We just saw this morning that cannabis investor Privateer Holdings has taken in an additional $40 million in funding for investing in the increasing legalization of marijuana. Legal cannabis sales are expected to hit over $6 billion this year and are expected to approach $22 billion by 2020. This had us thinking, is there any good pure-play marijuana stock out there?

People didn’t seem to appreciate the several articles we wrote earlier this year warning investors about not investing in OTC marijuana stocks. We thought it was important to warn investors because FINRA warned about this and they’re… well, OTC stocks which no serious investor would touch with a ten-foot pole. Nonetheless, we received some serious verbal backlash and some examples of this critical commentary can be seen below:

CGC +50% up and on TSX now. This was shitty article

Totally missed the mark on this one bud. Back to class for you.

Absurd article. Internet trash.

Stoners. You just can’t seem to get through to them (rolls eyes). Now while legalizing marijuana didn’t make the cut in our list of 30 emerging technologies investors should watch, we’re going to grandfather it in because it has some serious potential as a disruptive market and there is some huge interest in this theme from a whole bevy of stoned investors. And let’s be frank, these are some of the investors that need help the most. Plus, marijuana stocks are just a whole lot of fun to write about because you can interject all kinds of dope puns into your writing (see what we did there?).

So we took the advice of one of our lovely readers and decided to take a closer look at a marijuana stock called Canopy Growth Corporation (TSE:CGC) that has begun trading on the TSX. Note that Canopy Growth also continues to trade on the OTC market under the symbol TWMJF. Since CGC began trading on the TSX, shares are up +115%. We must be careful not to confuse share price appreciation with a good long term investment as people are often prone to do. Let’s take a closer look at what sort of company lies underneath these rapidly appreciating CGC shares. (Note: All numbers below are in USD).

About Canopy Growth

The significance of Canopy Growth is that they claim to be the first federally regulated, publicly traded cannabis producer in North America and the only cannabis company listed on a major global stock exchange. From what we’ve seen, there seems to be no reason to disagree with that statement. Let’s not forget that marijuana is illegal in most U.S. States and in a majority of countries around the world so we’re a long way away from seeing our first marijuana IPO. Canopy Growth operates four production facilities in Ontario and distributes marijuana across the country to Canadian patients managing a host of medical conditions. The first thing we noticed when looking at this $600 million company is that they are selling a lot of weed.

So in their best month this year so far they sold 661 pounds of marijuana. With 16,500 customers this works out to 18 grams a month or 5.2 eights a month which is a lot of weed being consumed. Marijuana is not technically legal in Canada so these are all “medical marijuana” users. Since last year they added 12,800 customers so there must be something in the water that’s making everyone get so sick all of a sudden. On April 20, 2016, the Canadian Federal Government announced its intention to introduce, by the Spring of calendar year 2017, legislation to legalize the recreational use of marijuana in Canada. Canopy Growth sees this as a 7-10 billion dollar market. The Company is also starting to pursue international expansion and they’ve even partnered with Snoop D O Double G which bodes well for an expansion into the U.S.:

Considering that they only sold their first bag of weed as recent as 2014, CGC appears to be on a tear. A peek into CGC’s last financial filing as of June 2016 shows that they have $14.5 million in cash on hand with just $2.6 million in long term debt. Their last fiscal quarter shows they took in revenues of $5.2 million and incurred losses of around $3 million.

If you’re thinking about investing in marijuana stocks, there aren’t many options available. As Canopy Growth claims, they seem to be the only pure-play marijuana stock traded on a major stock exchange at the moment. The biggest takeaway here is that this is a legitimate company from what we can tell that sells a lot of weed which is exactly what you want from an investment theme that focuses on the proliferation of weed. With increasing legalization, Canopy Growth stands to benefit as the only pure-play marijuana stock around.

Conclusion

We feel the need to remind everyone that you should never put all your eggs in one basket with any stock and that this marijuana stock should just be part of a diversified portfolio and not the only stock you hold. If it comes crashing down after the recent run, don’t panic. As an investor, you should be in this for the long run. If CGC blows up and you lose all your money, just take the advice of a wise sage named Calvin Cordozar Broadus Jr. who once said “Sometimes a loss is the best thing that can happen. It teaches you what you should have done next time“.

Here at Nanalyze, we complement our tech investments with a portfolio of 30 dividend growth stocks that pay us increasing income every year. Learn how to build your own dividend growth stock portfolio in our report on Quantigence - A Dividend Growth Investing Strategy - freely available to Nanalyze Premium subscribers.