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Investing in Canadian "pot stocks" has been a wild ride to date, but our expert writer says they still have good earning potential. This article looks at the best marijuana stocks and the best Canadian marijuana companies to invest in.

Years ago, talking about the right Canadian marijuana companies to invest in would be somewhat taboo. But not anymore: thanks to cannabis legalization, the pot industry has blown up. As more companies jump on board, investors are wondering whether or not it’s a viable investment.

To give some perspective, there were almost 364,000 registered medical marijuana clients in Canada at this time last year. The data doesn’t lie: Canadians are using marijuana and that means pot stocks present new opportunities. In this article, I’m going to explain why investing in Canadian pot stocks is a good idea right now, how to invest in the best marijuana stocks, and which Canadian marijuana companies to invest in. Read on to learn about the best marijuana stocks in Canada.

How to Invest in Canadian Pot Stocks

Anyone can easily learn how to start investing in Canada. Even if you only have a small amount to invest, you can invest in Canadian pot stocks using your computer, tablet, or mobile device.

To invest in Canadian marijuana companies, there are two options that I would recommend – individual stocks and ETFs. Individual stocks are riskier, and you have to know what you’re doing, but they can give you a more narrowed focus on what you want to invest in and possibly provide higher returns.

On the other hand, ETFs give you instant diversification, but it’s hard to find Canadian-only ETFs or ETFs that just focus on growing. That means options are more limited and more broadly based on the cannabis industry as a whole.

Pot stocks make an unusual case: it may make sense to invest in individual stocks instead of ETFs in this situation. The ETF pool is limited, and you can choose to invest in exactly what you want through individual stocks. Regardless of your preference, here are some tips to kickstart your pot stock portfolio:

Investing in Individual Pot Stocks

The best way to invest in Canadian pot stocks is to open a self-directed investing account and create your own portfolio. Since discount brokerages charge little to no fees, you can save a lot of money if you go this route. For instance, Questrade offers free ETF purchases and you’ll pay $.01 per share, with a  $4.95 minimum and up to a maximum of $9.95 per trade.

Choose the Right Broker

I can’t stress this enough. With such a specific investment and one that requires a lot of research, you need to find the right broker – one who won’t gouge you on fees and has plenty of research tools and resources. Questrade remains our favourite for this, as they have excellent tools and resources for research (including easy to manipulate charts). Right now, Young & Thrifty readers get $50 in free trades when they sign up. So it’s a win-win.

You can also try using Wealthsimple Trade – a mobile-trading platform that offers zero-commission stock and ETF trading. That will allow you to pick a handful of Canadian pot stocks without a small fortune in fees. Plus, you can take advantage of our exclusive promo offer: open a new Wealthsimple Trade account, and get a $50 cash bonus + $0 commission trades. All you have to do is deposit and trade at least $250. Sign-up today to take advantage of this exclusive offer.

If you’re DIY investing, here are my top tips for buying Canadian pot stocks:

  • Total number of stocks in your portfolio: I recommend having no less than 10 and no more than 30 individual stocks in your investment portfolio. Less than 10 opens you up to too much risk, and more than 30 risks over-diversifying or getting multiple stocks in the same sector. So 10 to 30 seems to be the sweet spot.

  • Add some international stock to the mix: When investing in Canadian pot stocks, you’ll want to be mindful of how it plays into your overall portfolio. You don’t want five of those stocks to all be Canadian marijuana companies, otherwise, you’ll be overly leaning on this sector.

  • At most, choose two individual pot stocks to invest in. Make sure they have a different focus — for example, a company that strictly just grows marijuana and a company that invests in all types of marijuana-related things (such as CBD oil). And yes, you’ll need to read about the companies to figure this out.

  • Stick to the 5% maximum: In most cases, I recommend investing up to 10-15% of your portfolio dedicated to a certain industry – like energy, financials, or consumer goods. But marijuana stocks are riskier, since it’s still a new industry, and there aren’t a ton of companies to choose from (compared to other major industries). So, keep your individual pot stock investment to no more than 5% of the total value of your portfolio. If you really are comfortable with risk and you want to take on more, you can go to 10%. But you need to know you’ll be chipping away money that could otherwise be invested in another industry to balance the risk of your pot stocks.

