9 Speculative Plays for Investors Wanting Cannabis Exposure

With the caveat that cannabis is a very high-risk sector, two well-known advisors and contributors to MoneyShow each offer a variety of ideas in this speculative space; Ben Reynolds highlights five top marijuana stocks, while Timothy Lutts suggests 4 ways to trade the cannabidiol sub-sector. Timothy Lutts, Cabot Marijuana Investor CBD (which is simply shorthand for cannabidiol) is a non-psychoactive component of cannabis plants. Some CBD comes from marijuana plants, so they may or may not have THC (the stuff that gets you high) in it, while other CBD comes from hemp, which is not only THC-free, but is also legal to grow and sell nationwide, courtesy of December's Farm Bill. CBD has been proven effective against two forms of childhood epilepsy and has been FDA approved for a drug made by GW Pharmaceuticals , an English company. But there have been no thorough studies of CBD in this country, because it was illegal to study until this past December. Still, there is no shortage of claims! Migraines, backache, nausea, insomnia, PMS, anxiety, arthritis, acne, menopause, irritability, blood pressure, diabetes. You name it, someone has probably claimed that CBD can treat it. Today millions of Americans are already self-medicating with CBD ahead of official approval from the medical industry. Below are five companies that are actively involved in this market. Charlotte's Web Holdings Charlotte's Web of Colorado is possibly the most famous of the bunch thanks to early media exposure and its founding family, the Stanley Brothers, who are named (no kidding) Joel, Jesse, Jon, Jordan, Jared, Josh and Austin. The company, which is not in the marijuana business, says it's the #1 brand of CBD by market share, with more than 4,000 retail locations, and 300 acres of hemp planted in 2018. Fourth-quarter results, released just last Thursday, showed revenues growing to $21.5 million, up 71% from the year before, with 57% of revenue coming from e-commerce. The stock has been strong, and is now right back up where it peaked last October. Curaleaf Holdings Curaleaf, based in Massachusetts, grows and sells both marijuana and CBD. It was the first multi-state operator to launch a national CBD product line, Curaleaf Hemp. And this CBD is one of the brands on the shelves in those CVS stores. The company opened seven new dispensaries (selling both marijuana and CBD) in the fourth quarter in key markets such as Florida and Arizona, bringing its count to 42 dispensaries, 12 cultivation sites and 11 processing sites in 12 states. In the quarter, revenue was $32.0 million, up 409% from the year-ago quarter. The stock has been strong. CV Sciences CV Sciences is all about CBD, but it operates two distinct business segments: a consumer product division focused on manufacturing, marketing and selling hemp-based CBD products, and a drug development division focused on developing and commercializing therapeutics based on CBD. The company says its PlusCBD Oil is the top-selling brand of hemp-derived CBD and that its retail channel included 2,238 stores nationwide at the end of 2018. In the fourth quarter of 2018, sales increased 96.4% to $14.2 million. The stock has been quiet for the past seven months but is starting to wake up. Green Growth Brands Green Growth Brands got a late start, but the company is pushing hard to be a force in retailing both cannabis and CBD. It plans to have 108 CBD stores in Simon Property Malls by mid-summer and is also building and acquiring cannabis businesses in Nevada, Massachusetts and Arizona. In the fourth quarter, revenues were $3.1 million, up from nothing the year before. The stock has been cooling off since peaking in January. Ben Reynolds, Sure Dividend Most marijuana companies do not have a long history of revenues or earnings because the legal marijuana industry is still in its infancy. It seems likely that those companies with the highest sales base and the largest production capacity have the highest chance of generating above-average margins. Reasons for this include economics of scale, operating leverage, and the fact that those with the most experience are likely the best at bringing down costs of production. We thus looked at the largest producers by production capacity and ranked them based on market value relative to their respective production capacity, which should be a good proxy for a price-to-sales ratio, assuming that the average price per gram is relatively similar across these companies. Among the largest marijuana companies by production capacity, here are five with the most promising price per production capacity ratio. Emerald Health Therapeutics Emerald Health Therapeutics is one of the smaller marijuana companies in this list, both by production capacity and by market capitalization. The ratio of these two metrics looks very favorable here, though. The company is one of Canada's licensed producers, which has been expanding its production capacity through several deals over the last couple of quarters. A 50/50 joint venture with Village Farms that owns a 1.1 million square foot facility has expanded Emerald Health's future production capacity substantially. And, the company also acquired Agro-Biotech in 2018. Together with existing production capacity these deals should allow Emerald Health to produce 100,000 kg of marijuana annually in the foreseeable future. Emerald Health trades at a market cap of around $443 million now, which means that investors have to pay just $4,430 per kg of production capacity, one of the lowest ratios among producers. Emerald Health is not the largest among the Canadian producers, which could be a bit of a headwind as it might lack scale once the industry has matured, but on the other hand this means that Emerald Health is a possible acquisition target in case some of the larger players with more cash on hand want to expand their production capacity further. The Green Organic Dutchman The Green Organic Dutchman is an Ontario, Canada, based marijuana company that was IPO'd in spring 2018 and is currently valued at around $957 million. The Green Organic Dutchman expects that its production capacity will be 170,000 kg of marijuana a year, based on several deals that have expanded the company's asset base during 2018. This includes the June 2018 acquisition of a facility (280,000 square foot) that The Green Organic Dutchman plans to use for producing marijuana-containing edible products and marijuana-infused beverages. The Green Organic Dutchman is currently valued at a price of $5,629 per kg of production capacity, which again is one of the better values in the industry. Organigram Holdings Organigram is a Moncton, Canada, based marijuana company that is currently valued at around $1.075 billion. The company has recently updated investors about its results in fiscal 2018, and on the company's outlook for fiscal 2019. The company plans to hit a production capacity of 113,000 kg of marijuana during the coming year, which means that Organigram is being valued at $9,513 per kg of production capacity right now. Organigram has made a lot of progress in bringing down its production costs, those declined from $2.65 per gram in Q1 2018 to $0.83 per gram in Q4 2018. This massive success in reducing its costs bodes well for Organigram's margin profile and its potential for generating profits in the future. CannTrust Holdings CannTrust Holdings has, like most of its peers, not been around for a long time; the company was founded just three years ago. CannTrust Holdings is based in Vaughan, Canada, and currently trades with a market capitalization of $1.011 billion. The company expects that its production capacity will be 100,000 kg or more once its Niagara facility has come on line. CannTrust has begun construction of additional growing facilities, including a 600,000 square foot facility on unused land next to an already existing asset (Perpetual Harvest Facility), although it will take some time for this facility to begin production. When we use the low end of management's production guidance, CannTrust trades at a price of $10,110 per kg of production capacity. Aphria Aphria is substantially larger than the peers in this list. The company is currently valued at around $2.46 billion. The company is one of the global players in the marijuana industry, as it does not only operate in North America, but also in several other countries around the globe. Aphria has a production capacity of 255,000 kg of marijuana a year, which makes it the third biggest producer. Its two biggest facilities, Aphria One and Aphria Diamond, have production capacities of 110,000 kg and 140,000 kg annually, respectively. In terms of price per production capacity, Aphria trades at $9,647 per kg of capacity right now. Some analysts still see Aphria as a potential takeover candidate. -- This commentary was originally published April 3 on Real Money.

9 Speculative Plays for Investors Wanting Cannabis Exposure

Five top marijuana stocks and four CBD plays in this speculative space.

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