Introduction to buying and selling cannabis stocks
Investing in the cannabis industry only really came into the mainstream in October 2018 when Canada legalised cannabis for recreational use. More and more countries are taking steps toward legalisation too, which has led experts to believe the industry will be worth $102 billion by 2026.
But as it stands, the growth trajectory of a lot of cannabis companies has stalled over the past few years due to the Covid-19 crisis.
In the US, a lot of cannabis dispensaries were designated as ‘essential businesses’ so could continue to function, and sales increased with the stay-at-home orders. But as the tourist industry declined, other areas of the country saw their recreational cannabis sales decline too.
In Canada, cannabis stocks were mainly restricted by Covid-19 measures, which meant that many of the stocks plummeted throughout 2020 and 2021.
A lot of cannabis stocks have yet to recover from the downturn, as risk-off attitudes continue in the face of high inflation and a potential recession. But there are plenty of growth opportunities to be found should the US Congress move to decriminalise the drug.
What are cannabis companies?
Cannabis companies are the firms involved in all aspects of the marijuana industry. They’re divided into three categories:
- Marijuana growers and retailers – these companies cultivate and package cannabis products to market and sell to consumers
- Biotechnology companies – these firms develop and market cannabis-based pharmaceutical products
- Ancillary marijuana businesses – these are real estate companies that lease to cannabis businesses or manufacturing firms that supply products and machinery to cannabis companies. None have direct exposure to the plant
While cannabis has been legalised recreationally in a few countries, a lot of cannabis stocks are still primarily involved in the production of medical marijuana – which can help alleviate nausea, reduce chronic pain and muscle spasms, and treat epilepsy, among other uses.
Buying cannabis stocks
You’d buy or ‘go long’ on cannabis stocks if thought the companies were going to experience strong growth – whether that’s over the short- or long-term. You can invest in the shares of individual marijuana stocks or trade them using derivatives.
When you buy cannabis stocks with derivatives, you won’t be taking ownership of the shares, but speculating on whether their price will rise.
Learn more about trading shares with City Index.
Please note, CFD trading uses leverage which magnifies both profits and losses. You should learn to manage the risks of CFDs before opening a position.
Shorting cannabis stocks
You can sell cannabis stocks or ‘go short’ to take advantage of any falling market prices – as the cannabis industry is relatively new, it frequently experiences volatility that traders with higher risk tolerance can look to take advantage of.
While short selling traditionally involves borrowing stocks from a third party to sell, with derivatives – such as CFDs – you’d simply be opening a position to ‘sell’ cannabis stocks, instead of ‘buy’ them.
How to trade cannabis stocks with City Index
You can speculate on cannabis stocks with City Index in just four easy steps:
- Open a City Index account, or log in if you’re already a customer
- Search for the company you want to trade in our award-winning platform
- Choose your position and size, and your stop and limit levels
- Place the trade
Or you can try trading cannabis stocks risk free by signing up for our demo trading account.
Best performing cannabis stocks
The best performing cannabis stocks will depend on the metric used to assess them. Some might measure success by returns relative to a benchmark, others might choose to look at price-to-earnings ratios, revenue growth, share price growth or market capitalisation.
Please note, these companies are ranked by market capitalisation (as of May 31, 2022).
- Innovative Industrial Properties
- Green Thumb Industries
- Tilray Brands
- Canopy Growth
Markets change quickly, and past performance is no guarantee of future results. For the most up-to-date research on stocks and other markets, see our news and analysis section.
Curaleaf (CURLF) is a leading provider of consumer cannabis products. It’s a US-based company that’s traded on the Toronto stock exchange. As of May 2022, it produces and sells both recreational and medical cannabis in 23 states in the US. The firm has increased its store count from 117 at the end of last year to 128 in March 2022.
Curaleaf has increased its holdings dramatically having acquired other manufacturers and dispensaries, including Select, Arrow, MEOT, Remedy and Grassroots. In March 2021, it announced it had acquired EMMAC Life Sciences, the largest independent cannabis company in Europe, which is expected to allow Curaleaf to gain a significant foothold in the market.
In its Q4 2021 results, released in March 2022, Curaleaf showed a revenue increase of 39% year-over-year, up to $320 million, and a smaller net loss of $30 million compared to $37 million the previous year.
