- 37 states have legalized cannabis for medical use, and 21 states have cannabis legal for recreational use
- There are many options for investing in cannabis stocks, from growers to REITs, and even software companies
- While cannabis is legal in many states, it is still federally illegal, which is a risk investors need to consider
As more states legalize marijuana for recreational use, the number of cannabis companies has grown. With an estimated market size of $16.7 billion that is expected to grow 25% annually until 2030, there is money to be made. Here are the top cannabis stocks to look into, as well as a major risk investors need to be aware of—plus how to get invested in cannabis with Q.ai.
The allure of cannabis
People seek relief from life’s daily stresses through mind-altering means such as cigarettes and alcohol. The problem is these two substances have harmful effects on the body when consumed over time, even though they’re legal. Cannabis, which has a variety of ingestion methods, is felt to be less harmful than alcohol and cigarettes while delivering a predictable and controllable high.
Many users of cannabis want to maintain their overall health yet be able to check out for a while. Consuming cannabis is associated with a lower risk of cancer as well as liver and kidney damage compared to cigarettes and alcohol.
Cannabis, and its active ingredient, tetrahydrocannabinol (THC), have been found to reduce the side effects of medications, help cancer patients with nausea related to treatment, and increase the food intake of patients with HIV.
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States legalizing marijuana and the impact
California was the first state to legalize marijuana for medical use in 1996. In 2012, Colorado and Washington state both legalized recreational marijuana. As of 2023, 37 states have legalized medical use, and 21 states, along with Guam, the U.S. Virgin Islands, the Northern Mariana Islands and Washington, D.C., have decriminalized its recreational use. Many non-legal states have lowered their enforcement activity and criminal punishments for possessing small amounts of marijuana.
States that have legalized medicinal and recreational marijuana have experienced a tax windfall from the sale of legal weed through dispensaries. These states now earn money from marijuana instead of spending on enforcement activities, court hearings, and imprisonment. Many social services provided by these states have benefited from the taxes collected on the sales of recreational marijuana.
Colorado, for example, has brought in $2.3 billion of marijuana-related tax revenue between 2014 and 2022. Lastly, weed tourism also helps generate income for the state as people living in illegal states will drive to a legal state to partake in cannabis without worry.
Investing in marijuana stocks
For investors looking to start a position in cannabis stocks, here are some to consider.
Curaleaf Holdings Inc. (OTCMKTS: CURLF)
Curaleaf operates in 21 states and has 147 dispensaries and 29 cultivation sites. It offers strains and in-house products containing varying levels of THC and ingestion formats. It’s a major employer in the legal and medical marijuana industries, with over 6,000 team members. The company is in a growth phase and is looking to expand its operations whenever an opportunity arises.
Its stock price tends to be volatile, with extended periods of highs and lows. The stock price reached as high as $8.90 in February 2022, then slid to under $4 in January 2023. Once the legal marijuana industry stabilizes, Curaleaf will have a strong position to supply its product to the retail marketplace and become a solid performer.
Green Thumb Industries Inc. (OTCMKTS: GTBIF)
Green Thumb Industries manufactures and distributes packaged-for-customer goods to marijuana retailers nationwide. It seeks to improve the user’s well-being through the use of cannabis and also gives to the communities the company serves. The company also operates RISE retail stores across the country. It has 77 retail locations and 18 manufacturing facilities and operates in 15 U.S. markets.
In the third quarter of 2022, Green Thumb reported a 3% increase in revenue growth over the previous quarter and 12% year-over-year to $261 million. Its stock has experienced volatility but may be worth buying and holding after a dip.
Cresco Labs Inc. (OTCMKTS: CRLBF)
Cresco Labs grows, manufactures and sells its products through its dispensaries and wholesale distribution channels. The company operates in 10 states and has 21 grow facilities, 56 retail licenses and 56 dispensaries. Its dispensaries seek to educate the consumer about its products, and its Sunnyside retail stores sell cannabis products alongside other natural non-cannabis health and wellness products.
While not as volatile, Cresco’s stock has been on a steady decline throughout 2022, dropping from $6.75 in January 2022 to around the $2 mark since the beginning of 2023. The outlook for Cresco Labs stock depends on its ability to compete with larger operations such as Curaleaf and Green Thumb. Its Sunnyside stores may help draw in a wider audience for its products and improve its profitability.
Innovative Industrial Properties (NYSE: IIP)
Innovative Industrial Properties is a managed real estate investment trust (REIT) focusing on buying, owning and managing property leased to state-licensed marijuana operators. At the end of September 2022, the company owned 111 properties for 8.7 million square feet of rentable space. It also has 2 million square feet under development or redevelopment in 19 states.
The company’s underlying purpose is one that’s tried and true in terms of performance. However, the marijuana industry is in its early stages and still vulnerable to market and legal issues. It is currently suffering from three of its tenants defaulting on their loan payments, bringing its total rent collection to 92%.
The narrow focus of the REIT makes it more difficult to find a replacement tenant. Innovative took a loss to its stock value when it warned about defaulting tenants. If more tenants default in the near future, the company will lose more of its stock value.
Scotts Miracle-Gro (NYSE: SMG)
The CEO of Scotts, Jim Hagedorn, has long felt that federal legalization of marijuana is inevitable. However, the company was prohibited from marketing to marijuana growers even though growers have long known that Miracle-Gro produces high-quality plants. Scotts went around this prohibition by buying companies that produce products for the hydroponics industry.
The outlook for Scotts Miracle-Gro is strong as more barriers to the cultivation of marijuana are broken down. As long as people seek to grow their own supply for personal use or sale, there will always be a market for the elements needed to grow the plant. Another advantage to selling hydroponic equipment is that it can be used for other cultivation purposes as well, giving the company a broad market for its products. The stock price of Scotts has been steadily improving after a drop-off in 2022 and is well positioned for future growth.
Akerna (NASDAQ: KERN)
Akerna is not involved in the growing or selling of marijuana. Instead, it provides cannabis companies with software solutions for inventory management and regulatory compliance. In the third quarter of 2022, software revenue increased 17% year-over-year, and total revenue was up 5% over the same period. Software bookings in the third quarter reached roughly $440,000, and transaction volume increased by 10%.
The stock has declined after reaching a high of $30.40 in February 2022. Most of this decline has come from a weak stock market and the diminishing hopes that the Biden administration would legalize marijuana on the Federal level. When this did not materialize, the stock began to trend south.
The risk of investing in cannabis stocks
While a handful of states have legalized marijuana, it is essential to remember that it is still illegal on the federal level. This means there are roadblocks for companies in the cannabis industry. For example, there are strict banking regulations about illegal drugs. Any marijuana-related company cannot use a major bank, but they can opt for a credit union or state-chartered bank. As a result, paying workers can be an issue.
Additionally, many credit card issuers won’t work with these companies, so dispensaries tend to be cash-only operations. This can significantly impact the growth prospects of cannabis companies. While these companies are doing fine now, this is a risk investors need to be aware of.
To diversify this risk, investors could choose to invest in an exchange-traded fund that owns multiple companies. The Guilty Pleasures Kit from Q.ai is one such example. It uses artificial intelligence’s power to spot market trends and base its investments accordingly. It is important to note that in addition to cannabis, this kit also invests in gambling, alcohol, tobacco and sex positivity companies.
The bottom line
The cannabis industry is rapidly growing and should continue to do so as more states legalize the drug for recreational use. Eventually, there will come the point where the industry will need to consolidate, and the small companies will either be bought by larger operations or go out of business. Because of this, it is critical investors do their research and invest in the best of breed to ensure their investment dollars have the greatest chance at growing.
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