California joined the list of states to legalize recreational marijuana use at the start of 2018, and the markets are showing some enthusiasm for stocks related to the controversial plant. But some of that cheer was muted when reports of stricter federal law enforcement on marijuana came to light. Attorney General Jeff Sessions is set to rescind an Obama-era rule of federal non-interference in state marijuana law enforcement. Currently, nine states and the District of Columbia have legalized recreational marijuana, while the substance is legal for medical purposes in 29 states. However, marijuana remains illegal at the federal level.

The rush to get in on the marijuana craze has created hundreds of startups, but the odds are that many of these will fail. With a federal clampdown, the probability is higher that many marijuana-based startups won't survive. The winners in the industry so far are established companies that are adding marijuana to their focus. (See also: Want to Make Money in Marijuana? Read This First.)

We have selected four marijuana stocks that have the potential to make significant gains. These stocks were chosen based on their array of marijuana-related products. These products are either in use or awaiting approval by the Food and Drug Administration (FDA). All figures are current as of April 2, 2018. 

[Just like any stocks, marijuana stocks need to be properly analyzed before deciding if they are a smart investment. If you're looking to learn how to use fundamental analysis to make investment decisions, Investopedia Academy offers a Find Great Value Stocks course that could be right for you. ]

1. AbbVie Inc. (ABBV)

AbbVie is a pharmaceutical company that is ahead of the pack because it has a cannabis-based drug on the market. The FDA approved Marinol, which helps alleviate nausea or vomiting for chemotherapy patients. The drug also helps AIDS patients who have lost their desire to eat. It is important to note that Marinol is not AbbVie's flagship drug. In fact, it is not even the company's biggest seller.

AbbVie has reported increasing revenues in the past four years. In addition, its operating income has been increasing steadily. The company is benefiting from a host of useful drugs, including Marinol. Therefore, AbbVie is a way to play the marijuana trend without incurring 100% exposure to the plant. One risk of owning AbbVie is that it concentrates almost exclusively on U.S. markets, whereas most pharmaceutical companies market internationally. If the domestic market falters, the stock could see a drop in value. For investors, this risk is offset by the dividend, which is currently 3.91%. (For more, see: How AbbVie Makes Its Money.)

2. The Scotts Miracle-Gro Company (SMG)

An interesting way to play the marijuana boom is Scotts Miracle-Gro. Known for its lawn and garden-care lines, the company is developing products for cannabis growers and also several pesticides for use on marijuana plants. 

The stock entered a sideways pattern in December 2016 and then dropped sharply in June 2017. Scotts shares moved up again into year end, touching all-time highs of over $109 in January 2018. However, Scotts Miracle-Gro shares plunged 15% on Jan. 30 as the markets reacted to a disappointing earnings report, settling at around $90 before continuing their decline in March toward current levels around $83. In a press release, the company's CEO attributed the weak performance in pot-related business to "the slower-than-expected pace of regulatory changes in California." For investors who are bullish on marijuana and Scotts' more traditional core businesses, the recent pullback could represent a buying opportunity. (See also: Scotts Miracle-Gro Seeks High Profits in Marijuana.)

  • Average Volume: 650,168
  • Market Cap: $4.741 billion
  • P/E Ratio (TTM): 18.92
  • EPS (TTM): $4.40
  • Dividend and Yield: $2.12 (2.49%)

3. INSYS Therapeutics, Inc. (INSY)

Although this company markets many non-cannabis drugs, it is in the process of developing a synthetic cannabis drug to treat childhood epilepsy. INSYS is working on a spray technology to deliver pharmaceutical cannabinoids.

INSYS has had flat revenues for the past three years, but its operating income showed a sharp drop at the end of 2016 as the company spent more on research. Gross profit is higher than it was three years ago. Throughout October 2017, the stock fell sharply below prior support levels of $9 per share and then began moving sideways at just above $5 per share. The stock saw a sharp breakout in December and into the New Year, more than doubling in value to over $13, but it has recently pulled back to just under $6. There has been more volatility than a prudent investor would usually want to see, but given that this is a biotech stock, the action is acceptable. (For more, see: INSYS Stock Breaks Out, but How Long Will Rally Last?)

  • Average Volume: 1,426,372
  • Market Cap: $439.636 million
  • P/E Ratio (TTM): N/A
  • EPS (TTM): -$3.16
  • Dividend and Yield: N/A (N/A)

4. Cronos Group Inc. (CRON)

Toronto-based Cronos Group became the first cannabis "plant-touching" company to be listed on the Nasdaq in February 2018. The company has medical marijuana production and distribution operations across many different countries like Israel, Canada, Germany and Australia. 

The move to Nasdaq from the OTC market, where Cronos shares traded as American Depository Receipts (ADRs), saw the stock surge more than 20%. However, the challenge for Cronos is that, unlike other geographies in which it operates, marijuana and cannabis continue to be illegal in the United States at the federal level. For a company that does not have active operations in the country and operates in a sector that could see significant tightening of regulation, that might just be a tough spot to be in. (For more, see: Cronos Group Will Be Nasdaq's First Pot Stock.)

  • Average Volume: 4,239,321
  • Market Cap: $1.061 billion
  • P/E Ratio (TTM): 781.25
  • EPS (TTM): $0.01
  • Dividend and Yield: N/A (N/A)

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