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When Colorado legalized recreational marijuana on January 1, 2014, the wheels of capitalism sprang into motion. Marijuana stocks were born. Investors who feel uncomfortable with “sin stocks” such as gambling, tobacco, alcohol, and pornography may want to steer clear of these investments. Those who feel fine with it. however, should continue reading.
The best marijuana stocks offer investors enormous upside in a growing industry (no pun intended). They are extremely volatile in the current environment, which is an important point to remember.
Since marijuana has only been legalized at the state level, the entire industry is susceptible to a downturn. Federal law still classifies cannabis as a Schedule 1 narcotic. President Obama chose not to enforce those laws to full effect. However, the newest occupant of 1600 Pennsylvania Avenue might choose to reverse that decision. This would pose a massive risk to the industry.
Marijuana stocks could be dramatically affected to the downside if President Donald Trump strengthens enforcement at the federal level. This is a serious threat. But an executive order might not be the end of the story, because judges get the final say on these matters.
Also, state and local governments are making money hand over fist from the marijuana industry. The surge in tax revenues could keep the Trump administration from cracking down, particularly since stimulating the economy is their primary motivation. Nothing greases the wheels of American politics quite like profits and job creation.
Before we get to the top marijuana stocks to invest in, let’s take a step back. How did we get to the point where marijuana penny stocks are the hottest investments on the market?
Let me explain…
Why Did Marijuana Stocks Become So Popular?
The fight for marijuana legalization has been going on at a low level for years. However, it resurfaced as a national topic when Colorado held a ballot initiative during the 2014 midterm elections. To the people of that state, it was simply a vote that allowed the use of recreational marijuana; to the rest of the country, it was an experiment on the business of pot.
Here’s what happened: entrepreneurs that moved quickly collected $1.0 billion worth of sales in the year following legalization. Colorado had raised $70.0 million in taxes during that time, almost double the $42.0 million it raised from alcohol sales. (Source: “Colorado Raised More Tax Revenue From Marijuana Than From Alcohol,” Time, May 18, 2016.)
These results proved good enough for other states to follow suit. Washington turned the corner in mid-2014, Oregon a year later, and then came Alaska and the District of Columbia.
There are now 25 states in total that have legalized cannabis in one form or another. Even Canada is on the brink of legalization. Prime Minister Justin Trudeau’s government is planning to make the jump in the middle of 2017, a change that has many Canadians bullish on marijuana stocks.
The current sweep of legalization is almost identical to what happened in 1933. U.S. lawmakers chose to end Prohibition, an era during which alcohol was illegal. This virtually destroyed the black market for alcohol, even while it increased government revenues and corporate profits.
The only difference is that middle-class Americans now have a real shot at investing in marijuana stocks. Not only have their ranks expanded since the 1930s, but there is simply greater access to the public stock markets. It isn’t something that is restricted to professional stock brokers.
Once you see this moment through a historical lens, perhaps you’ll appreciate the potential of best marijuana stocks. Some of the oldest industries in the world are based on sin (sex, alcohol, gambling). The rising tide of marijuana legalization has lifted many boats, but if you’re looking for the top marijuana stocks, look no further.
We have hunted far and wide for these diamonds in the rough.
Best Marijuana Stocks: Insys Therapeutics Inc (NASDAQ:INSY)
Investors looking for the top marijuana stocks of 2017 should take a closer look at Insys Therapeutics Inc (NASDAQ:INSY). This biotech company uses elements of marijuana in its medical products, which makes it an excellent hedge against policy shifts.
Its pharmaceutical version of tetrahydrocannabinol (THC) is used to treat the kind of anorexia that AIDS and cancer patients suffer from. The Food and Drug Administration (FDA) rubber stamped this drug in recent months, even while knowing that THC is the main component in marijuana. The only step left is for the drug (named “Syndros”) to be classified by the Drug Enforcement Agency (DEA).
