In this article, we are going to discuss the 8 best pot stocks to buy.
The history of the cannabis industry is riddled with changes and conflicting legislation. The international media has played an important role in shifting perspectives about marijuana and drug use. Today, we are watching the slow and steady change of mainstream opinion to consider cannabis one of the more harmless – and probably even potentially beneficial – drugs still considered largely illegal. As perspectives change, we can expect the laws to eventually follow suit.
Global Cannabis Industry:
As we mentioned in our article – 20 Cities with the Most Expensive Weed in the World – the global cannabis market was valued at $47.32 billion in 2022, and is projected to grow from $57.18 billion in 2023 to $444.34 billion by 2030, growing at a CAGR of 34% during the forecast period.
Marijuana legalization is gaining momentum around the globe, driven primarily by the increasing recognition that the product may have a range of legitimate medicinal benefits and therapeutic applications. It is the most widely cultivated, trafficked, and consumed drug worldwide.
Easing Federal Restrictions:
It was announced on the 16th of May that the US Justice Department has officially proposed a new rule that would reclassify marijuana from a ‘Schedule I’ drug, which includes heroin and LSD, to a less tightly regulated ‘Schedule III’ drug, which includes ketamine and some anabolic steroids. The decision marks a major policy shift by the federal government and while it would neither make the substance legal nor decriminalize it on a federal level, it would recognize the medical uses of cannabis and acknowledge that it has less potential for abuse than the many more harmful drugs. The change would also open more doors to conduct research on marijuana.
Another significant benefit of the reclassification is that it could add fresh arguments for supporters of ballot measures seeking to legalize cannabis in states where it is still illegal. An example of this is Florida, where voters will decide on a constitutional amendment allowing recreational weed this November.
But perhaps the ones benefiting the most from this change are cannabis companies, which after the rescheduling would no longer have to follow tax provisions under a rule called 280E, which prevents them from taking standard business tax deductions.
Although the rescheduling is far from the federal legalization that the cannabis industry is so desperately waiting for, it is a step in the right direction. As a result, several marijuana stocks and pot ETFs posted solid gains following the announcement.
Amplify Alternative Harvest ETF, the first U.S. ETF to target the global cannabis industry, soared 26.1%, to reach $4.83. The ETF has gained almost 9.5% since the beginning of the year, against 15.9% gains made by the broader market.
Similarly, Amplify Seymour Cannabis ETF also rose by 25.4% to $6.43. In this active fund, 80% of the portfolio’s companies derive 50% or more of their revenue from the cannabis and hemp ecosystem. The ETF has posted gains of over 14.2% since the beginning of 2024.
With that said, here are the Best Marijuana Stocks to Buy Right Now.
Photo by CRYSTALWEED cannabis on Unsplash
Methodology:
To collect data for this article, we scanned Insider Monkey’s database of 920 hedge funds and picked the top 8 companies operating in the cannabis industry with the highest number of hedge fund investors. When two companies had the same number of hedge funds investing in them, we ranked them by the revenue of their last financial year instead.
Why are we interested in 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).
Following are the Best Weed Stocks to Buy According to Hedge Funds.
8. SNDL Inc. (NASDAQ:SNDL)
Number of Hedge Fund Holders: 7
SNDL Inc. (NASDAQ:SNDL) is the largest private-sector liquor and cannabis retailer in Canada. The company also operates as a licensed cannabis producer and stands as one of the country’s premier vertically integrated cannabis enterprises. SNDL has shown massive growth over the last few years, with its revenue skyrocketing from $60.9 million in 2020 to just over $909 million last year.
The company’s revenue during Q1 of 2024 stood at $197.75 million, a YoY increase of 3.5%, driven by cannabis retail and operations segments. Additionally, net loss notably decreased from $34.78 million in Q1 of 2023 to $2.5 million this year. The most notable improvement was in the cannabis operation segment, which delivered net revenues of $22.4 million, a 17% increase compared to Q1 2023. However, the highlight of the segment is clearly an improvement in profitability, as it posted a positive gross profit of $3.2 million against a loss of $9.5 million in the same quarter last year. Another thing to keep in mind is that SNDL had $189 million of unrestricted cash, an additional $594 million in marketable securities and investments, and no outstanding debt.
SNDL is also now positioned to fully benefit from the US cannabis markets and soon directly participate, as during the last quarter, the company announced the completion of NASDAQ’s review of its SunStream USA structure, marking a major milestone.
The stock of SNDL Inc. (NASDAQ:SNDL) was held by 7 hedge funds at the end of Q1 2024 in the Insider Monkey database, with a collective stake value of $10.5 million. SNDL is placed among the Biggest Marijuana Companies in the World.
7. GrowGeneration Corp. (NASDAQ:GRWG)
Number of Hedge Fund Holders: 9
Next up on our list of the Best Cannabis Stocks to Invest in 2024 is GrowGeneration Corp. (NASDAQ:GRWG), which claims to be America’s largest hydroponic store and organic garden center supplier selling hydroponic supplies, commercial grow lights, and more. It currently operates 46 retail grow-supply locations across 18 states, including distribution centers and e-commerce websites.
