Medical and recreational cannabis use has been legalized in a growing number of U.S. states and on a national level in Canada, fueling a burgeoning legal cannabis industry in recent years. Cannabis stocks are now a prime focus for investors seeking potentially explosive sales and stock growth. But there are certain considerations associated with marijuana stocks that investors should keep in mind.
To begin with, cannabis stocks face higher-than-normal risk and volatility due to a long list of factors. Many publicly traded cannabis companies are young, unproven enterprises that face a complicated, fast-changing market that includes different laws across many local, state, and regional jurisdictions. Cannabis use is still illegal at the U.S. federal level. But 37 states have legalized cannabis for medical use in at least one form as of February 2022 and 19 states have legalized cannabis for adult use as of May 2022.
The challenges are particularly great for investors when it comes to marijuana penny stocks. Investors should be especially cautious and perform more than their usual due diligence when investing in these companies, which include up-and-coming names such as Cansortium Inc. and Goodness Growth Holdings Inc.
Marijuana stocks, represented by the ETFMG Alternative Harvest ETF (MJ), an exchange-traded fund, have dramatically underperformed the broader market. MJ has provided a total return of -64.1% over the past 12 months, well behind the Russell 1000’s total return of -12.1%. MJ targets a broad assortment of cannabis industry stocks, including penny stocks.
Here are the top three marijuana penny stocks with the best value, the fastest growth, and the best performance. The market performance numbers above and all statistics in the tables below are as of Oct. 4, 2022.
Best Value Marijuana Penny Stocks
These are the marijuana penny stocks with the lowest 12-month trailing price-to-sales (P/S) ratio. For companies in 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.
|Best Value Marijuana Penny Stocks|
|Price ($)||Market Capitalization (Market Cap) ($M)||12-Month Trailing P/S Ratio|
|HEXO Corp. (HEXO)||0.19||111.5||0.4|
|GrowGeneration Corp. (GRWG)||3.81||231.6||0.6|
|Aurora Cannabis Inc. (ACB)||1.28||381.2||1.6|
- HEXO Corp.: HEXO is a Canada-based consumer packaged goods cannabis company serving both the adult-use and medical cannabis markets. It also trades in Canada under the ticker HEXO.TO. In July, HEXO announced that it had completed a major agreement with Canada-based Tilray Brands Inc. (TLRY). As part of the deal, HEXO received debt financing and formed a strategic alliance with Tilray, a Canada-based cannabis company. The alliance is expected to save the two companies up to $80 million within 24 months by enabling them to share support services, exploit production efficiencies, and other steps.
- GrowGeneration Corp.: GrowGeneration operates hydroponic garden centers across North America. The company markets and distributes a variety of hydroponic gardening products, including growing media, nutrients, lighting, ventilation equipment, and more. on Aug. 4, GrowGeneration released financial results for Q2 2022. The company swung to a $136.4 million net loss from a profit in the prior year quarter as net sales plunged 44% due to softening demand. Comparable store sales fell 56.9%. The company said it expects falling revenue in the second half of 2022 due to a "prolonged period of softer demand."
- Aurora Cannabis Inc.: Aurora Cannabis is a Canada-based cannabis company serving both the medical and recreational-use markets. Its brands include Aurora Drift, Daily Special, MedReleaf, and CanniMed. Aurora released Q4 and full-year results on Sept. 20 for the period ending June 30. Its net loss widened year-over-year (YOY) due to a non-cash impairment charge of more than $505 million. Net revenue declined YOY. The company announced that FY 2023 would be comprised of only three reporting periods, instead of the traditional four. The end of the new fiscal year will be March 31, 2023.
Fastest-Growing Marijuana Penny Stocks
These are the marijuana penny stocks with the highest YOY sales growth for the most recent quarter. Rising sales can help investors identify companies that are able to grow revenue through organic or new ways, as well as find growing companies that have not yet reached profitability. In addition, earnings per share can be significantly influenced by accounting factors that may not reflect the overall strength of the business. However, sales growth can also be potentially misleading about the strength of a business, because growing sales on money-losing businesses can be harmful if the company has no plan to reach profitability.
|Fastest-Growing Marijuana Penny Stocks|
|Price ($)||Market Cap ($M)||Revenue Growth (%)|
|SNDL Inc. (SNDL)||2.30||547.4||2,250|
|HEXO Corp. (HEXO)||0.19||111.5||99.9|
|OrganiGram Holdings Inc. (OGI)||0.93||290.7||82.8|
- SNDL Inc.: SNDL, formerly Sundial Growers, is a Canada-based cannabis producer. The company produces and distributes cannabis for the adult-use and medical market. It offers dried flower cannabis products in various formats, including pre-rolls, oils, capsules, and more. At its annual and special shareholder meeting in late July, the company officially changed its name from Sundial Growers Inc. to SNDL Inc. It also implemented a share consolidation under which 10 pre-consolidation common shares were consolidated into one post-consolidation common share, effective July 25.
