These are the marijuana stocks with the highest year-over-year (YOY) sales growth for the most recent quarter. Rising sales can help investors identify companies that are able to grow revenue organically or through other means, and find growing companies that have not yet reached profitability. In addition, earnings per share can be significantly influenced by accounting factors that may not reflect the overall strength of the business. However, sales growth can also be potentially misleading about the strength of a business, because growing sales on money-losing businesses can be harmful if the company has no plan to reach profitability.
Marijuana stocks, as represented by the ETFMG Alternative Harvest ETF (MJ), have dramatically underperformed the broader market. MJ has provided a total return of -28.6% over the past 12 months, well below the Russell 1000’s total return of 25.2%. These market performance numbers and all statistics in the tables below are as of Jan. 6, 2022.
Momentum investing is a factor-based investing strategy in which you invest in a stock whose price has risen faster than the market has as a whole. Momentum investors believe that stocks that have outperformed the market will often continue to do so because the factors that caused them to outperform will not suddenly disappear. In addition, other investors, seeking to benefit from the stock’s outperformance, will often purchase the stock, further bidding its price higher and pushing the stock higher still. These are the stocks that had the highest total return over the past 12 months.
Fastest Growing Marijuana Stocks
These are the marijuana stocks with the lowest 12-month trailing price-to-sales (P/S) ratio. For companies in the early stages of development or industries suffering from major shocks, this can be substituted as a rough measure of a business’s value. A business with higher sales could eventually produce more profit when it achieves (or returns to) profitability. The P/S ratio shows how much you’re paying for the stock for each dollar of sales generated.
Below we look at the top five marijuana stocks with the best value, the fastest growth, and the most momentum.
The marijuana industry is made up of companies that either support or are engaged in the research, development, distribution, and sale of medical and recreational marijuana. Cannabis has begun to gain wider acceptance and has been legalized in a growing number of nations, states, and other jurisdictions for recreational, medicinal, and other uses. Some of the biggest companies in the marijuana industry include Canopy Growth Corp. (CGC), Cronos Group Inc. (CRON), and Tilray Inc. (TLRY). Many big marijuana companies have continued to post sizable net losses as they focus on investing in equipment to speed up revenue growth.
GRWG, VRNO.CX, and IIPR are top for value, growth, and momentum, respectively
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That included a number of major deals, including:
Canadian licensed producers (LPs) started investing in U.S. cannabis operators in earnest in 2021. In June, Cronos Group (CRON) paid $110.4 million for an option to acquire a 10.5% stake in PharmaCann upon U.S. federal legalization. Then in August, Tilray (TLRY) acquired convertible bonds issued by MedMen in a deal that would allow Tilray to take a 21% ownership interest if, or when, the U.S. legalizes cannabis federally.
Notably for those investing in cannabis: Equities tend to follow credit over time, and as institutional capital gains access to the industry, we expect cannabis will be no different.
M&A Activity Will Accelerate
Federal reforms to cannabis could turbocharge the industry in 2022. But strong business fundamentals and positive trends will see the industry continue its rapid development regardless.
Cannabis-sector advisory firm Viridian Capital Advisors says a record $8.5 billion worth of M&A transactions closed as of mid-November, compared to roughly $3 billion last year and $3.7 billion in 2019.
Canadians Bet on U.S. Legalization
While politicians' future actions on SAFE are unpredictable, it would seem the November 2022 midterms represent a line in the sand for political leadership to definitively take or not take action on the bill.
While near-term federal regulatory reform remains in question, three trends are set to play a critical role for those investing in cannabis in 2022.