Start investing with Questrade and get $50 in free trades!

Investing in Marijuana ETFs

Investing in marijuana ETFs is a little more cut and dry. ETFs trade like a stock, but I’m less worried about the specifics because of the instant diversification you get with them. Here are some tips on how to most effectively invest in cannabis ETFs.

  • Don’t Pay a Dime for Trading: Nowadays, you can find brokers that let you trade ETFs for free. What I would look for is a broker that has a broad array of options outside of individual ETFs so you can stick with one and be done. For instance, a broker that also has robo-advisor features for your other investments. (Right now, I don’t know of any robo-advisors that specifically have marijuana ETFs as part of their portfolios.) A good example is Wealthsimple Trade — an online trading platform that allows you to pick your own stocks and ETFs for free. That means you can invest in a couple of marijuana ETFs for free. Promo: Get a $50 cash bonus + $0 commission trades when you open a new Wealthsimple Trade account! Sign-up today to take advantage of this exclusive offer.

  • Stick to the Same 5% Rule: Like individual stocks, stick to 5% of your total portfolio going to marijuana-based ETFs. The good news here is that you get more diversified, and I wouldn’t be as stringent with the 10 to 30 stock rule as I would be with ETFs. Since ETFs are already diversified, invest in as many as you feel you can manage, and that gives you a well-balanced portfolio. Just keep your pot ETFs to about 5% so you’re managing your risk appropriately. So if you were to open a Wealthsimple Trade account and deposit, say, $1,000, you could buy about five shares of something like Spinnaker ETF Series The Cannabis ETF (THCX) and still keep it at around 5% of your overall portfolio value. Since you’re not paying fees, more of your money will go to the investment.

Now that you have a lay of the land, here are some of my recommendations to start your research with. (Remember, never blindly follow investment picks. Make sure you do your own research.)

Get a $50 cash bonus when you open a new Wealthsimple Trade account!

The Best Marijuana Stocks in Canada

If you’ve read my articles before, you’ll know that I prefer a value investing approach, where I look for stocks that are undervalued. This means that the stock has strong financials, earnings are growing, and they (preferably) pay a dividend. That said, here are some Canadian pot stocks to examine further:

CompanyTickerBook Value Per Share (BVPS)Tangible Book Value Per Share (TBVPS)Earnings Per Share (EPS)DividendValue Score*
Cronos Group IncCRON5.024.193.30No6/10
Aphria IncAPHA6.792.56-0.11No5/10
Canopy Growth CorpCGC (WEED on the TSX)20.6014.48-2.76No4/10
Hexo CorpHEXO1.831.76-0.13No4/10
OrganiGram Holdings IncOGI2.092.08-0.11No4/10

Remember that the stocks listed above should be no more than a starting point for more in-depth research. Also, the Value Score is my overall rating — it shouldn’t be your one-stop metric, though. It’s more used to help prioritize stocks to research. A lower-Value Score just means there’s more risk, and thus you should do more research.

For instance, Cronos Group Inc (CRON) is probably my favourite pick of the bunch. Headquartered in Canada, it has a massive global footprint and had strong sales numbers last year due primarily to CBD oil. It has no long-term debt, either. But its historical EPS worries me. It doesn’t pay a dividend, and I would probably buy it if it were closer to $3.60 a share – so to me, it’s a bit overvalued. That’s not to say it’s not a great investment, but it should prompt you to do more research.

Marijuana ETFs to Consider

Another way to invest in cannabis stocks is through an ETF. As I said before, though, finding an ETF that focuses exclusively on Canadian companies will be difficult. So below, I’ve listed some of the most popular and best ETFs focusing on marijuana companies – both Canadian and across the world. (Note: Horizons Marijuana is a Canadian ETF, while the others focus more broadly.)

