8 Best Cannabis Stocks of July 2024

Cannabis is now legal for medical use in 37 states and fully legal in 23 states. However, its federal status remains unchanged since the 1970s, where it is still classified alongside heroin, ecstasy, and LSD.

Cannabis stocks surged after the U.S. Department of Health and Human Services recommended easing marijuana restrictions in August. Yet, progress in legalization has been slower than expected. This dichotomy underscores the potential gains and uncertainties for marijuana companies.

In Canada, marijuana was legalized nationwide in 2018, allowing many American cannabis companies to list their shares on Canadian exchanges.

For investors willing to navigate the volatile cannabis market, here are eight promising cannabis stocks. Keep in mind that these are growth stocks with small market caps, and they come with significant downside risk.

Methodology

The stocks on this list meet the following criteria:

Market cap over $75 million.
Revenue above $50 million for 2022.
Positive and growing revenue over the last three years.
A price-to-sales ratio below 2.50.
Significant involvement in the cannabis industry.

Cannabis companies are high-risk growth stocks, many of which are not yet profitable. Therefore, we focused on companies with positive and growing sales revenue over the last three years. The exception is Verano Holdings, which lacks sales data over this period.

All selected companies have market caps above $75 million and generated over $50 million in sales last year. Note that most of these companies trade on both Canadian and U.S. markets. These stocks are scrappy growth stocks with small market caps, posing real downside risks.

To learn more about our rating and review methodology, check out our guide on how Forbes Advisor rates investing products.

Risks of Buying Cannabis Stocks

Investing in cannabis stocks involves unique risks:

Legal Risks: Marijuana possession and sale remain illegal under federal law in the U.S., although only four states have complete legal prohibition.

Financial Constraints: Federal prohibition limits banking services for cannabis businesses, making it hard for them to access financial services.

Supply and Demand Risks: Rapid industry growth leads to supply and demand fluctuations. Canadian growers initially expanded production to meet recreational demand, but oversupply caused prices and revenues to fall.

Profitability Risks: Many cannabis companies are not yet profitable and carry large debts, risking potential cash shortages. Growth stocks often raise capital by issuing new shares, diluting existing shares’ value.

OTC Risks: Many cannabis stocks trade in over-the-counter markets, which have fewer regulatory requirements, leading to potentially opaque financials and low liquidity.

The State of the U.S. Cannabis Market in 2023

The first wave of U.S.-listed cannabis stocks has been disappointing. Multi-state operators (MSOs) have seen stock prices drop due to pricing pressures in the competitive U.S. market. From Q3 2021 to Q3 2022, the price of a gram of marijuana dropped 13%, the largest annual decrease on record.

Despite state-by-state legalization progress, national cannabis reform has stalled. The Marijuana Opportunity Reinvestment and Expungement Act (MORE) aims to decriminalize marijuana federally, but it has not passed the Senate.

Analysts see more significant opportunities for long-term investors in Canada. Since recreational cannabis was legalized nationwide in 2018, the market for public cannabis companies has thrived.

Many American companies, like Curaleaf, Green Thumb Industries, and Trulieve, are listed on Canadian exchanges and trade as American Depository Receipts in the U.S. OTC market.

About the Author

Michael Adams is the lead editor for investing at Forbes Advisor. With nearly two decades of experience, Michael has written about and practiced investing extensively. His work spans stocks, cryptocurrency, and ETFs for major financial publications, including Kiplinger, U.S. News & World Report, and The Motley Fool. Michael holds a master’s degree in philosophy from The New School for Social Research and an additional master’s degree in Asian classics from St. John’s College.