The North American marijuana market is positioned to skyrocket from $9.2 billion in 2017 to $47.3 billion by 2027, according to Arcview Market Research. While the potential for profits in the cannabis industry is massive, the market is viewed as particularly risky given marijuana has net yet officially been legalized in the U.S. on the national level. Although the majority of U.S.-based cannabis companies and many foreign ADRs trade over-the-counter, where there are less stringent listing requirements, a few marijuana companies are traded on the NASDAQ. Some investors prefer stocks that are listed on the NASDAQ to other exchanges due to their increased liquidity and tighter spreads than the OTC markets. As the cannabis industry has grown in the recent years, uplisting from an OTC market to a reputable U.S. exchange has become a banner achievement for many rising marijuana companies. The NASDAQ was the first electronic exchange and has long been synonymous with technology and biotechnology. The cannabis companies on the NASDAQ reflect this, with the majority of them operating in the biotech area of the industry.
In 2018, cannabis stocks sparked a frenzy among investors, fueled by developments including the legalization of recreational marijuana use in Canada, the adoption of legal medical and recreational marijuana use in more states across the U.S., headline achievements of top players, as well as major investments in the space from blue chip companies such as Constellation Brands Inc. (STZ). U.S. marijuana stocks are hindered by laws which heavily tax the industry and lower firms’ access to traditional banking services. For this reason, the largest Cannabis companies are based abroad, including GW Pharmaceuticals, Canopy Growth, and Aurora Cannabis. Other headwinds facing the industry at large include declines in marijuana prices due to investments in production that quickly increase supply. Nonetheless, growth prospects for the industry remain robust, and the market’s recent reversal from its risk-off environment in 2018 spells good news for pot stocks.
Here’s a look at the top performing individual marijuana stocks trading on the NASDAQ as of February 2019, based on the sector’s performance since the start of the year. The list here is presented in order of year-to-date (YTD) performance based on the closing stock price, as of December 31, 2018 and closing price as of Feb 5, 2019. The performance has been compared to the Horizons Marijuana Life Sciences Index ETF (TSX: HMMJ) and ETFMG Alternative Harvest ETF (NYSEMKT:M) YTD gains of 49.8% and 46.6% respectively. This list includes companies with market caps above $1 billion.
1. Cronos Group Inc. (CRON)
· Market Cap: $4.16 billion
· YTD Stock Performance: 110.1%
2. GW Pharmaceuticals PLC ADR (GWPH)
· Market Cap: $4.48 billion
· YTD Stock Performance: 50.9%
3. Arena Pharmaceuticals Inc. (ARNA)
· Market Cap: $2.4 billion
· YTD Stock Performance: 26%
Cronos Group is a Toronto-based, geographically diversified and vertically integrated cannabis producer that operates within Health Canada’s Access to Cannabis for Medical Purposes Regulations and distributes globally.
Shares of Cronos Group are up a whopping 200% over 12 months and more than 122% over three months. Cronos Group saw its shares jump in December on news of tobacco giant Altria Inc.’s (MO) planned $1.8 billion investment for a 45% stake in the company. Another headline $4 billion investment from Corona-maker Constellation in 2018 helped boost investor confidence. The deal was seen as giving Cronos ample cash to expand its operations, win licenses, as well as secure it a partner with expertise in marketing global consumer brands. The stock plunged over 6% on Feb 5 on a downbeat note from GMP Securities, which lowered its rating from buy to hold, “solely on valuation,” per MarketWatch.
Investors will be keeping an eye on how well Cronos can expand into the U.S. market and abroad while increasing its penetration in the Canadian recreational space. Cronos is expected to grow YOY sales by nearly 450% in 2019.
GW Pharmaceuticals is a British biopharmaceutical company with portfolio of cannabinoid medicines including Sativex for the treatment of spasticity related to multiple sclerosis and cancer pain, and Epidiolex for the treatment of childhood epilepsy. Sativex is commercialized in more than a dozen countries outside the U.S. and has received regulatory approval in several more countries. Epidiolex received FDA approval as a treatment for Dravet Syndrome and Lennox-Gastaut Syndrome, two forms of severe, early onset epilepsy without good existing treatment options.
While shares of GWPH are up over 50% YTD, the stock has experienced a significant amount of volatility alongside its peers in the cannabis industry. The stock has underperformed the broader market in the recent three months, down 2.5% compared to the S&P 500’s 0.6% loss.
Alongside GW’s two FDA approved drugs, the firm is also developing cannabinoid products for autism spectrum disorders, schizophrenia and glioma. The firm indicates that its proprietary platform for extracting and processing compounds from marijuana gives it an advantage over peers in the development of treatments with various therapeutic uses. However, headwinds include rival products from companies including Zogenix, which could prove GW’s success short-lived. Sales are expected to surge by more than 900% in fiscal 2019.
San Diego-based Arena Pharmaceuticals is a biotech company involved in the manufacturing of medical marijuana drugs. Research and development around Arena's APD371, an oral Crohn’s disease pain drug, is the primary focus of its cannabis biotech initiatives. Its primary goal is to replace opioids, which are highly addictive and a leading cause of death due to overdose. Unlike GW Pharmaceuticals, Arena devotes only part of its drug pipeline to cannabinoid-type therapeutics and CB agonists, while the other portion is comprised of non-cannabinoid medicines. The company has multiple drugs in clinical trials but only one on the marketplace via a royalty arrangement, potentially making it a more speculative investment.
Shares of Arena are up over 25% YTD, representing a 22.1% gain over 12 months and a more than 170% return from its IPO in early 2016. In 2012, the FDA approved Belviq (lorcaserin), a weigh loss medication, which it later sold to its Japanese partner for royalties on global sales.
The company’s sales and stock growth will rely heavily on the future of its efforts to market drugs which treat conditions such as pulmonary arterial hypertension (PAH), various immune and inflammatory conditions, and Crohn’s disease.
While many market watchers remain wary of cannabis companies' high-flying valuations, the opportunity for growth in the burgeoning sector may justify the lofty valuations. According to a recent report from the Bank of Montreal, in a blue-sky scenario in which the U.S. and all 28 countries in the E.U. legalize both recreational and medical marijuana use, and Latin America legalized medical use, the global market could reach $194 billion by 2025. Comparatively, the Canadian medical and recreational markets are slated to generate just $5.9 billion. As the Canadian recreational market just picks up momentum, and global medical marijuana remains in its early stages, the U.S. legalization of hemp and potential to clear CBD regulations also opens up the door to new opportunities for Canadian producers. Ultimately, cannabis stocks could serve as a solid long-term play on a high-growth industry – for investors who can stomach the volatility.