In this article, we are going to discuss the best cannabis stocks to invest in.
The history of cannabis cultivation in America dates back to the early colonists, who grew hemp for textiles and rope. The plant was also widely used as a patent medicine during the 19th and early 20th centuries, described in the United States Pharmacopeia for the first time in 1850. Several political and racial factors led to the criminalization of cannabis in 1937 with the passage of the Marijuana Tax Act, but its legal status is now finally changing in many places.
Also read: 20 States with the Highest Weed Consumption in the US
Cannabis Industry in the United States:
The United States of America is the country that consumes the most weed in the world. As we mentioned in our article – 30 Cities with the Highest Weed Consumption in the US – the American legal cannabis industry fared well in 2023 as legal sales across the 38 states that allow some form of regulated marijuana reached $28.8 billion, a 10.3% increase from the previous year. Meanwhile, the legal cannabis industry also added 22,952 new jobs last year – a sign that the national business climate has somewhat stabilized following the turmoil of the previous two years. According to the 2024 Vangst Jobs Report, there were over 440,445 jobs supported by legal cannabis nationwide as of early 2024, an increase of 5.4% from 2023. The increasing legalization of cannabis and rising acceptance of its use for medical purposes are the key factors fueling the industry. Growth is also expected to come from new markets. One such example is Nebraska’s vote in favor of legalizing medical marijuana last month.
As of the writing of this article, 24 states have legalized recreational weed in America, in addition to the District of Columbia. However, possessing or selling marijuana remains a crime under federal law, punishable by prison time and fines.
Major Blow to the US Cannabis Revolution:
In a significant setback for America’s legal cannabis industry, Florida voters rejected a ballot measure to legalize recreational marijuana in November. The measure, known as Amendment 3, got 55.9% support, failing to meet the required 60% threshold. This was despite historic levels of funding, a rigorous advertising campaign, and even an endorsement from President-elect Donald Trump.
Florida, with its population of 20 million people, is already home to the country’s largest medical marijuana market, boasting an annual revenue of $2 billion. The Sunshine State is also a popular tourist destination (especially during spring break) and attracts more than 140 million tourists every year. If Amendment 3 had been passed, Florida was expected to become a $6 billion cannabis market by 2026.
Through the Smart & Safe Campaign, Florida’s cannabis companies and individual donors collectively contributed more than $150 million to get legalization enacted into law, with most of it coming from the largest medical marijuana operator in the state. On the other hand, Florida Governor Ron DeSantis, who aggressively campaigned against Amendment 3, spent an estimated $50 million of taxpayer money on radio and television ads to successfully convince enough voters to reject the measure. Meanwhile, hedge fund billionaire Ken Griffin also came out against legalization and donated $12 million to the Vote No On 3 campaign.
This setback inevitably had an impact on cannabis stocks, which witnessed a downturn following the news of the rejection. Amplify Alternative Harvest ETF, the first US ETF to target the global cannabis industry, has fallen by almost 30% since November 4, closing at $2.33 on December 13, 2024.
Florida voters will now have to wait for two more years before cannabis legalization can get back on the ballot.
With that said, here are the Best Marijuana Stocks to Buy Now.
A close-up shot of a cannabis plant, showing its intricate details.
Methodology:
To collect data for this article, we scanned Insider Monkey’s database of 900 hedge funds and picked the top 11 companies operating in the cannabis sector with the highest number of hedge fund investors. When two or more companies had the same number of hedge funds investing in them, we ranked them by the revenue of their last financial year instead. Following are the Best Marijuana Stocks According to Most Hedge Funds.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
11. Hydrofarm Holdings Group, Inc. (NASDAQ:HYFM)
Number of Hedge Fund Holders: 5
Hydrofarm Holdings Group, Inc. (NASDAQ:HYFM) is a leading manufacturer and distributor of hydroponics equipment and supplies for controlled environment agriculture. The company’s products are used in new or emerging industries or segments, including cannabis.
Hydrofarm Holdings Group, Inc. (NASDAQ:HYFM) had mixed results in Q3 of 2024 as its revenue decreased by 18.8% to $44 million compared to $54.2 million in the same period last year. This decline was primarily attributed to a 13.7% decrease in volume mix due to oversupply in the cannabis industry. However, profitability remains a top priority for the company and it has executed several restructuring initiatives to become more cost-efficient. Notably, since the beginning of 2023, Hydrofarm has reduced its manufacturing footprint by nearly 60% and its total manufacturing and distribution space by almost 45%. As a result, despite the decrease in revenue, the company achieved a Q3 gross profit of $8.5 million or 19.4% of net sales, compared to $3.3 million or 6.1% of net sales a year ago. Its net loss also declined by over 34% to reach $13.1 million.
Hydrofarm Holdings Group, Inc. (NASDAQ:HYFM) ended Q3 with over $41 million of total liquidity, including cash in hand and over $17 million of availability on its untapped revolving line of credit. Meanwhile, its net debt at the end of the quarter was approximately $104 million. The company also remains focused on the diversification of its revenue sources as it wants to be less reliant on cannabis in the US and Canada. As a percentage of sales, its non-cannabis and non-US-Canada revenue sources increased several hundred basis points compared to Q3 last year.
5 hedge funds tracked by Insider Monkey held shares of Hydrofarm Holdings Group, Inc. (NASDAQ:HYFM) at the end of Q3 2024, with Renaissance Technologies holding the largest stake of 753,600 shares, valued at $519,230.
10. Advanced Flower Capital Inc. (NASDAQ:AFCG)
Number of Hedge Fund Holders: 6
Advanced Flower Capital Inc. (NASDAQ:AFCG) provides financial services to the cannabis industry, including real estate loans and loan underwriting. The Florida-based company offers direct and bridge loans ranging from $10 million to $100 million, which are crucial for an industry growing quickly but facing severe banking and financing issues.
In Q3 of 2024, Advanced Flower Capital Inc. (NASDAQ:AFCG) reported distributable earnings of $0.35 per share, beating the Wall Street Analysts’ estimate of $0.34 per share. Over the last four quarters, the company has surpassed consensus EPS estimates twice. Moreover, it also paid its first post-spin dividend of $0.33 per share to shareholders and maintains a dividend policy to pay between 85% and 100% of its distributable earnings over the year.
Advanced Flower Capital Inc. (NASDAQ:AFCG) remains focused on partnering with strong operators in limited license states and further diversifying its portfolio. It closed several important deals in Q3, including an $11 million senior secured credit facility for Private Company Q, expansion of senior secured facilities to two existing borrowers, and closing of a $41 million senior secured credit facility for Story of Maryland, a leading vertically integrated operator in Maryland’s adult-use cannabis market. The company has exceeded its $100 million origination target for the year, reaching $116 million in total new originations by the end of Q3.
Advanced Flower Capital Inc. (NASDAQ:AFCG) ended the quarter with total assets of $366.6 million, including cash and cash equivalents of $122.2 million, which included $60 million drawn on its line of credit that was subsequently repaid in full on October 1, 2024. Its line of credit provides it with up to $60 million in available funds that can be drawn as needed.
