In this article, we will take a look at the 11 most undervalued pot stocks to buy according to hedge funds.
The marijuana industry is the US is progressing towards legal acceptance by the day. Pot stocks rose in December after President Joe Biden signed the Medical Marijuana Research Bill into law. The new law will affect the research processes for the development of marijuana products.
However, 2022 wasn’t a good year for many marijuana stocks. The euphoric rise in cannabis stocks experienced after the pandemic was nowhere to be seen last year as demand fell and companies had to tackle legal and structural challenges. For example, in California, wholesale prices in the industry fell as much as 95% since the state voted to legalize cannabis in 2016.
The Marijuana Industry Outlook
Analysts believe the marijuana industry will experience growth on the back of medical and recreational benefits of the product. According to Bloomberg, Cowen analyst Vivien Azer believes that legal cannabis sales in the US can grow at a double digit CAGR even without federal legalization. The analyst reportedly believes this growth will be driven by “incremental state level changes.”
The Bloomberg report also cited a note from Cantor Fitzgerald analyst Pablo Zuanic, which said large multi-state cannabis companies like Curaeaf Holdings and Green Thumb Industries could be top performers. The note said small cannabis companies could be “squeezed out” amid price deflation and “stretched out balance sheets.”
However, the same report had a bullish comment about small pot stocks. According to the report, BTIG analyst Jonathan DeCourcey thinks small cannabis stocks could be positioned for growth because of their cheaper valuations.
Mordor Intelligence expects that the cannabis market can post a CAGR of 15.4% from 2023 through 2028. The report said that the cannabis industry’s growth has been fueled by continued adoption of legal, medical or recreational cannabis in countries all over the world. Mordor’s report said North America, which it believes dominates the market, is estimated to the fastest-growing region.
America and Canada aren’t the only countries taking steps to legalize and embrace cannabis. The report from Mordor Intelligence said that Chile, Australia, Colombia, Germany, Greece, Israel, Italy, the Netherlands, among many others, are starting to legalize cannabis for medicinal purposes.
Our Methodology
For this article we scanned Insider Monkey’s database of 920 hedge funds’ holdings and picked top 11 pot stocks that have PE ratios under 20 or P/S ratio between 1 and 2 (for loss-making companies) as of February 6. The list is ranked in ascending order of the number of hedge fund investors as of the end of the third quarter of 2022.
Most Undervalued Pot Stocks To Buy According To Hedge Funds
11. SNDL Inc. (NASDAQ:SNDL)
Price/Sales (TTM): 1.43
Number of Hedge Fund Holders: 1
SNDL Inc. (NASDAQ:SNDL), previously known as Sundial Growers, is a Canadian company that operates and sells cannabis products. SNDL Inc. (NASDAQ:SNDL) is also known for its inhalable marijuana products, including flowers, pre-rolls, and vapes. SNDL Inc. (NASDAQ:SNDL)’s price/sales ratio stands at 1.43 as of February 6. In November, SNDL Inc. (NASDAQ:SNDL) posted third quarter results. SNDL Inc. (NASDAQ:SNDL)’s revenue posted remarkable growth amid a rise in its cannabis retail segment. Net revenue in the quarter jumped about 1,500% on a YoY basis. On the other hand, Liquor Retail revenue saw a 1% rise in the period. Adjusted EBITDA in the quarter grew by 74% in the quarter on a YoY basis.
10. HEXO Corp. (NYSE:HEXO)
Price/Sales (TTM): 0.42
Number of Hedge Fund Holders: 3
HEXO Corp. (NYSE:HEXO) is a Canadian cannabis company that sells adult-use and medical products, and cannabis beverages under different brand names. As of the end of the third quarter of 2022, 3 hedge funds tracked by Insider Monkey reported owning stakes in HEXO Corp. (NYSE:HEXO). Among the most notable hedge funds having stakes in HEXO Corp. (NYSE:HEXO) are Sander Gerber’s Hudson Bay Capital Management ($2.15 million stake) and Jim Simons’ Renaissance Technologies ($383,000 stake).
