How do you pick the best investment in an emerging, but promising industry like cannabis?
After all, don't most start-ups fail?
According to the Pareto principle, which very much applies here (also known as the good ol' 80/20 rule of thumb), we know that at least eight out of 10 start-ups will not survive. Really, it's more like nine out of 10. And that's in already-established industries. Factor in the volatile, emerging nature of the cannabis business, and we might as well be talking about the Wild West.
That's why we recommend investors look at the current big players in the marijuana space -- the future "blue chips" of cannabis, if you will.
Make $37,500 This Week From Legal Cannabis?
How To Find A Future Blue-Chip Cannabis Stock
Look, I know it's hard to call anything in this young niche "established." But what we're really talking about are companies that have been around long enough to navigate the difficult and ever-changing legal landscape.
There's no need to speculate on the lesser-known penny-stock pretenders in this space. Any group of knuckleheads can get some warehouse space, buy some supplies, hire an ag-nerd, and grow some really righteous bud...
But those guys are in the drug business. Forget that. We want to be in on the early stages of an empire.
Think of it… imagine if in the future you could say you bought in early on the Johnson & Johnson of medical marijuana... the Coca-Cola of cannabis... the next Phillip Morris or Molson Coors…
The possibilities here are really limitless. And the good news is that there's plenty of opportunity to go around without having to take a gamble here.
There are a handful of companies that qualify under this mental framework. And among those companies, we recommend looking for distinct competitive advantages. This could be technology, market position, strategic partnerships (within or outside the industry), or something else.
Find the right mix of these advantages, and you'll land on the cannabis stocks that are most likely to dominate the industry for decades to come.
If I Had To Pick One...
If I had to choose only one company to bank on in the cannabis space, it just might be Canopy Growth Corp. (NYSE: CGC).
This Canada-based company has more than just one competitive advantage.
The most significant edge it has is a big one... I'm talking about its partnership with Constellation Brands (NYSE: STZ), the maker of Corona beer, among numerous other beers, wines, and spirits.
The multi-billion investment by Constellation means Canopy has more firepower than your typical cannabis stock.
For Constellation's part, it's another in a long line of clever moves by management. For years, it maintained a focus on popular (and growing) segments of the alcohol business (imported beers, craft beers, wine, etc.). But in order to continue growing, management knew it needed to explore new markets -- places where Big Beer wasn't looking (or was too afraid to look) at the time.
Enter the newly-legal cannabis market.
At first, Constellation tested the waters. It acquired a 9.9% minority stake in Canopy, for a cost of about $191 million. By doing this, they became the first alcohol company to move into pot. This happened a short two years ago, almost to the day.
Next step: Buy more of a good thing. So in the November of 2018, Constellation put an additional $3.8 billion into its stake in Canopy.
The liquidity this investment provides is one thing. The reality is that most of the cannabis companies are burning through cash in a rush to build up, consolidate, and take advantage of this emerging industry. That's great and all, but it also poses some significant risks for these companies -- namely that more than a few will be wiped out before they're able to turn a profit.
And that's where the real benefit of Constellation's investment comes into play. Yes, it gives Canopy the liquidity needed to operate and expand. But it also provides somewhat of a backstop. The truth is the future of CGC is much more certain than it is for other players in this space, thanks to this strategic partnership.
It means Canopy can potentially use the production, marketing, and distribution prowess of Constellation. Not to mention cannabis-infused drinks are a indeed a thing, and you can expect the demand for them to grow quite a bit in the months and years to come.
So how much can Canopy grow?
Well, it's hard not to sound hyperbolic, so let's just say a whole heck of a lot. The company estimates a $500-billion end market, including pain relief, sleep aid, and alcoholic beverages.
Canopy set the template for what has become the pot industry's go-to move: get a large investment from an outside, established player -- and leverage that partner's resources and expertise to scale operations. With only about a third of its sales coming from Canada, a recent entry into the U.S. market, a big partner like Constellation, and a multi-billion-dollar addressable market, there is plenty of room for CGC to grow quickly.
It's worth noting, however, that CGC shares have had a wild ride recently. Honestly, one look at the price chart is enough to make you a little queasy.
At $20, the stock hasn't traded this low since early 2018. This is fairly typical of the industry, however. But I'll say it again, if I had to pick only one long-term winner in this space, it would probably be Canopy.
A "Turbo" Way To Trade Pot Stocks
If you're going to bet on a long-term winner in cannabis stocks, it's going to take some brass cajones.
But rather than simply buying these stocks and hoping for the best, my colleague Amber Hestla may have found a better way...
For the last several months, Amber has been refining a "turbo" trading method that's already paying off big-time.
It had the power to churn out gains of...
• 1,400% on Corbus Pharmaceuticals in 2 days
• 850% on Amyris in a week
• 838% on AbbVie in 3 days
• 700% on Neptune Wellness in 2 weeks
• 380% on Tilray in 3 days
• 309% on Constellation Brands in 6 days
How is this possible? Well, if you follow cannabis stocks, then you know how volatile they can be. And that can be a big problem with taking a "buy-and-hold" approach to these stocks. But with Amber's "turbo" trading system, she's using that volatility to her advantage. Her simple system gives you specific instructions for getting in and out of trades, while risking less money and delivering more upside than buy-and-hold.