What THC means for the Future of Marijuana Stocks

The primary chemical in marijuana that causes the drug’s infamous psychoactive effects is called “tetrahydrocannabinol.” Understandably, this is usually abbreviated to the much easier to pronounce “THC.”

But, whatever you call the chemical compound, it is partially responsible for the drug’s appeal.

THC is perhaps one of the key reason marijuana stocks could have incredible staying power in the market and savvy investors  are looking for weed stocks to buy.

A number of marijuana stocks exist, and marijuana stocks in Canada are generating particular interest. Canada legalized medical marijuana over a decade ago and is scheduled to legalize recreational marijuana in July 2018. As a result, investors looking to make green are keeping an eye on weed stocks to invest in.

Three companies in particular are getting widespread attention from marijuana stocks investors: Canopy Growth (NASDAQOTH:TWMJF), Aurora Cannabis (NASDAQOTH:ACBFF), and Aphria (NASDAQOTH:APHQF).

These companies rank as the best weed stocks to buy on the current market and could remain at the top of the legal marijuana markets for many years to come. The reason for this is beyond simple legalization; it is because THC offers cannabis users a number of benefits.

Canopy Growth, Aurora Cannabis, and Aphria are Canadian companies. However, there is also an American company relevant to this discussion. One of the most successful stocks to date is Altria (NYSE:MO), which has gained nearly 29,000% since 1970. Altria ranks among the world’s largest tobacco companies and its products include Marlboro cigarettes and Skoal smokeless tobacco. Altria’s stock performance has been especially impressive considering huge gains occurred after the American government required tobacco companies to put warning labels on these products, and after tobacco companies were banned from advertising their products on television.

Despite these factors that would otherwise seem to be roadblocks to a stock’s performance, Altria continued to be a successful stock. The likely reason is because Altria’s products contain tobacco–which contains the addictive chemical compound nicotine. Although the number of smokers has declined in recent years, Altria was able to continue turning a profit. The company was able to easily raise prices on its products without the concern that the remaining smokers would quit buying Marlboros–these smokers were likely addicted to the product, and therefore unlikely to stop consuming the product that Altria peddles.

What does this discussion of Altria and nicotine have to do with marijuana stocks companies?

Marijuana and tobacco are radically different drugs, with very different psychoactive and physiological properties. While marijuana doesn’t contain nicotine, it does contain THC which is not addictive in the same way as nicotine.

According to the National Institute on Drug Abuse, as many as 30% of marijuana users can become dependent on marijuana because of THC. For the majority of individuals who do not become dependent on THC, the effects of this chemical compound, including euphoria and stress reduction, provide individuals with ample reason to continue using the drug. It seems likely that, like tobacco, the demand for legal marijuana will grow and be sustainable over time.

The varying incentives of marijuana use gives investors several reasons to choose marijuana stocks to diversify their investment portfolios.

In 2018, marijuana stocks in Canada are thriving. Canopy Growth, Aurora Cannabis, and Aphria provide medical marijuana in Canada and a few other countries. While these markets continue to grow, they do so with firm regulations. Patients must have prescriptions from healthcare providers in order to obtain medical marijuana, a requirement that limits marijuana growers’ ability to expand within their home country.

However, with further legalization on the horizon in Canada, this policy might be poised to change.

Canada is scheduled to legalize recreational use of marijuana in July 2018. Some estimates for the recreational pot market range from $4.2 billion to $8.7 billion, which promises to be a boon for marijuana stocks in Canada. The largest medical-marijuana grower, Canopy Growth, made revenue of only $47 million over the past 12 months. If these estimates are correct, then it is clear that Canopy Growth, and its competitors, are on track to make a substantial profit after Canada legalizes recreational marijuana.

The impressive profits of the top three Canadian marijuana stocks companies promises good returns for those seeking weed stocks to buy.

After Canada legalizes recreational marijuana across the country in July 2018, it seems incredibly likely that Canopy Growth, Aurora Cannabis, and Aphria will dominate the legal marijuana industry for a long time to come, making them marijuana stocks in Canada to watch during 2018.

The key to these companies’ success, though, will be production capacity.

All three companies are striving to increase their production capacity to meet the anticipated spike in demand. For example, Aurora Cannabis recently agreed to buy CanniMed Therapeutics for CAN$1.1 billion. Eventually, production capacity will catch up with demand, and that is when brand recognition and marketing will become important.

Canopy Growth has already started thinking about this eventuality, and has developed a partnership with rapper, and notorious cannabis user, Snoop Dogg. In 2016, Canopy Growth launched three varieties of dried cannabis strains under the Leafs by Snoop brand, beginning this branding well before recreational marijuana is legalized across Canada.

It is likely that other celebrities like Snoop Dogg will also sign endorsement deals, adding even more interest to marijuana stocks.

Although marijuana has long been an illicit drug obtained through illegal means, its legalization transforms it into a mainstream commodity–much like tobacco. The companies that survive and thrive in the legal marijuana market must be great at marketing, and these marijuana stocks will reflect companies’ ability to create and maintain a consumer base.

In the 1950s, Liggett & Myers was one of the top tobacco companies; however, it no longer exists as a standalone company. It was bought by Altria in 1999. This, too, could provide insight into what fate individual legal cannabis companies might have.

In fact, there is some evidence that this corporate consolidation is already occurring among legal marijuana companies. Some large companies are keeping an eye on the Canadian marijuana market. In October 2017, Constellation Brands (NYSE:STZ) paid $245 million for a 9.9% stake in Canopy Growth.

Constellation Brands and Canopy Growth partnered on the development of a cannabis-infused beer, promising innovation for marijuana products that will undoubtedly influence the price of marijuana stocks.

This cannabis brew has yet to be released, but Constellation Brand’s investment has already begun to pay off.

Constellation Brand’s interest in Canopy Growth is now worth about $475 million; a return of more than 90% in three months is very good, giving investors an idea of which weed stocks to invest in.

Are Canopy Growth, Aurora Cannabis, or Aphria destined to be the legal marijuana version of Altria? It is impossible to accurately predict which company will be the most successful. However, it seems likely that recreational marijuana is going to be wildly popular.

Although THC and nicotine are very different chemical compounds–and, unlike tobacco, marijuana has distinct palliative uses–we can make predictions about the future of marijuana stocks based on the history of tobacco companies changing as markets change. If you are interested in increasing the green in your investment portfolio, you would be wise to seek out weed stocks to invest in.

(For recommendations regarding which stocks to consider buying this year, read The Top Marijuana Stocks Thus Far in 2018.)