The stock market has been volatile in the first half of the year, but that hasn’t stopped two marijuana-related companies from making big gains. One of the reasons for this? The long-term growth potential of the industry. And as you can see in the chart below, there’s a lot of upside to be had by investing in marijuana stocks right now.
Another week has passed, and with it came a lot of good and bad news for the cannabis industry. Total U.S. cannabis sales through the first half of the year reached $6.7 billion, a figure that may seem paltry compared to the $32.7 billion in total sales through the first six months of last year. But there is plenty of reason to cheer.
The key to successful investing is to find companies that are showing growth. The major cannabis companies on the Canadian scene– Aphria Inc. and Canopy Growth Corp. (TSX:WEED) are both showing big gains and so far look to be poised to capitalize on the Canadian legalization of recreational marijuana.. Read more about the best u.s. pot stocks and let us know what you think.
These marijuana stocks are hot right now
With the marijuana industry largely at a political impasse (at least at the federal level in the U.S.), it’s time to focus on actions that individually exceed expectations. Recently, we’ve seen exciting action in two marijuana stocks in particular: Tilray Inc (NASDAQ:TLRY) and Cronos Group Inc (NYSE:CRON). Tilray shares made a big surge in 2021. Since the beginning of the acquisition of Aphria Inc. The merger will make Tilray and Aphria one of the largest marijuana companies in the world and challenge Canopy Growth Corp (NYSE:CGC) for dominance, at least in terms of market value. TLRY stock has never been my favorite, mostly because of the way it came to market. In late 2018, when the company went public (IPO), Tilray shares saw huge gains as the market was hungry for marijuana-related stocks, especially after the IPO and especially after the IPO on a major U.S. exchange. This excitement led to a sharp rise in the share price, which pushed TLRY shares into a long and sustained decline. As Tilray shares rebalanced after several years of losses, they finally regained their footing and began to show some growth. In other words: It seemed the worst of times were behind us. But history likes to repeat itself. TLRY’s shares made a jump after the announcement of the Tilray Inc. acquisition, but fell in the months that followed. Graph courtesy of StockCharts.com But now that the acquisition is complete, Tilray’s shares are rising again. TLRY shares are up nearly 14% in the past three days, suggesting a bigger rally is on the way. The idea of buying shares of a powerful marijuana player after volatility in the stock markets has set the stage for a fairly strong rally has left many investors watering. Ultimately, Tilray share size and power will play an increasingly important role as the sector evolves. It should be noted that volatility remains here. TLRY stocks are in a difficult position in terms of appropriate valuation. And frankly, most of the prospects will not be fully realized until the marijuana industry is fully mature, or at least more mature than it is today. This means we need to see how more markets open up to legal weed so that the Tilray action can be more accurately assessed. So the conclusion is that you can make money now with TLRY shares. Whether you can handle the volatility, however, is a purely personal matter. In the long run, however, there is good news: Swiss National Bank bought 175,900 shares of Tilray stock in the first quarter, bringing its total investment in the company to 289,300 shares. (Source: Swiss central bank bought Li Auto, XPeng, Zoom and these marijuana stocks, Barron’s, May 16, 2021). This continued institutional support points to a changing trend where we can expect new money to flow into the marijuana industry. And as the money flows in, stock prices are bound to rise. It also gives cannabis companies the resources they need to invest in growing their business, which should lead to more sales and encourage investment in cannabis stocks. In other words, we may begin to see the development of a positive feedback loop between marijuana companies. Cronos is another grass share that has been on the rise lately. CRON shares actually have a similar history to TLRY shares. Fuelled by media hype, Cronos’ shares have soared more than once in the nearly five years it has been a publicly traded marijuana company. But every time CRON stock reaches new heights, it inevitably falls back to earth. In all of this, Cronos stock has made tremendous progress in its existence. CRON shares have sometimes risen by thousands of percent during the craziest rallies (like in 2019 after marijuana was legalized in Canada). Chartcourtesy of StockCharts.com I’ve long been skeptical of Cronos stock (and Tilray, for that matter), as both companies are too fragile and volatile in my opinion. In my opinion, why invest in a stock that can go up 20% today and fall 30% tomorrow, when there are excellent alternatives that can offer high returns while being more stable (with the caveat that these stocks take longer to grow). But we’re starting to see things change for Tilray Inc. and Cronos Group Inc. While they have relied mostly on hype and dreams in the past, it now seems that the market has finally priced these companies in. Moreover, I wouldn’t be surprised if TLRY and CRON are among the first marijuana stocks to experience a major rebound, largely due to their rebalanced price targets as the marijuana stock market begins its rally.
There is a lot of excitement in the marijuana market right now. It seems increasingly likely that a recovery is inevitable. But during this rally, some stocks will undoubtedly outperform others. As such, I think the actions of Cronos and Tilray are worth considering. Both companies have the potential for significant growth as the cannabis industry continues to grow. While neither TLRY nor CRON are my top marijuana stocks, they both have serious upside potential that investors should keep an eye on.While there are plenty of reasons to feel bullish about the cannabis industry, the two stocks that appear to be most overvalued right now are Tilray and Cronos Group Corp. Tilray is trading at a price/market cap of nearly 48,000, which is more than 20 times the company’s trailing revenue. Cronos, on the other hand, is trading for over five times its trailing revenue. Both are expected to have even more upside, given their aggressive expansion plans and outsized market valuations.. Read more about apha stock and let us know what you think.
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