With the U.S. commonwealth of Saipan deciding to make the leap from total prohibition to full-scale legalization, and conservative-minded Thailand also throwing its hat into the medical marijuana ring toward the tail end of 2018, the legal marijuana industry seemed to be on an unstoppable winning streak last year. Most pot stocks, as a result, sailed higher during the first five months of 2019.
However, the uncertainty swirling around the legalization of cannabis at the federal level in the U.S. and the Food and Drug Administration’s lack of guidance regarding the safety of cannabidiol (CBD) oils has caused a number of these former highfliers to suddenly cool off. Is this rising tide coming to an end, or is the industry simply taking a much-needed breather?
With this question in mind, we asked three of our Motley Fool contributors which pot stocks they think investors should be keying on this month. They suggested Cronos Group (NASDAQ: CRON), Canopy Growth (NYSE: CGC), and GW Pharmaceuticals (NASDAQ: GWPH). Here’s why these three names are worth watching in June.
A test case
George Budwell (Cronos Group): If marijuana stocks are going to regain their footing this year, Cronos Group is probably going to lead the charge, making it a top cannabis stock to keep an eye on this month. Canada’s third-largest pot company by market cap just got a whopping two-notch upgrade from sell to buy from Bank of America’s Merrill Lynch following a presentation at an investor luncheon hosted by Consumer Analyst Group of New York earlier this week.
Merrill Lynch abruptly changed its tune after CEO Mike Gorenstein noted at the aforementioned luncheon that Cronos isn’t that far off from expanding into the high-value United States CBD market. Cronos’ brain trust also highlighted its close partnership with tobacco giant Altria (NYSE: MO) during this informal sit-down. The key point is that Altria’s large contract farmer network, enormous supply and commercial infrastructure, and strong ties with various nationwide retailers could translate into a nearly insurmountable competitive barrier for other Canadian pot growers. Cronos and Altria might end up dominating this enormous market.
Wall Street’s newfound optimism, though, essentially boils down to a leap of faith. As things stand now, Cronos is well behind its closest peers from a production standpoint, and its domestic sales during the first few quarters since legalization have been near the bottom of the pack among publicly traded companies as a result.
The company’s core value proposition hinges on the U.S. ending federal prohibition — an event with a highly uncertain outlook. Cronos’ stock should thus provide investors with a clear line of sight into Wall Street’s thinking regarding how the legal landscape is developing inside the United States.
A big month for the biggest player
Keith Speights (Canopy Growth): Most of the big Canadian marijuana producers have already reported their results for the quarter ending March 31. The notable exception is the biggest of them all by market cap, Canopy Growth. Although Canopy hasn’t announced the date for its next quarterly update, it should be coming up within the next few weeks.
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