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All Contents © 2020The Kiplinger Washington Editors
By Harriet Lefton, Contributing Writer
| November 15, 2018
Cannabis is a hugely exciting market right now. Marijuana stocks are surging following multiple positive regulatory movements: Utah and Missouri voters both just passed resolutions to legalize medical cannabis, Michigan voted to green-light recreational marijuana and outspoken anti-cannabis Attorney General Jeff Sessions has now resigned.
Meanwhile, Canada recently became the first major world economy to legalize cannabis for both medical and recreational use. It’s not clear whether the U.S. will follow in our neighbor’s footsteps. What is clear is that pro-marijuana legislation is spreading, and marijuana-friendly policies at least feel a little more likely with a Democratic majority in the U.S. House of Representatives. Bear in mind, 70% of Democrats support marijuana legalization vs just 45% of Republicans.
Here are the top marijuana stocks to buy if you want to take advantage of these latest developments. We use TipRanks’ market data to pinpoint four of the most promising marijuana stocks out there. As you will see, all four of these stocks have a consensus “Buy” rating from Wall Street’s best minds.
Data is as of Nov. 14, 2018.
Market value: $12.1 billion
TipRanks consensus price target: $63.62 (85% upside potential)
TipRanks consensus rating: Strong Buy
Canopy Growth (CGC, $34.30) is probably the most famous cannabis stock out there right now. Shares in Ontario-based Canopy Growth – which started trading on the New York Stock Exchange in May – have catapulted by roughly 50% in the past three months alone, and that includes a significant pullback it suffered along with the rest of the market.
CGC – the first publicly traded cannabis company in North America, and the first one to be listed on the NYSE – provides both medical and recreational cannabis through several different brands, including Tweed, Spectrum Cannabis and DNA Genetics. With these brands, CGC can span the full range of offerings from adult use, beauty and nutraceuticals to pharmaceuticals and over-the-counter pain and sleep.
“We believe that all four of these verticals represent large market opportunities, and CPG veterans are beginning to embrace the broad market potential for cannabis as a global, multidimensional category given the talent migration to cannabis,” top Cowen & Co analyst Vivien Azer wrote in a recent note. With the recent legalization of cannabis in Canada, Azer believes we are moving toward “the establishment of cannabis as a key functional ingredient touching multiple consumer categories.”
But would-be investors of CGC and any other marijuana stocks should know that this is an unpredictable market. “In the fast-evolving cannabis sector, dynamics can change quickly,” Azer writes. “The most recent example is beverage companies taking stakes in cannabis companies. While that dynamic was not completely unexpected, the timing of it perhaps was, and served as a fresh catalyst for the stocks.”
Overall, this “Strong Buy” stock has received three recent buy ratings from analysts. Those interested in Canopy Growth can get a free CGC Research Report from TipRanks.
Market value: $36.9 billion
TipRanks consensus price target: $248.80 (26% upside potential)
TipRanks consensus rating: Moderate Buy
If you are looking for marijuana exposure but don’t want to get burned, it’s worth taking a closer look at Constellation Brands (STZ, $197.31). This is an alcoholic beverage giant that boasts brands such as Corona and Modelo beers, Svedka vodka and Robert Mondavi wines. However, STZ is now also making a sizable bet on the pot market.
To be precise: Constellation brands poured $4 billion into Canopy Growth for a massive 38% stake in August, up from 9.9% previously. And that’s not all: the deal also includes further warrants enabling CGC to boost its stake to over 50% if it so chooses.
The move was applauded by the Street. Pivotal Research’s Timothy Ramey is particularly enthusiastic. He writes: “We are convinced that CGC is the best way to play the rapidly growing Cannabis market and investors should begin to fully reflect that value and CGC’s prospects, rather than penalizing STZ for the cash carrying costs of the investment.”
Canopy Growth aside, STZ is delivering powerful growth, including a 16% bump in earnings per share in a “beautiful” fiscal second quarter. With a leading position in the high-end beer market, STZ saw beer sales rise 10.1% and wine sales rise 9.3% in the quarter.
“The core business is growing faster than anyone believed, and the Canopy Growth investment is very likely a masterstroke,” Ramey writes. As a result, Ramey – who personally owns CGC shares – ramped up his price target on Constellation’s shares from $265 to $300. That implies 52% upside from current levels.
However, the top-ranked analyst concludes with a note of caution for any over-eager investors: Clearly this is a bet on the widespread federal legalization of cannabis in the U.S., which may never happen. Get the STZ Research Report from TipRanks.
Market value: $4.1 billion
TipRanks consensus price target: $200.00 (55% upside potential)
U.K.-based medical cannabis developer GW Pharmaceuticals (GWPH, $129.25) is breaking boundaries in the marijuana space. The company has just launched a liquid formulation of purified cannabidiol (CBD). The drug, known as Epidiolex in the U.S., is designed to treat severe childhood epilepsy caused by Lennox-Gastaut syndrome (LGS) or Dravet syndrome.
This is the first drug derived from marijuana to be approved by the U.S. Food and Drug Administration (FDA). Unlike marijuana, CBD doesn’t contain tetrahydrocannabinol, or THC, so it has no psychoactive effect. However, CBD is enjoying rapidly rising attention for its reported benefits for everything from anxiety to chronic pain.
Furthermore, the drug now boasts a stronger safety profile. Following the FDA approval of Epidiolex in June, the Drug Enforcement Administration had up to 90 days to make a final ruling on the drug’s classification. Epidiolex previously was a Schedule I and has now been rescheduled to Schedule V. Schedule V drugs are the lowest-ranked class, with “a low potential for abuse.”
“We believe the rescheduling classification is the best possible outcome for the company,” Cantor Fitzgerald’s Elemer Piros writes. He has a $211 price target on GWPH (63% upside potential), but adds, “There is significant upside to our valuation, given additional opportunities embedded in the platform, and in additional markets.” Get the GWPH Research Report from TipRanks.
Market value: $460.9 million
TipRanks consensus price target: $49.75 (6% upside potential)
Last but by no means least, consider a little-known, outside-the-box marijuana stock called Innovative Industrial Properties (IIPR, $46.78). IIPR is an odd play on marijuana because it’s not a grower or a medical company, but rather a real estate investment trust (REIT). Specifically, it’s a leading provider of specialized industrial and greenhouse facilities for the medical cannabis industry.
Currently IIPR holds nine properties, leased to state-licensed medical cannabis growers, including a 358,000-square-foot property dubbed “The Pharm” in Arizona. Encouragingly, all nine properties are in states with favorable medical-use regulatory environments.
Shares have exploded by 143% in the past 52 weeks. “We believe this industry is poised for significant growth in coming years,” IIPR says. Ladenburg’s John Massocca concurs. Beneficial regulatory catalysts – including the resignation of Jeff Sessions – have left him increasingly optimistic on IIPR’s expansion potential. He sees shares reaching $49.50, a small premium to today’s prices.
Shareholders receive an added advantage. As a REIT, Innovative Industrial Properties must distribute at least 90% of its taxable income as a dividend to stockholders. So in addition to its strong growth prospects, IIPR offers a 3% yield at the moment. Moreover, the 35-cent quarterly payout has more than doubled from the initial 15-cent payout initiated in 2017. Get the IIPR Research Report from TipRanks.
Harriet Lefton is head of content at TipRanks, a comprehensive investing tool that tracks more than 4,700 Wall Street analysts as well as hedge funds and insiders. You can find more of their stock insights here.