- HEXO Corp.: See company description above.
- OrganiGram Holdings Inc.: OrganiGram Holdings is a Canada-based licensed producer of cannabis-related products for both medical and recreational use. The company distributes its products to consumers and through wholesale channels. It also trades in Canada under the ticker OGI.TO.
Marijuana Penny Stocks with the Best Performance
These are the marijuana penny stocks that had the smallest declines in total return over the past 12 months out of the companies we looked at.
|Marijuana Penny Stocks with the Best Performance|
|Price ($)||Market Cap ($M)||12-Month Trailing Total Return (%)|
|Cronos Group Inc. (CRON)||3.01||1.1||-45.2|
|OrganiGram Holdings Inc. (OGI)||0.93||290.7||-57.9|
|SNDL Inc. (SNDL)||2.30||547.4||-63.5|
|ETFMG Alternative Harvest ETF (MJ)||N/A||N/A||-64.1|
- Cronos Group Inc.: Cronos Group Inc. is a vertically integrated cannabis company with distribution across five continents. It distributes medical marijuana and cultivates cannabis oil. Cronos Group’s portfolio includes a global wellness platform, adult-use brands, and hemp-derived CBD brands. The company reported Q2 2022 financial results on Aug. 9. Its net loss narrowed dramatically YOY as revenue rose 48.1%. Revenue for the company's U.S. business declined sharply, but international revenue grew at a rapid pace.
- OrganiGram Holdings Inc.: See company description above.
- SNDL Inc.: See company description above.
Advantages of Marijuana Penny Stocks
High Returns: Investing in marijuana penny stocks offers the potential for significant gains. Favorable company-specific news or industry legislation may result in a sharp move higher that could generate sizeable returns. For example, shares in SNDL Inc. soared from around $1.50 to over $37 in four months during the COVID-19 pandemic amid the passage of a bill through the House of Representatives that removed cannabis from a list of federally controlled substances in the United States. However, investors needed to be quick booking profits, as the stock has given back most of those gains, with the legislation failing to gain support in the Senate.
Buyout Potential: Select marijuana penny stocks could become takeover targets. Given the group's prolonged downturn since February 2021, there's likely to be industry consolidation, with some of the larger players looking to acquire smaller companies in the sector to create cost synergies and grow market share. For instance, industry heavyweight Tilray Brands, Inc. (TLRY) announced in March 2022 that it would buy small-cap cannabis producer and seller HEXO Corp.'s debt, allowing it to acquire significant equity ownership in the company. Research compiled by sector advisory firm Viridian Capital Advisors shows that global cannabis industry mergers and acquisitions (M&A)transactions totaled $3.5 billion between January and April 2022, up 3.5% from the same year-to-date (YTD) period in 2021.
Risks of Marijuana Penny Stocks
Unpredictable Legislation: Marijuana penny stocks continue to face risks from uncertainty surrounding legislation changes. Although it is legal in Canada and certain U.S. states, cannabis is yet to be legalized at the federal level in the United States. While several decriminalization bills—such as the MORE Act and Cannabis Administration and Opportunity Act—have made their way into Congress, they have failed to garner bipartisan support. Due to marijuana penny stocks' smaller market capitalizations, any sudden change in legislation can potentially move their share prices significantly.
Dilution of Shares: Marijuana penny stock investors face a high chance of having their shares diluted. Since companies in the industry face challenges securing finance from traditional lenders, smaller players may need to raise capital by issuing additional shares. Moreover, rising interest rates may see smaller cannabis companies seek funds from shareholders to avoid the increasing cost of servicing debt. Each extra unit sold dilutes the price of existing shares, putting downward pressure on the stock. Buyers may absorb a glut of newly issued shares during a bull market. However, diluted shares may lead to accelerated selling in market downturns.
The comments, opinions, and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or adopt any investment strategy. While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described in our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions, and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment, or strategy.
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Aurora Cannabis Inc. "Aurora Cannabis Announces Fiscal 2022 Fourth Quarter and Full Year Results."
SNDL Inc. "Sundial Announces Results of its Annual and Special Meeting of Shareholders and Details of the Share Consolidation."
Cronos Group Inc. "Cronos Group Reports 2022 Second Quarter Results."
Cannabis Business Times. "U.S. House Passes MORE Act."
Tilray. "Tilray Brands Announces Proposed Agreement for Strategic Alliance with Hexo Corp."
MJBizDaily. "Analysis: Why Is Marijuana M&A Holding Up Better Than Capital Raises?"
Bloomberg. "Senate Democrats to Introduce Pot Decriminalization Bill Against Odds."