Best Medical Marijuana Stocks To Watch

Get in the know about medical marijuana stocks.

The global medical marijuana market is projected to grow at an annualized rate of nearly 18% through 2028, according to Data Bridge Market Research. Much of this growth will likely be in the U.S., where 35 states have already legalized medical cannabis. Medical cannabis products sold in the U.S. include dried flower, vaping concentrates, cannabis-infused edibles, and topical products such as lotion.

Investors who opt to buy individual medical marijuana stocks can choose among Canadian or U.S. companies. Canadian medical cannabis companies can legally list on U.S. stock exchanges, while U.S. medical cannabis companies operating legally at the state level can legally list on Canadian stock exchanges and over the counter (OTC).

Before you invest in medical cannabis companies, find out what you need to know about this growing sector.

Top medical marijuana stocks

These five medical marijuana stocks are top buys for 2021:

Market Capitalization

Description

Canopy Growth (NASDAQ:CGC)

Grows, produces, and sells medical cannabis products primarily for the Canadian and European markets

Valens (OTC:VLNCF)

Jazz Pharmaceuticals (NASDAQ:JAZZ)

Trulieve Cannabis (OTC:TCNNF)

Innovative Industrial Properties (NYSE:IIPR)

Data source: Yahoo! Finance. Data current as of July 26, 2021.

1. Canopy Growth

Canopy Growth serves the Canadian medical and recreational marijuana markets and distributes medical cannabis to international markets, including Germany. The company has strong global distribution channels with subsidiaries, joint ventures, and strategic partners that market its products around the world.

Canopy Growth can't yet compete in the huge U.S. medical cannabis market, but it is poised to quickly enter if cannabis is federally legalized. The company already has a deal in place to acquire Acreage Holdings (OTC:ACRGF), which operates cannabis dispensaries in 13 U.S. states.

Canopy Growth isn't consistently profitable because it's focused on growth. The company has a strong cash position as a result of a $4 billion investment from alcohol giant Constellation Brands (NYSE:STZ). Its ties to Constellation, along with the cash from the deal, give Canopy a big advantage in the medical cannabis industry.

2. Valens

Valens is a Canadian company that provides extraction services for companies that make cannabis products, including medical cannabis products such as capsules, soft gels, topical ointments, and tinctures. Valens contracts with top medical cannabis growers. Claims to have the largest extraction capacity among its rivals. The extraction company has multiyear agreements with many Canadian growers, including Canopy Growth, HEXO (NASDAQ:HEXO), OrganiGram (NASDAQ:OGI), and Tilray (NASDAQ:TLRY).

Extraction opportunities related to medical cannabis are growing substantially in the U.S., Europe, Australia, and Latin America. The company's solid revenue growth is likely to be further boosted by its acquisition of Florida-based cannabidiol (CBD) products company Green Roads by providing valuable exposure to the U.S. cannabis market.

3. Jazz Pharmaceuticals

Jazz Pharmaceuticals became the largest cannabis-focused drug developer following its acquisition of GW Pharmaceuticals in May 2021. Sativex, developed by GW, is a medical cannabis drug that contains both the high-inducing tetrahydrocannabinol (THC) and the non-psychoactive CBD. It treats spasticity associated with multiple sclerosis. Epidiolex, also developed by GW, is a CBD drug and the company's most successful product. Sativex is approved in multiple countries, excluding the U.S., and Epidiolex is approved in both the U.S. and Europe.

Epidiolex, which generated sales of more than $510 million in 2020, is significantly boosting Jazz's revenue. Its sales growth should continue with the European Commission's approval in April 2021 of the drug (sold as Epidyolex in Europe) to treat seizures associated with tuberous sclerosis complex.

Jazz is not a pure-play medical cannabis company, and it also makes the sleep disorder drugs Xyrem, Xywav, and Sunosi, which account for more than two-thirds of its sales. Jazz also sells the cancer drugs Rylaze, Vyxeos, and Zepzelca.

4. Trulieve Cannabis is a vertically integrated U.S.-based cannabis company that grows medical cannabis. Distributes medical cannabis products to its own retail dispensaries. S.-based cannabis company that grows medical cannabis. Distributes medical cannabis products to its own retail dispensaries.-based cannabis company that grows medical cannabis and distributes medical cannabis products to its own retail dispensaries. The company's primary operations are in Florida, where it runs more than 80 medical cannabis dispensaries and commands a market share of close to 50%. Trulieve also has operations in California, Connecticut, Massachusetts, Pennsylvania, and West Virginia.

Trulieve is acquiring Harvest Health & Recreation (OTC:HRVSF). After the deal closes, Trulieve will rank as the most profitable U.S. multistate cannabis operator. It will also be the largest U.S. cannabis company based on its combined retail and cultivation footprint.

Unlike most of its peers, Trulieve regularly delivers quarterly profits. The company's earnings growth remains strong, which gives Trulieve considerable financial flexibility to invest in expanding its business.

5. Innovative Industrial Properties

As a real estate investment trust, or REIT, Innovative Industrial Properties is the leading real estate provider for the U.S. medical cannabis industry. The company buys properties from medical cannabis operators and then leases the properties back to the operators, providing needed cash to growing cannabis businesses and stable income for Innovative.

Innovative Industrial Properties currently owns properties that are leased to tenants in 18 states. The company is increasing its customer base not only in the states where it already operates but also in additional states that legalize medical or recreational cannabis.

As a REIT, Innovative Industrial Properties distributes at least 90% of its taxable income to investors in the form of dividends. Innovative Industrial Properties' consistent profitability is due in part to its diversification across many tenants.

How to choose the best medical marijuana stocks

Investors should consider the same key attributes for medical marijuana stocks that they would for any stock:

Financial performance: Many medical marijuana companies aren't yet profitable, but the best companies have clear and defined plans for achieving profitability in the future. The safest companies also have plenty of cash, which creates financial flexibility and preserves the value of the stock. Growth opportunities: The patchy regulatory framework of the marijuana sector means that medical cannabis companies' growth prospects vary widely. The best companies are minimally limited by geographic constraints. Competitive position: Leading medical marijuana companies have high production capacity, plenty of distribution channels, and beneficial partnerships with established companies.

If you don't want to choose specific stocks, another way to gain exposure to medical marijuana stocks is to buy shares in a cannabis-focused exchange-traded fund (ETF). This confers instant diversification across the cannabis sector, although currently no pure-play medical cannabis ETFs are available.

Should you buy medical marijuana stocks?

Investing in the medical marijuana sector is relatively risky as long as cannabis remains federally illegal in the U.S. The plant's federal status also constrains the growth of the sector, and investors have no guarantee that the federal government will continue to allow states to treat cannabis as legal.

But the long-term prospects of the medical marijuana industry are excellent. More countries and U.S. states are recognizing the potential benefits of medical cannabis and legalizing the use and sale of medical cannabis products. More individuals and the broader medical community are also recognizing the plant's medicinal benefits, driving demand higher for medical marijuana. Risk-tolerant investors with long investing horizons are likely to profit by investing in medical marijuana.