The US marijuana industry has a lot of potential to grow and presents a good investment opportunity, although there is some uncertainty regarding the regulations. On the one hand, medical marijuana has been legal in 28 states and the District of Columbia and eight states allow the sale and possession of cannabis for both medical and recreational use. In Canada, medical marijuana is also legal and the country is moving fast to make recreational use legal later this year, which might create some cross-border trading and collaboration opportunities. At the same time, many marijuana companies are facing regulatory hurdles and other issues, such as banks’ unwillingness to conduct business with marijuana dispensaries, forcing them to operate entirely with cash.
Investing in a market that is at its inception and has good growth prospects seems like a good opportunity. However, when it comes to investing in the US marijuana market, there aren’t that many choices. Most stocks that you can invest in are pharmaceuticals focused on developing cannabis-based drugs. There are some companies that are trading on over-the-counter markets, but they are not as tightly regulated as companies on NYSE or NASDAQ, so there are some pitfalls to be avoided.
Another good option is to find an investment vehicle that invests in private marijuana startups, such as Phyto Partners, whose strategy is to invest in companies that service marijuana companies and provide products, services and solutions to companies that grow or work directly with cannabis.
However, if you are looking for marijuana stocks to buy now, your best bet is to go with pharmaceutical companies that are developing and marketing cannabis-based drugs. To minimize risk, one can choose a large company, such as AbbVie Inc (NYSE:ABBV), but because cannabis drugs represent a tiny fraction of their operations, the exposure to the industry is similarly small. So, it’s better to look at smaller pharmaceutical companies whose pipelines have a larger share of cannabis-based drugs and do some research to understand their potential. An easier way to identify the best marijuana stocks to go for is to look at where smart money invests.
At Insider Monkey, we track over 600 hedge funds and other big smart money investors. We compile data from their quarterly 13F filings and identify their collective sentiment towards thousands of companies. This information is primarily used as part of our small-cap strategy that identifies the best small-cap stocks that the best-performing hedge funds are bullish on, but we also can identify most popular stocks among hedge funds in different industries, including marijuana.
With this in mind, let’s take a look at five marijuana stocks to buy now, based on the hedge funds’ collective sentiment towards them. Interestingly enough, not all marijuana stocks that we selected are pharmaceuticals.