9. Clever Leaves Holdings Inc. (NASDAQ:CLVR)
Price/Sales (TTM): 1.08
Number of Hedge Fund Holders: 6
Clever Leaves Holdings Inc. (NASDAQ:CLVR) is a Florida-based company that sells pharmaceutical-grade cannabinoids. Clever Leaves Holdings Inc. (NASDAQ:CLVR) operates about 1.8 million square feet of greenhouses. Last year, Clever Leaves Holdings Inc. (NASDAQ:CLVR) launched its second medical cannabis product in Germany. Clever Leaves Holdings Inc. (NASDAQ:CLVR) also said it plans to increase exports from its Colombian facilities by the third quarter of 2022. In November, Clever Leaves Holdings Inc. (NASDAQ:CLVR) posted third-quarter GAAP EPS of -$0.48, missing estimates by $0.31. Revenue in the quarter fell 18.1% to total $3.3 million, missing estimates by $2.2 million. Adjusted EBITDA in the third quarter came in at -$5.4 million, better than -$6 million posted in the same quarter in 2021.
A total of 6 hedge funds tracked by Insider Monkey reported having stakes in Clever Leaves Holdings Inc. (NASDAQ:CLVR) as of the end of the third quarter of 2022. Among the notable hedge funds having stakes in Clever Leaves Holdings Inc. (NASDAQ:CLVR) are Thomas Steyer’s Farallon Capital ($1.5 million stake) and Jim Simons’ Renaissance Technologies ($344,000 stake).
8. Aurora Cannabis Inc. (NASDAQ:ACB)
Price/Sales (TTM): 1.71
Number of Hedge Fund Holders: 9
Aurora Cannabis Inc. (NASDAQ:ACB) is one of the most notable cannabis names in the market. Year to date Aurora Cannabis Inc. (NASDAQ:ACB) has gained about 17% as of February 6. In December, Aurora Cannabis Inc. (NASDAQ:ACB) said it repurchased $76.1 million principal amount of its convertible senior notes at a total cost, including accrued interest, of $73.8 million in cash. The purpose of the transaction was to reduce debt and annual cash interest costs. Aurora Cannabis Inc. (NASDAQ:ACB) also reiterated its forecast of achieving adjusted EBITDA profitability by the end of 2022.
As of the end of the third quarter of 2022, 9 hedge funds tracked by Insider Monkey reported owning stakes in Aurora Cannabis Inc. (NASDAQ:ACB). The total worth of these stakes was about $47 million. The biggest stakeholder of Aurora Cannabis Inc. (NASDAQ:ACB) is Jim Simons’ Renaissance Technologies which owns a $5.1 million stake in the firm.
7. Innovative Industrial Properties, Inc. (NYSE:IIPR)
Forward P/E as of February 6: 17.91
Number of Hedge Fund Holders: 12
Innovative Industrial Properties, Inc. (NYSE:IIPR) is a REIT that provides real estate capital for the cannabis industry. It ranks 7th in our list of the most undervalued pot stocks to buy according to hedge funds. As of the September quarter of 2022, 12 hedge funds reported owning stakes in Innovative Industrial Properties, Inc. (NYSE:IIPR), compared to 16 funds in the previous quarter. According to Yahoo Finance, Innovative Industrial Properties, Inc. (NYSE:IIPR)’s PE ratio (TTM) stands at 17.91. It is a high dividend stock, with a dividend yield of over 7% as of February 6.
Innovative Industrial Properties, Inc. (NYSE:IIPR)’s third quarter revenue saw impressive growth thanks to its acquisition and leasing of new properties. For the quarter, Innovative Industrial Properties, Inc. (NYSE:IIPR)’s adjusted FFO per share came in at $2.13, beating estimates of $1.89. Revenue in the quarter came in at $70.9 million, beating estimates of $68.4 million.
6. WM Technology, Inc. (NASDAQ:MAPS)
Price/Sales (TTM): 0.47
Number of Hedge Fund Holders: 15
WM Technology, Inc. (NASDAQ:MAPS) is a California-based tech company that provides software solutions to the cannabis industry. Its Weedmaps marketplace allows people to search for cannabis products from retailers and brands.
As of the end of the third quarter of 2022, 15 hedge funds reported owning stakes in WM Technology, Inc. (NASDAQ:MAPS). The net worth of these stakes was about $27 million. The biggest stakeholder of WM Technology, Inc. (NASDAQ:MAPS) was Richard Mashaal’s Rima Senvest Management which owns a $12 million stake in the company.
