The market is bearish on weed stocks… for now. The current state of the industry is in stark contrast from just a year ago when cannabis stocks were on top of the world. It’s amazing how much difference a year makes. Many cannabis penny stocks are trading for a fraction of what they were worth just 12 months ago. It’s easy to say “cannabis stocks are finished” because everyone else is saying the same thing, but dirt-cheap valuations could offer a buying opportunity for contrarian-minded investors.
The cannabis market isn’t going anywhere and its actually growing at a pretty decent pace in many places. However, valuations were sky-high after the ‘great green hype’ of 2018, and these stocks were destined for a pullback. Valuations are much more reasonable at these prices, so these stocks are actually starting to look like viable long-term investments.
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Looking for a safer bet? Gold is a great safe-haven investment. It provides a reliable hedge against inflation, volatility, and more.
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Cannabis Penny Stocks: Our Top Picks
Cannabis penny stocks are even more volatile than higher-priced weed stocks. Only invest what you can afford to lose. If you don’t know what a penny stock is, it might be worth reviewing. Read “What Are Penny Stocks?” first to get yourself up to speed.
For more penny stocks, check out the latest monthly “best penny stocks” rankings.
Aphria Inc. (NYSE: APHA)
It’s hard to find a profitable cannabis company these days, but Aphria posted positive earnings on its recent quarterly report. It was the company’s second consecutive quarter of profitability. However, Aphria might not be a penny stock for much longer. It’s already knocking on $5’s door. So far, the company is weathering the onslaught better than most.
According to an article from MarketWatch, Aphria didn’t profit off selling pot. It’s hard to spot in the balance sheet, but Aphria made some slick accounting moves to chalk on an additional $30 million in revenues. The company’s cannabis revenues grew from C$28.6 million to C$30.8 million, but Aphria could have posted a quarterly loss if not for some investment shuffling and creative accounting.
THC Extract Stocks
Valens GroWorks Corp. (OTC: VGWCF)
Valens is another cannabis company coming off of a hot third quarter. The Canadian cannabis firm posted record revenues and profitability last quarter. Believe it or not, this company actually has pretty good margins too. EBITDA came in at $9.8 million, 59.4% of total revenues. Valens ended the quarter with about $69.2 million in cash on hand.
CEO Tyler Robson sounded confident about his company’s future. “”We are extremely pleased with the rollout of our business plan and the continued scale-up in the company’s extraction operations which have allowed us to continue our aggressive quarter-over-quarter growth in volumes, revenue, adjusted EBITDA and net income,” he said, “The company’s performance in the third quarter clearly demonstrates our industry-leading technical capabilities, the quality of our products and the earnings power of our platform.”
Valens Groworks specializes in extracting THC concentrates from plants. Concentrates are a key ingredient in vape cartridges, edibles, and infused beverages. While the recent vape crisis certainly poses some risk to the overall demand for Valen’s cornerstone product, it could be worth the risk. On the basis of last quarter’s net income, Valens is technically the most profitable company in the Canadian cannabis sector.
Neptune Wellness Solutions Inc. (NASDAQ: NEPT)
Some cannabis penny stocks weathered the storm better than others. Neptune Wellness Solutions is well below its 52-week highs, but 2019 shareholders are still up 24%. That’s not a bad rake considering the negative sentiment facing the cannabis sector. Neptune is another cannabis extractor company. They produce THC concentrates and even offer to help customers develop their own packaging and branding.
Neptune is also in the CBD business. The company operates a hemp processing facility, Sugarleaf Labs, in the U.S. The facility uses American grown hemp and it’s expected to be a big earner for the Canadian company. Neptune recently landed a deal with a huge American conglomerate, International Flavors & Fragrances Inc. (aka IFF), to produce CBD-infused products for the U.S. market. IFF is a $13 billion company, so it’s a great partnership for Neptune Wellness, a much smaller company. As of now, the company projects it will become profitable by the first quarter of fiscal year 2020.
American Cannabis Stocks
Curaleaf Holdings Inc. (OTC: CURLF)
If you’re interested in investing in medical marijuana stocks, Curaleaf is worth a look. This Massachusetts-based company operates 48 dispensaries across 12 U.S. states. CURLF is one of the few cannabis stocks that are still holding onto YTD gains.
Curaleaf shareholders are committed to the company. The company’s key backers recently signed an extended share lockup agreement. The agreement affects roughly 75% of the company’s stock float and should help support share prices as widespread selling continues to plague across the cannabis sector. Under the agreement, lockups expire on 15% of the shares on the last day of every fiscal quarter. The lockup agreement will expire completely on March 31, 2021.
If you wanna take your search for cheap stocks a step further, check out our top stocks under 10 dollars, updated monthly: https://www.thestockdork.com/best-under-10
Cannabis Market Overview
Let’s face it, things are pretty bleak in the cannabis sector right now. However, now that the hype has been squeezed out of these stocks, we’re starting to see how the market truly values these companies. After the .com bubble popped, a lot of kooky internet startups went out of business, but the real winners – like Amazon.com and eBay – survived and thrived. It wouldn’t be surprising if weed stocks face a similar fate. A large portion of cannabis companies could be bankrupt by the end of 2020, but the companies that survive the storm could be viable long-term investments.
The real question is, which ones are the winners? Many cannabis penny stocks have gone to zero, and it is likely that many more will follow them. If you’re buying cannabis stocks, don’t risk more than you can afford to lose. These are very speculative investments, especially given the recent climate in the market.
American Cannabis: The Next ‘Green Rush’?
Growth is clearly subsiding in Canadian pot stocks, and one expert thinks U.S. weed stocks will lead the way forward. Analysts from Seaport Global discussed the sector in a recent report and advised investors to start shifting towards U.S. cannabis companies.
“As for the U.S. multistate operator group, we see a completely different set of circumstances in place [from Canada], and we would broadly recommend that investors rotate away from Canada and toward the U.S. … We see a number of opportunities for public MSOs (Multi-State Operator) on the horizon.”
The U.S. is nowhere near federal cannabis legalization, but these companies are making money at the state level. American lawmakers recently loosened banking regulations that previously prevented cannabis companies from accessing capital markets, indicating that sentiment towards cannabis is shifting in Washington.
Investors should always maintain a contrarian mindset. It’s easy to look at the cannabis penny stocks now say, “they’re done with”. However, investors rarely make substantial gains by following the crowds. Cannabis stocks could be a massive swing trade in the making. It’s doubtful we will see valuations close to 2018’s levels anytime soon, but these companies have potential when viewed under a microscope of sound fundamentals and value. Keep your eyes open for deals.
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