possibilities include hemp-derived cannabidiol (CBD) businesses compliant with the Farm Bill Act and pursuing a biopharmaceutical business utilizing cannabis to develop therapies.
Interestingly, it plans to focus on companies that historically have been profitable and generate free cash flow. This would eliminate most cannabis producers on both sides of the border.
It's important to remember that until SPKBU announces a combination target, it is nothing more than a shell company with $250 million in cash and no track record other than that of the management team and sponsors.
AdvisorShares Pure US Cannabis ETF
- Assets under management: $980.6 million
- Expenses: 0.74%, or $74 annually on a $10,000 investment
The AdvisorShares Pure US Cannabis ETF (MSOS, $40.20) launched in September 2020, and it already stood out enough to warrant a place among Kiplinger's 21 best ETFs for 2021. What makes this fund stand out is its U.S.-specific focus; it holds a number of multi-state operators (MSOs) such as Curaleaf, the ETF's largest holding at an 11.4% weighting.
"As more states legalize cannabis for medical or recreational use and as this fragmented industry evolves, (MSOs 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 says.
The portfolio is managed by Dan Ahrens, who also happens to be AdvisorShares' chief operating officer. Ahrens also manages the AdvisorShares Vice ETF (VICE), a fund dedicated to vice investments such as alcohol, tobacco and cannabis.
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," AdvisorShares says. "The portfolio manager allocates across an investable universe of U.S. companies spanning a variety of cannabis-related businesses."
Many investors don't want to take on the risk associated with investing in individual issues but like the idea of investing in smaller companies. MSOS allows those investors to enjoy a rising tide by providing access to a basket of roughly 30 of the best U.S. marijuana stocks out there.
ETFMG Alternative Harvest ETF
- Assets under management: $1.7 billion
- Expenses: 0.75%
Anyone who invests or is interested in the cannabis industry knows the ETFMG Alternative Harvest ETF (MJ, $21.09).
Launched in December 2015, MJ was the first U.S. ETF targeting the global cannabis industry. It has attracted roughly $1.7 billion in total net assets since then, making it the largest such ETF.
MJ tracks the Prime Alternative Harvest Index, which targets the global cannabis industry – one that's expected to grow to $66.3 billion in annual revenue by 2025, from $11.4 billion in 2015.
Unlike MSOS, many of MJ's top 10 holdings are Canadian marijuana stocks, such as the aforementioned Canopy Growth and Cronos Group. The top 10 holdings account for nearly 57% of its assets, with the remaining 22 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 (SMG) will benefit from the sale of lawn care, gardening and hydroponics equipment to cannabis enthusiasts. It represents 3.7% of MJ's total portfolio, putting it just outside the top 10 holdings.
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. For instance, Canopy Growth can buy Acreage Holdings 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.
