3 marijuana stocks to buy long-term in 2019 – The Fool Motley

The national market for recreational marijuana in Canada opened last October; Last week, we had results from the two largest marijuana companies in Canada, suggesting that the marijuana market in this country is a tremendous opportunity.

The ability to capture billions of dollars in legal marijuana sales in Canada only speaks to the greater potential associated with the legalization of marijuana on a global scale. If you think that more and more countries will follow the example of Canada, it might be wise to buy shares in Cover growth (NYSE: CGC), Aurora Cannabis (NYSE: ACB), and Cronos Group (NASDAQ: CRON) in 2019.

The biggest marijuana business

Canopy Growth is the largest marijuana company in Canada. Canopy Growth is a vertically integrated pot game. He cultivates marijuana in state-of-the-art greenhouses, processes it with the latest automated machinery, packs it and sells it across Canada.

The Company's initial investments in growing capacity have enabled it to capture more than 30% of the Canadian market for medical marijuana. According to its latest quarterly results, the size and notoriety of its brand allows it to conquer at least as much market share in the emerging leisure market in Canada.

Last quarter, Canopy Growth's sales in the adult market in all Canadian provinces catapulted sales to C $ 83 million, up 282% from the same quarter last year. last year. The last quarter included only about six weeks of leisure product sales and demand outstripped supply at the beginning, resulting in lower revenues. There is reason to believe that sales will rise much higher.

Canopy Growth is also moving into other countries that are removing barriers to marijuana. it operates in Europe, Australia and Latin America. He also recently announced his intention to enter the United States for the first time.

Until recently, Canopy Growth could not operate in the United States because of rules prohibiting listed companies from engaging in illegal activities at the federal level. Marijuana remains an Annex I drug in the United States. However, the latest Farm Bill removed hemp, a form of non-psychoactive cannabis, from the list of controlled substances in December. After reclassifying hemp, Canopy Growth plans to spend up to $ 150 million in New York State to create a hemp-based industrial park.

The US market for hemp products is already worth hundreds of millions of dollars a year, but it could become a multi-billion dollar market if new products are made from hemp extracts. It is important to note that Canopy Growth's hemp facilities could be converted one day to treat marijuana. Therefore, if marijuana became legal throughout the country, Canopy Growth's hemp strategy could give it a valuable length in an estimated $ 50 billion market.

A crazy race for growth in production

Investors should also consider acquiring the second largest cannabis company in Canada, Aurora Cannabis. Aurora Cannabis does not hold Canopy Growth's market share, but it is probably best placed to give it money.

CannaMed's and MedReleaf's acquisitions last year made it one of the largest medical marijuana suppliers in Canada, and a solid expansion plan for a significant increase in annual marijuana production. offers strong revenues.

In the last quarter, Aurora Cannabis announced that Canadian acquisitions and initial sales to adults blew sales by 363% to $ 54 million. The adult market generated sales of $ 21.6 million, giving it (according to the company) a market share of about 20%.

The company sold close to 7,000 kilograms of marijuana or marijuana equivalent, such as extracts, during the quarter, up 502%. However, this figure could increase significantly due to the release of new productions from greenhouse expansions, including Aurora Sky. At present, management says that the annual production capacity of marijuana is about 120,000 kilograms, but that number is expected to rise to 150,000 kilograms next month. If this is the case, Aurora Cannabis expects 25,000 kilograms of marijuana to be available for sale by the end of June.

Future projects of Aurora Cannabis include the increase in annual production above 500,000 kilograms; if she does, she could see her gross margin improve considerably. Last quarter, its gross margin was 52%, but this reflected average production costs of $ 1.92 per gram. Aurora Cannabis believes that new production on line at Aurora Sky and elsewhere will cost less than $ 1 per gram.

Given the potential growth of the company's sales and improved gross margin as new offerings are put online, its future looks bright.

A powerful partner

There are marijuana companies with higher incomes and marijuana production than the Cronos group. However, Cronos and Canopy Growth are the only two cannabis companies to have significant financial firepower and access to supply chain expertise, branding and regulation. thanks to the investments of major consumer goods companies. The Cronos group is sold at 45% to a tobacco producer Altria (NYSE: MO) $ 1.8 billion in December; this followed Canopy Growth's decision to sell 38% of itself to the alcohol giant Constellation Brands (NYSE: STZ) for about $ 4 billion last August.

Having Altria as a partner is a great victory for the Cronos group. Altria owns the Philip Morris US tobacco brands, including Marlboro cigarettes, and has extensive regulatory oversight experience. He has established a range of successful brands and maintains many relationships with farmers and other suppliers. In addition, Altria owns more than 30% of Juul, a leading company in the equestrian industry, which in theory could offer the Cronos group intriguing collaboration opportunities.

Cronos Group has not yet announced its results for the fourth quarter, so we do not know what it was after the start of sales of recreational products in Canada. the products seem to be gaining ground. Its annualized production capacity was only 6,650 kilograms in the third quarter, but it indicated that it would reach 40,150 kilograms this year and that it plans to produce 117,000 kilograms per year. As these forecasts predate Altria's investment, the Cronos Group could announce new targets for the next publication of its results.

When calling the fourth quarter results, Altria had announced a $ 40 billion legal marijuana sales forecast based on current legal markets. He also said that global legalization could bring this market opportunity to $ 250 billion. Given these numbers and the help of Altria, it might also be wise to own the Cronos group in the long run.