GRWG reported revenue of $47.9 million in Q1, versus $56.8 million in the first quarter of last year, representing a YoY decline of approximately 16%. Net loss also increased to over $8.8 million from $6.1 million last year. However, the company reported that its same-store sales are showing positive growth YoY and that its operating costs are at an all-time low, which it believes is a turning point in its financial performance. Moreover, the Colorado-based firm is planning to close more stores in 2024 and increase its B2B and e-commerce operations, where the demand is higher. It is expanding its supply chain distribution versus opening up more stores and also recently opened a new 100,000-square-foot distribution warehouse in Ohio. Earlier this month, GRWG announced plans to launch a B2B marketplace called The HRG B2B Portal, meant to be a one-stop destination for all hydroponic product needs across various categories. Analysts from Wall Street have maintained a Moderate Buy position on the stock of GrowGeneration Corp. (NASDAQ:GRWG), with an average price target of $3.58, representing an upside potential of 57.71%.
Among the 9 hedge funds that held stock of GRWG at the end of Q1 2024, D E Shaw held the largest stake of 641,417 shares, valued at over $1.8 million.
6. Cronos Group Inc. (NASDAQ:CRON)
Number of Hedge Fund Holders: 11
Cronos Group Inc. (NASDAQ:CRON), a cannabinoid company based in Canada, is engaged in the cultivation, manufacture, and marketing of cannabis and cannabis-derived products for both medical and adult-use markets. A noteworthy aspect of the company is its close association with Altria Group, a bigwig in the tobacco industry, as it maintains a 41% stake in Cronos which it acquired for $1.8 billion in 2019.
Cronos reported revenue of around $25.29 million in Q1 of 2024, up 29.7% from the same quarter last year, fueled by market share gains in Canada and a rebound in sales in Israel. The company’s net loss also dropped significantly to $2.24 million, compared to the previous $19.17 million.
CRON’s Spinach brand is now ranked as the second best-selling cannabis brand in Canada across all categories. However, the company is rapidly expanding into new markets and its Israel operations brought in 27% more revenue than in the same quarter last year, arriving at $6.6 million on a currency exchange-adjusted basis. Cronos is also a major supplier of Canasativa GmbH, a medicinal distributor to pharmacies in Germany. The company is also competing favorably in the highly competitive dried flavor segment in several of its major markets, indicating that its ongoing efforts to develop better and more appealing strains of weed relative to consumers’ preferences are working as intended. It was recently announced that CRON plans to invest $51 million to significantly expand its cultivation capabilities through its joint venture, Cronos Growing Company.
Shares of Cronos Group Inc. (NASDAQ:CRON), one of the Best CBD Stocks to Buy Now, were held by 11 hedge funds in the Insider Monkey database at the end of Q1 2024.
5. Innovative Industrial Properties, Inc. (NYSE:IIPR)
Number of Hedge Fund Holders: 12
Next up on our list of the Best Cannabis Stocks is Innovative Industrial Properties, Inc. (NYSE:IIPR), a key player in the real estate sector supporting the growth of the legal medical cannabis industry, offering investors exposure to the cannabis market through a real estate-focused investment vehicle. The San Diego-based company has consistently increased its revenue over the last four years, from $116.9 million in 2020 to $309.5 million in 2023. Net income has also more than doubled from $63.87 million to $162.75 million in the same period.
Alan Gold, the executive chairman of Innovative Industrial Properties, Inc. (NYSE:IIPR), stated in the company’s Q1 earnings call transcript:
“The company notched another solid quarter in Q1, generating $2.21 in AFFO per share and further enhancing the company’s liquidity position in the first four months of the year, with the upsizing of the revolving credit facility from $30 million to $50 million. Our total available liquidity exceeded $200 million as of the quarter end and fully funds any remaining development commitments we have, along with providing ample dry powder for additional strategic investments. Additionally, we have one of the lowest levered balance sheets in the REIT industry at 11% debt to total gross assets, no variable-rate debt, no debt maturities until May 2026.”
On the 14th of June, Innovative Industrial Properties announced a Q2 2024 dividend of $1.90 per share of common stock, representing a 4.4% increase over its Q1 2024 dividend of $1.82 per share and building upon the highly impressive 5-year dividend growth CAGR of +38.9%. IIPR is a great dividend pot stock, as the company has been growing its dividends for the past seven years. The upcoming cannabis federal reclassification is also expected to significantly help IIPR, especially since the company has Trulieve, Curaleaf, and Green Thumb (the three largest US multi-state cannabis operators by market cap) as its core tenants.
The stock of IIPR was held by 12 hedge funds at the end of Q1 2024 in the IM database, with a collective stake value of $127.8 million.