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.
4. WM Technology, Inc. (NASDAQ:MAPS)
Number of Hedge Fund Holders: 13
WM Technology, Inc. (NASDAQ:MAPS) provides e-commerce and compliance software solutions to retailers and brands in the cannabis market in the United States and internationally. The California-based company reported revenue of $44.39 million in Q1 2024, a 4.3% decrease from the same quarter last year. However, thanks to lower operating expenses, it reported a net profit of around $1.23 million against a net loss of $2.48 million in Q1 2023. The debt-free company also generated free cash flow and ended Q1 with cash holdings of $35.7 million, an increase of $9.8 million YoY.
MAPS’ business is heavily focused on the highly competitive market of California, which contributed 52% of its total Q1 revenue. However, this was down from 56% in 2022 and 61% in 2021, indicating that the company’s efforts for geographical expansion are slowly bearing fruit.
Many investors were recently concerned about WM Technology, Inc. (NASDAQ:MAPS) potentially delisting from the NASDAQ due to breaking the $1 minimum, but the company has slightly recovered since then and closed at $1.01 on the 24th of June. This may not seem like much but the stock has gained 26.25% since the beginning of the year. Another concerning news was that the technology company received a warning from NASDAQ on May 14th due to the absence of its quarterly report for the period ending March 31, 2024, and its annual report for the year ending December 31, 2023. A week later, it filed both and attributed the delay to a recent change in executive finance leadership.
Shares of MAPS were held by 13 hedge funds a the end of Q1 2024, with Rima Senvest Management boasting the largest stake of around 2.7 million shares, valued at $3.58 million.
3. Tilray Brands, Inc. (NASDAQ:TLRY)
Number of Hedge Fund Holders: 14
Tilray Brands, Inc. (NASDAQ:TLRY) boasts the number one cannabis market share in Canada, the leading market share by revenue in Germany, and it also distributes medical cannabis in 20 countries around the world.
In Tilray’s Q3 of 2024, which ended February 29th, the company reported revenue of $188.3 million, around 30% more than a year earlier. However, analysts were expecting a revenue $198.3 million, as the company has benefited from a boost in earnings due to recent acquisitions. The company also significantly reduced its loss to just $82.1 million compared to a massive $1.2 billion a year ago. A cheap pot stock to buy now, TLRY was held by 14 hedge funds at the end of Q1 2024, with a collective stake value of over $14.7 million.
Irwin Simon, the chairman and CEO of Tilray Brands, stated the following in the company’s Q3 2024 earnings call transcript:
“In the U.S., Tilray has multiple options and, in particular, is well positioned to benefit from the federal legalization of medical cannabis as a result of rescheduling. Yes, we believe that the rescheduling of cannabis from Schedule I to Schedule III in the U.S. would provide a path for Tilray to sell pharmaceutical-grade medical cannabis in the U.S. subject to doctor prescriptions.”
This is a different strategy from what MSOs are doing today. We believe there’s an opportunity to supply medical cannabis products from our existing operations into the U.S. for medical purposes. Further, in the event of a future federal adult-use and medical cannabis legalization in the U.S., we believe Tilray is well positioned to immediately leverage its strong global leadership position, know-how, and strategic strengths across operations, distribution, and brands to sell THC-infused products across its robust distribution network and sales channels in the U.S.”
As a result of the rescheduling announcement by the US Justice Department on May 16th, Tilray saw its share price move up by 6.3%. A day later, the company announced that it had filed for the sale of up to $250 million worth of its common stock through an at-the-market equity program. Tilray Brands, Inc. (NASDAQ:TLRY) plans to use proceeds from the sale to fund acquisitions or investments, including potential purchases of assets in the U.S. ‘in order to capitalize on expected regulatory advancements or expansion opportunities’.
TLRY has also made significant efforts to diversify and is now the 5th largest craft beer business in the U.S. after it agreed to acquire eight beer and beverage brands from Anheuser-Busch InBev for an undisclosed amount last year. Moreover, earlier this year, Tilray’s Breckenridge Distillery celebrated the wins of World’s Best Finished Bourbon, America’s Best Finished Bourbon, and Icons of Whisky Campaign Innovator of the Year: Highly Commended at the 2024 World Whiskies Awards. So it comes as no surprise that TLRY is also included in our list of the 10 Best Alcohol Stocks to Buy Now.