ETFTickerYTD PerformanceExpense Ratio
Horizons Marijuana Life Sciences Index ETFHMMJ.TO-13.83%0.86%
ETFMG Alternative Harvest ETFMJ-19.10%0.75%
Spinnaker ETF Series The Cannabis ETFTHCX-15.80%0.70%
Cambria Cannabis ETFTOKE-14.18%0.42%

At first glance, you’re probably wondering why you’d want to invest in any of these ETFs since they’re so beaten down YTD. But let’s not forget what the coronavirus pandemic did to the stock markets. Sure, some ETFs have rebounded a lot faster, but these ETFs are focused on one particular sector – marijuana.

There is some level of risk here, but if you want exposure to either the Canadian or the global marijuana investment market, these are some of your best bets since their already diversified in a number of different companies.

Let’s pick on Alternative Harvest ETF (MJ) for a minute. While it’s down more than 19% year-to-date, the past three months have been awesome, as the stock is up more than 45%, hitting a new high 13 times in that time window. And over the past month, it’s gone up nearly 16%.

Like any investment, though, you’ll want to make sure you do your research. With ETFs, I like to look at how actively it’s managed (if at all), the expense ratio, and do a deep-dive of the top 5-10 holdings within the ETF to see if they’re companies I would normally invest in.

Why Canadian Pot Stocks Can Be a Great Investment Right Now

Since cannabis was legalized for both recreational and medical usage in Canada in 2018, sales have been increasing. A survey done by StatCan shows that sales have increased 3.75 times from legalization to January 2020 – reaching a high of $154.2 million CAN.

cannabis sales

StatCan also looked at how many marijuana-growing businesses now existed across the major areas in Canada, and found some pretty compelling data. There are, as of the end of last year, 188 total Canadian companies dedicated entirely to growing cannabis with nearly 46% of them based in Ontario.

Canadian companies dedicated entirely to growing cannabis

But just because marijuana has gained traction in Canada doesn’t in and of itself make its stocks a good investment. What makes a good investment is buying into a company with a strong product or service, solid financials, and buying it at a time when it’s undervalued.

Let’s look at two of the largest marijuana growers in Canada right now – Canopy Growth Corp. (CGC) and Aurora Cannabis (ACB). First, let’s take examine their one-year growth.

largest marijuana growers in CanadaAs of June 16th, 2020, both companies have seen abysmal returns, with Canopy dropping more than 60% and Aurora dropping more than 84%. Now, much of this has to do with the COVID-19 impact, which we’ll examine more below.

Next, let’s look at their year-to-date performance:

Canopy growth performance YTD

Better, but still not great. You can see Canopy rebounded a lot better than Aurora from the COVID-19 pandemic. Now, I want to show you what these companies have done over the past three months, as the overall economy has been making a comeback:

Canopy growth performance past three months

Both stocks have absolutely crushed it over the past three months, but that’s still not even the best part. If you take a longer-term look and see their performance over the last five years, you’ll see where they both peaked. For example, look at where each of the companies was trading at on October 5, 2018:

Canopy was at $47.49 a share and Aurora was at $153.72 a share – and remember, both are trading at around $17 a share right now. You can see from the chart that not six months later, they were at a high point again (before crashing downwards).

So what exactly does this mean, and why should you care?

The short answer is this: many of them are undervalued. Past performance by NO means is an indicator of future performance, but the data certainly is interesting. Both of the stocks I mentioned above have historically traded much higher when the economy was in better standing.

You’ve seen what both can do after a rebound, and they’re trending upward. And the consumer data I showed earlier supports the industry growing even further. So now might be a great time to start investing in Canadian cannabis stocks.

Final Thoughts

Investing in Canadian marijuana stocks was probably a more controversial topic a few years ago, but now it’s a legitimate investment opportunity. As you saw in the data I showed you above, there are a plethora of companies focusing on growing and distributing marijuana and marijuana products – especially here in Canada where it’s completely legal.

Just make sure you understand the risks involved (from an investment perspective) and keep a balanced portfolio. And if you’re going to buy individual stocks, PLEASE make sure to do your due diligence first. Remember that a good broker can help guide you with a lot of this research too.

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