As of May 2022, Curaleaf shares were trading at CAD $6.09 – giving it a market capitalisation of $4.69 billion. That’s still 75% down from its all-time high of $36.46 in 2015.
Innovative Industrial Properties
Innovative Industrial Properties (IRP) is a real estate investment trust that acquires and rents properties for the use of state-licensed medical cannabis facilities. The company essentially helps existing US cannabis operators secure cash, by buying their properties and leasing the spaces back to them.
Covid-19 did disrupt IRP’s business model, as tenants received rent deferrals, but the company has still managed to grow rapidly. Largely this is because it’s structured as a REIT, which means 90% of its returns are taxable income to shareholders.
Learn what a REIT is.
According to its full-year 2021 report, Innovative Industrial Properties generated total revenues of approximately $204.6 million, of which net income attributable to common stockholders was approximately $112.6 million.
As of May 2022, Innovative Industrial Properties shares were trading at $133.09 each, giving it a market capitalisation of $3.69 billion.
Green Thumb Industries
Green Thumb Industries (GTBIF) produces and sells medical and recreational cannabis products in 15 states of the US. It uses premium house brands only, and credits this strategy with increasing margins and brand equity.
Its Q4 earnings in March 2022 showed revenue had increased 37% YOY to $244 million, while net income was 10 cents per diluted share, down from 11 cents in the prior-year quarter.
Despite this growth, the GBIF share price has fallen by 47% in the YTD, and down over 99% since its all-time high in February 2007. Green Thumb shares currently trade at CAD $14.50, giving the firm a market cap of $2.90 billion.
Canopy Growth is a cannabis company based in Ontario, Canada. It produces, distributes and sells both medical and recreational cannabis.
The company is planning to acquire Jetty Extracts, a maker of cannabis extracts and vaping technology, for $69 million. The move is part of a strategy to solidify itself in the legal market in the US. Currently, Canopy can only sell CBD products in the US – not THC, which is the part of the plant that creates the high.
While its growth plans for the US continue, it’s scaled back other operations, cutting jobs in Canada. The move comes as Canopy Growth reported revenues of $126 million in its Q3 2022 earnings – missing analyst estimates of $130 million.
As of May 2022, Canopy Growth shares trade at $6.33, which is 216% from their all-time low. But that’s not to say the company’s share price hasn’t seen its fair share of downs too. In 2019, the company was the largest cannabis stock in the world by market capitalisation, sitting at $17 billion, but it’s since fallen back to a value of $2.55 billion.
Tilray Brands (TLRY) is a leader in cannabis research, cultivation, processing and distribution. It merged with another cannabis company Aphria in May 2021, making it one of the world’s largest pure cannabis-play companies.
The difference between Tilray and a lot of other cannabis companies is that it’s not solely focused on the US or Canada. It currently has operations in Australia, New Zealand, Israel, Germany, the UK and Portugal. Tilray has boasted a high market share thanks to its strategy of being ‘first to market’ in a lot of countries.
However, Tilray has had trouble maintaining profitability and cash flow. Tilray has said it aims to reach $4 billion in revenue by the end of 2024, but currently, this figure sits at $513.09 million for FY 2021.
Tilray shares trade at around $4.49 as of May 2022 – which is 84.92% down from their all-time high – giving the company a market capitalisation of $2 billion.
Cannabis stock index
Cannabis stock indices give you the ability to go long or short on a number of companies in the cannabis industry from a single position.
City Index’s Cannabis Index is comprised of the top 20 cannabis stocks weighted by market capitalisation. The companies included are predominately based in Canada, or listed on the Toronto stock exchange.
Like other types of stock indices, the companies are selected based on strict criteria and rebalanced quarterly to ensure constituents are accurate.
As of May 2022, the Cannabis Index constituents – listed by market cap – are:
- Curaleaf Holdings
- Innovative Industrial Properties
- Green Thumb Industries
- Tilray Brands Inc
- Canopy Growth
- Trulieve Cannabis Corp
- Cronos Group
- Cresco Labs Subordinate Voting
- Sundial Growers Inc
- Aurora Cannabis
- Organigram Holdings
- WM Technology Inc
- AFC Gamma Inc
- Planet 13 Holdings Inc
- AYR WELLNESS INC
- Goodness Growth Holdings Inc
- Agrify Corp.
- Valens Co Inc