In November, WM Technology, Inc. (NASDAQ:MAPS) stock fell after the company posted Q3 results and a weak Q4 guidance. In the third quarter WM Technology, Inc. (NASDAQ:MAPS)’s revenue fell by a low double-digit percentage.
5. Tilray Brands, Inc. (NASDAQ:TLRY)
Number of Hedge Fund Holders: 16
Forward P/E as of February 6: 7.80
Tilray Brands, Inc. (NASDAQ:TLRY) ranks 5th in our list of the most undervalued pot stocks to buy according to hedge funds. Of the 920 funds tracked by Insider Monkey as of the end of the third quarter of 2022, 16 hedge funds had stakes in Tilray Brands, Inc. (NASDAQ:TLRY), compared to 14 hedge funds in the previous quarter. The total worth of these stakes was about $34 million. One of the biggest hedge fund stakeholders of Tilray Brands, Inc. (NASDAQ:TLRY) among these funds was DE Shaw’s hedge fund which had a $9.3 million stake in the company.
In January, Tilray Brands, Inc. (NASDAQ:TLRY) launched new ritual-based cannabis products including Solei Slims and Solei CBN Softgels. Tilray Brands, Inc. (NASDAQ:TLRY) said that Solei Slims will be available in 10-packs of 0.4g pre-rolls, while the Solei Softgels will roll out in the form of 30-capsule bottles.
4. The Scotts Miracle-Gro Company (NYSE:SMG)
Number of Hedge Fund Holders: 29
Forward P/E as of February 6: 11.74
Though The Scotts Miracle-Gro Company (NYSE:SMG) is a lawn products seeds and pesticides company, it was one of the first entrants into the cannabis market. Back in 2011, talking to Wall Street Journal, The Scotts Miracle-Gro Company (NYSE:SMG) CEO Jim Hagedorn said:
“I want to target the pot market.. There’s no good reason we haven’t.”
Over the years The Scotts Miracle-Gro Company (NYSE:SMG) has made several investments in the Hydroponics space which have made the company one of the best cannabis stocks to buy today.
As of the end of the third quarter of 2022, 29 hedge funds tracked by Insider Monkey reported owning stakes in The Scotts Miracle-Gro Company (NYSE:SMG). The net worth of these stakes was over $128 million. The biggest stakeholder of The Scotts Miracle-Gro Company (NYSE:SMG) was Jean-Marie Eveillard’s First Eagle Investment Management, which owns a $67.3 million stake. The second biggest stakeholder of The Scotts Miracle-Gro Company (NYSE:SMG) was Ken Fisher’s Fisher Asset Management which has a $32 million stake in the firm.
Madison Funds made the following comment about The Scotts Miracle-Gro Company (NYSE:SMG) in its Q4 2022 investor letter:
“Stock selection was the poorest for us in this sector. Two stocks in particular – Hain Celestial (HAIN) and The Scotts Miracle-Gro Company (NYSE:SMG) – while big winners for us in 2020 and 2021, hurt the portfolio in 2022.
While both companies were so-called COVID beneficiaries (businesses that benefited from consumers staying home and spending on their homes during COVID), we felt they possessed certain additional drivers that would maintain their fundamentals into 2022 and beyond.
Scott’s Miracle-Gro is arguably one of the great American franchises. The brand is synonymous with lawn care and pest control, has a dominant market share (~60%) with historically-impressive ~30% cash flow margins, and has the country’s largest Cannabis supply business. Scotts’ core business saw a significant windfall during COVID lockdowns. Lawn and garden care is not a growth business, and SMG dominance does not allow for much incremental gain in market share. However, our thesis was that even in a reopening scenario where lawn and garden businesses would revert to the mean, the cannabis market was poised for years of growth as more states legalized recreational use.
What we missed was the highly inefficient structure of the U.S. cannabis market. Currently, California, Colorado, and Michigan have the biggest and most mature markets. However, over the course of the last few years, several very large states and regions have voted to legalize recreational use, including New York, New Jersey, and Connecticut. The fly in the ointment has been Oklahoma, which is a medical marijuana state. Although recreational use is still prohibited, licenses to grow the crop were granted in Laissez Faire fashion to anyone willing to buy one. Oklahoma began to grow and cultivate the crop far in excess of their medical marijuana demand. That excess supply bled into grey markets across the country, devastating pricing for growers in other states. This glut put a near complete stop to capital spending on grow operations. With no new or incremental facilities coming on, Scotts’ Hawthorne business was cut in half from its peak in F21. This, of course, had a devastating effect on the stock.”