2. The Scotts Miracle-Gro Company (NYSE:SMG)
Number of Hedge Fund Holders: 29
The Scotts Miracle-Gro Company (NYSE:SMG) manufactures and sells consumer lawn, garden, and pest control products, as well as soilless indoor gardening equipment. The Ohio-based company has applied its expertise in horticulture and gardening to develop innovative technologies and solutions specifically tailored for cannabis cultivation. SMG reported revenue of over $1.52 billion in Q2 of 2024 ending March 31st, 2024, a slight decrease from the $1.53 billion reported in the same quarter last year. However, net profit soared by an impressive 44%, from $109.4 million to $157.5 million, due to the decrease in costs.
Jim Hagedorn, CEO of The Scotts Miracle-Gro Company (NYSE:SMG) stated in the company’s Q2 earnings call transcript:
“Everything we’ve done to get to a better place is happening, just like we projected it would when we laid out our fiscal ‘24 guidance. We told you we would achieve high single-digit growth in the consumer business and $575 million in adjusted EBITDA this year. And we’d do so while generating $1 billion in free cash flow over two years by the close of fiscal ‘24, improving gross margin by at least 250 basis points, and finding a long-term solution for Hawthorne. Free cash flow is a fabulous story. It improved over $500 million from prior year, exceeding our first half target by $200 million. Our debt levels are down by more than $750 million year-over-year. The most telling sign we’re in a better place is our leverage improvement. For Q2, we finished at 6.95x EBITDA, well within our covenant max of 7.7x, and better than Q1.”
The Hawthorne Gardening Company, SMG’s struggling subsidiary for cannabis growers, reported 28% lower net sales compared to the year before, mainly driven by lower volumes and price reductions. Hawthorne is moving away from distributed products to cut costs, shutting down 13 of its distribution centers in the last two years, and is now focused on its more profitable, exclusive, and owned brands like Gavita, Botanicare, General Hydroponics, Psycho, Mother Earth, and HydroLogic. The subsidiary’s recently announced distribution partnership with BFG is also expected to lower cost structure throughout the year.
29 hedge funds in the Insider Monkey database were bullish on SMG in Q1 of 2024, with a collective stake value of $422.7 million.
1. Jazz Pharmaceuticals plc (NASDAQ:JAZZ)
Number of Hedge Fund Holders: 38
Topping our list of Best Weed Stocks to Buy is Jazz Pharmaceuticals plc (NASDAQ:JAZZ), a global biopharmaceutical company with a focus on oncology and neuroscience. Its $7.2 billion acquisition of GW Pharmaceuticals in 2021 was a great sign of the growing legitimacy and increased receptivity of cannabis-based drugs in the pharma industry. With that purchase, JAZZ – which had focused primarily on sleep medications and oncology – also augmented its neuroscience portfolio.
JAZZ has been able to consistently increase its revenue for the last four years, from $2.36 billion in 2020 to $3.83 billion in 2023, with the company moving from loss to profitability last year. The Ireland-based company earned a revenue of almost $902 million in the Q1 of 2024, up 1.3% from the same quarter in 2023. However, it still reported a net loss of $14.62 million against a previous net profit of $69.42 million, mainly due to the high operating expenses. The company explained that most of these expenses went toward supporting strategic initiatives for its commercial business and that it expects these investments to positively impact revenue as the year progresses.
Although JAZZ recently witnessed a setback after its drug, suvecaltamide, failed to meet the primary endpoint in phase 2b trial, big positive news in the last quarter came from Xywav, a medication used to treat cataplexy or excessive daytime sleepiness.
Renée Galá, President and COO of JAZZ announced in the company’s Q1 earnings call transcript:
“There were approximately 9,900 narcolepsy patients taking Xywav exiting the first quarter, an increase of 375 patients from the prior quarter. Given the increased use of patient support programs, revenues for the quarter do not fully reflect these patient additions. We believe patient numbers are the best indicator of the long-term value and durability of this product and expect that revenues will be more aligned with patient numbers going forward as newly transitioned patients revert to being fully covered by their insurance providers.”
Things are also looking positive for Zanidatamab, a targeted treatment option for HER2-positive biliary tract cancer (BTC), as the FDA recently accepted the company’s application and granted Priority Review, shortening the review period to six months. And although approval is not guaranteed, JAZZ believes that the drug has the potential to generate a significant commercial opportunity of more than $2 billion.
The stock of Jazz Pharmaceuticals plc (NASDAQ:JAZZ) was held by 38 hedge funds at the end of Q1 2024 in the IM database, with the largest stake of 1.43 million shares held by Polaris Capital Management, valued at over $172.5 million.
While we acknowledge the potential of JAZZ as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as JAZZ but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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