Now that recreational cannabis is legal in Canada, there are several ways that an investor can earn a decent profit on related stocks. However, our cannabis market has seen many highs and lows since marijuana was legalized in 2018, despite much better projections at the time. This has unfortunately led to a lot of skepticism among traders.
So, if you’re thinking about investing in one or more cannabis companies, it’s best to do a bit of research beforehand. Here’s how to invest in cannabis in Canada.
What Are Marijuana Stocks?
A marijuana stock is a share of a company that produces, distributes or processes legal cannabis products. While it’s not a great idea to fill your entire portfolio with them, there are times when marijuana shares become quite valuable, especially in Canada and the US. So, in this case, diversification is the key to maintaining a healthy portfolio.
Benefits of Investing In Marijuana Stocks
There are several advantages to investing in the cannabis market, including but not limited to:
- High Risk, High Reward – The cannabis industry is young and has much room for growth. Although the industry has had its ups and downs, there’s no denying that playing the cannabis market can be very exciting for avid investors, due to its potential for growth. As regulations change, particularly in the US, cannabis stocks can lead to great profits.
- Investing In Something You’re Passionate About – Many people believe strongly in the medical and psychological benefits of marijuana. Since it’s now decriminalized, they can now support companies that advocate this, while also experiencing its financial benefits too.
Find out the best investment products in Canada.
Risks Of Investing In Marijuana Stocks
Despite its possible benefits, the Canadian cannabis market has a variety of serious risks that you should account for, whether you’re a new or seasoned investor:
- A Young Industry – Legal cannabis is a relatively new phenomenon here, so the industry hasn’t had much chance to develop. Canadian marijuana companies still have trouble raising capital from our banks, making it difficult for them to grow their business.
- Legal Issues – No matter how much community support it has, marijuana may always be a controversial subject in North America, so many investors aren’t 100% confident that it will remain legal or adequately regulated forever.
- The Black Market – Sadly, the heavy regulations surrounding the purchase and sale of marijuana, coupled with high sale prices have kept the illicit marijuana trade alive. According to a report by Public Safety Canada, statistics show that 42% of Canadians continue to purchase their cannabis illegally.
- Hard To Evaluate Stock – Even seasoned investors can’t predict the exact future of the Canadian marijuana industry. While shares are cheap, over-the-counter (OTC) cannabis stocks can be particularly volatile when the market takes a dive.
How To Invest In Cannabis In Canada
There are two main ways Canadians invest in marijuana stocks:
- Financial Advisor – If you know a good bank or independent financial advisor, their input may be of great use when it comes to our cannabis market. Not only can they teach you about the best stock and account options, but they’ll also help ensure that your portfolio is securely managed and involves an appropriate level of risk.
- Online Broker – Digital brokers are popular with investors too, especially for those who manage their own portfolios. While these platforms often lack the personal touch of being able to meet with a financial advisor, they may offer the same stocks, bonds and ETFs as some top firms, only with far lower trading fees.
Best Marijuana Stocks In Canada
If you do proper research and understand the risks, these are some of the best marijuana companies you can buy stocks from in Canada.
Tilray
Thanks to a merger with Aphria Inc. in May of 2021, Tilray and Aphria have officially become the largest Canadian marijuana company in terms of sales. They currently sell medical cannabis products domestically, in the US and in parts of Europe.
Tilray’s market cap is now valued at over $2.512 billion and according to its 2022 third-quarter fiscal year report, its net income has increased by 23% and gross profits by 31%. Moreover, they’ve maintained their position as “Leading Marketing Share” in Canada.
Canopy Growth Corporation
Canopy Growth is another huge cannabis producer in Canada. They own a number of brands, like Tweed, DNA Genetics and Leafs by Snoop. Plus, they have a market cap of
$2.98 billion and managed to increase their sales to $546.6 billion (37%) over the 2021 fiscal year, mostly due to the popularity of their CBD oils and vape segments in the US.
Constellation Brands is their largest backer, with a 38.4% stake in the company. This has given Canopy Growth the financial freedom and liquidity it needs to improve profit margins over time, despite its stocks recently being down 61% from all-time highs.
Aurora Cannabis Inc.
Aurora Cannabis is down 95% from record highs due to the dilution of shareholder wealth with steady equity capital raises. In the third quarter of 2021, they also reported a net loss of $165.7 million from continuing operations. However, they have one of the most popular stocks among Canadian investors, as well as a market cap of $672.99 million as of early 2022.
Over the next year or so, Aurora aims to report a positive EBITDA (earning before interest, taxes, depreciation and amortization) to let their stock recover. Soon, they may also begin to focus mainly on high-margin medical (instead of recreational) cannabis.
Cronos Group
Cronos Group Inc. is a Toronto-based investment firm that holds equity in companies that are licensed (or trying to obtain a license) to produce and distribute cannabis. Over the last 5 years, they’ve seen a huge 4,700% increase in market value but have also lost 68% since 2019. As of early 2022, its market cap is valued at about $1.2 billion.
Last June, Cronos strategically invested in a US-based marijuana operator called PharmaCann. The 10.5% stake is worth $110.4 million USD and will help Cronos enter the profitable US cannabis market, possibly driving up the value of their shares.
HEXO
HEXO Corp. is among the most popular cannabis brands in Canada too. As of 2022, they have a market cap of $217.63 million and are preparing for an increase in revenue after a recent acquisition of Redecan for $925 million. With the acquisition of Redecan, HEXO plans to use their expertise in production to increase its financial performance and cash flow. now Canada’s largest privately-held marijuana producer and a leading figure in the pre-rolled, oils, and capsules markets.
Together, HEXO would be positioned as the number one market shareholder in the recreational cannabis industry in Canada. Moreover, last February, HEXO also acquired Zenabis Global for $235 million, giving them access to the European market.
Marijuana Stocks FAQs
Can I legally invest in marijuana in Canada?
Where can I buy cannabis stocks?
Are marijuana stocks safe to invest in?
Bottom Line
No matter how appealing legal cannabis stocks may appear, they definitely carry risk, just like any investment. So, before you buy any stocks, it’s important to be responsible and speak with a financial advisor to learn the best ways of investing in marijuana in Canada.