3. Jazz Pharmaceuticals plc (NASDAQ:JAZZ)
Number of Hedge Fund Holders: 43
Forward P/E as of February 6: 9.23
Jazz Pharmaceuticals plc (NASDAQ:JAZZ) is one of the most popular cannabis stocks among elite money managers. Jazz Pharmaceuticals plc (NASDAQ:JAZZ) is a pharma company that is focusing immensely on cannabis-related products. Jazz Pharmaceuticals plc (NASDAQ:JAZZ) made headlines in 2021 after announcing plans to buy GW Pharmaceuticals for a whopping $7.2 billion. GW is behind EPIDIOLEX, the first FDA-approved prescription cannabidiol (CBD) to treat seizures associated with Lennox-Gastaut syndrome (LGS), Dravet syndrome, or tuberous sclerosis complex (TSC), in patients 1 year of age or older.
Insider Monkey’s database of 920 hedge funds’ holdings shows that 43 hedge funds entered into the fourth quarter of 2022 with Jazz Pharmaceuticals plc (NASDAQ:JAZZ) shares in their portfolios. The net worth of the stakes of these hedge funds was $1.2 billion. The biggest stakeholder of Jazz Pharmaceuticals plc (NASDAQ:JAZZ) among these hedge funds was Bernard Horn’s Polaris Capital Management which owns a $196 million stake in Jazz Pharmaceuticals plc (NASDAQ:JAZZ).
2. Altria Group, Inc. (NYSE:MO)
Number of Hedge Fund Holders: 47
Forward P/E as of February 6: 28.99
One of the biggest tobacco companies in the world, Altria Group, Inc. (NYSE:MO) makes it to the list of the most undervalued pot stocks to buy because the company is an active investor in the space. Altria Group, Inc. (NYSE:MO) on its website says it supports a science-based federal framework for all cannabis products. Altria Group, Inc. (NYSE:MO) also participates in the Coalition for Cannabis Policy, Education, and Regulation (CPEAR). Altria Group, Inc. (NYSE:MO) made headlines back in 2019 when it invested about $1.8 billion in Canadian cannabis company Cronos to buy a 45% ownership stake. However, last year, Altria Group, Inc. (NYSE:MO) notified Cronos Group that it irrevocably gave up its warrant to purchase further shares of Cronos.
As of the end of the third quarter of 2022, 47 hedge funds tracked by Insider Monkey had stakes in Altria Group, Inc. (NYSE:MO). The biggest stakeholder of Altria Group, Inc. (NYSE:MO) during this period was Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital which owns a $383 million stake in the company.
1. Pfizer Inc. (NYSE:PFE)
Number of Hedge Fund Holders: 77
Forward P/E as of February 6: 8.05
Pfizer Inc. (NYSE:PFE) made it to our list of undervalued pot stocks because the company entered the cannabis space when it bought Arena Pharmaceuticals last year for $6.7 billion. Arena Pharmaceuticals had a pipeline dedicated to cannabinoid-type therapeutics. Analysts believe Pfizer Inc. (NYSE:PFE) could expand its presence in the lucrative cannabis market in the future as legal structure around cannabis gets more visibility.
Pfizer Inc. (NYSE:PFE) is a strong dividend payer and the stock’s PE ratio stands at 8.05 as of February 6. Pfizer Inc. (NYSE:PFE) is also one of the most popular stocks among hedge funds. Of the 920 funds tracked by Insider Monkey, 77 hedge funds reported owning shares in Pfizer Inc. (NYSE:PFE) at the end of the third quarter of 2022.
You can also take a peek at 25 Most Viewed YouTube Videos of All Time and Dividend Challengers List Ranked By Yield.
Suggested articles:
- 15 States with Highest Tax Revenue per Capita
- 15 Most Undervalued Small-cap Stocks To Buy
- 20 Best For-Profit Colleges in the US
Disclosure: None. 11 Most Undervalued Pot Stocks To Buy According To Hedge Funds is originally published on Insider Monkey.
