Marijuana stocks have been on fire lately. Many investors are hoping that a Democratic-controlled senate will steer the U.S. on the path to decriminalization — or even to legalization of the drug at the federal level. If — and it’s a big “if” — legalization did happen, it would create the world’s biggest cannabis industry with over $100 billion in annual sales…
In the past month, the Horizons Medical Marijuana Life Sciences ETF (TSX:HMMJ), a leading indicator of pot stocks, is already up over 12%. That’s just below the S&P 500’s 12.8% return over the same period. Given all the enthusiasm, let’s take a look at two of the best marijuana companies to choose from this January.
1. Aphria
Aphria (NASDAQ:APHA) and medical cannabis company Tilray (NASDAQ:TLRY) will merge this year to form the biggest marijuana grower in the world, with nearly 900 million Canadian dollars in annual revenue. The combined entity is well positioned to expand into the U.S. cannabis market, with its line of beverages and cannabidiol (CBD) products available at tens of thousands of retail locations throughout North America.
During the fiscal second quarter of 2021 (ended Nov. 30, 2020), Aphria increased its sales by 33% year over year to CA$160.5 million. Simultaneously, its cash production cost per gram of cannabis fell 6% quarter over quarter to CA$0.79. After adjusting for changes in its convertibles’ fair value, one-time transaction costs, and share compensation expenses, the company posted a surprise profit of CA$0.01 per share.
It is quite remarkable for a pot grower to become profitable while it is expanding. The company’s free cash flow also improved by as much as CA$70 million over the past quarter.
Right now, Aphria sees significant demand for its Canadian pot business as well. It managed to sell approximately 26,730 kilograms of cannabis in Q2 2021, up from 20,880 kg sold in the previous quarter. Given the potential for its momentum to continue, I highly recommend marijuana investors pick up shares of Aphria, even while it’s trading at about eight times revenue.
2. HEXO
Pot grower HEXO (NYSE:HEXO) sports the largest market share in the Canadian province of Quebec. It, too, is eyeing the multi-billion cannabis opportunity south of the border. Currently, HEXO runs a joint venture with Molson Coors Brewing Company (NYSE:TAP) to develop its line of CBD-infused beverages. The partnership’s CBD sparkling water was just launched in Colorado.
Despite being a relatively new venture, its beverages are already wildly successful. HEXO now holds a…
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