If President Trump cracks down on cannabis distribution, INSY stock would likely suffer less than other marijuana stocks. The hammer would fall much softer because federal regulations correspond to the likelihood that the drug will be abused. Insys is somewhat protected by its decision to operate within the framework of the FDA. That was a smart move on its part.
Although it does not fall into the category of marijuana penny stocks, Insys stock is priced very cheaply nonetheless. How do I know that? Simple: it is trading at a PEG ratio of 0.50. Don’t panic if that number doesn’t make sense to you. Allow me to explain.
You may have heard of the price-to-earnings, or P/E, ratio. Investors use that metric to see how expensive a stock is, because it shows the share price relative to past earnings. The rule of thumb is that lower P/E ratios are good, and higher P/E ratios are bad.
But we don’t think that metric gives a clear picture of the business.
To truly understand what’s going on, you need to look at P/E compared to future growth. This is called the PEG ratio. The rule of thumb in this case is very different. It says that a PEG ratio over 1.0 tends to be bad, and below 1.0 tends to be good. INSY stock has a PEG of 0.50.
In a nutshell, this suggests that Insys stock should be double where it is right now.
Best Marijuana Stocks: Canopy Growth Corp (TSE:CGC)
Some readers may be surprised at our next choice: Canopy Growth Corp (TSE:CGC). Shares of CGC are highly volatile, having swung between $2.97 and $17.86. However, anyone who’s paid attention to the market over the last few months knows that Canopy Growth Corp provided investors with huge upside.
It is on the riskier end of the spectrum, but that volatility extends in both directions. The share price can explode by double-digits on any given day. Just think how much it could advance in a year! But there’s another reason to be bullish on CGC stock: it is Canadian.
While the future of U.S. drug policy is murky, Canada’s direction couldn’t be clearer. Prime Minister Trudeau is heavily in favor of legalization, making Canada an excellent place to invest in marijuana. The shift is expected to take place in April or May of 2017.
Canopy Growth Corp is like the Olympic sprinter waiting for the starting gun. It is ready and eager to win this race, so keep an eye on CGC stock. At the very least, it can help hedge against geographic and regulatory risk that U.S.-based marijuana stocks have in common.
Best Marijuana Stocks: Cara Therapeutics Inc (NASDAQ:CARA)
As you can tell by its name, Cara Therapeutics Inc (NASDAQ:CARA) is another medicinal play on pot stocks. This company researches, develops, and markets its own cannabis products, most of which center around pain and inflammation.
It has adapted marijuana’s key properties into medication that treats these conditions. Two of its drugs have shown considerable success in pre-clinical testing, suggesting that good things lie ahead for this stock. CARA stock has already doubled in value over the previous six months.
Cara Therapeutics Inc’s balance sheet is also free from long-term debt, giving investors yet another reason to love the company. It is safe from any interest rate shocks that should arise from the Federal Reserve’s “normalization.” But more to the point, CARA stock has $71.4 million in the bank.
This is not a cash-strapped, debt-ridden, biotech stock grasping at straws. Cara Therapeutics Inc is a financially sound firm with promising assets that could surge in value over the coming months. That is in itself a reason to keep a close eye on CARA stock.
Bottom Line on Top Marijuana Stocks
Let us return to the original question: Should you invest in marijuana stocks? The answer seems obvious. Do your research, do your homework, and remember that I am not your personal financial advisor—I do not know you personally.
But I do know what the top marijuana stocks for 2017 are.
In this market environment, investors are likely to avoid marijuana penny stocks. They could choose safer marijuana stocks to invest in, such as Insys Therapeutics, Canopy Growth Corp, and Cara Therapeutics Inc.
These are among the best marijuana stocks this year. Not only do they provide huge upside potential, but they protect against radical changes in regulation. The industry-wide uncertainty has dragged these stocks into the bargain bin, but I seriously doubt they’ll remain there for long.
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