The Top Five Marijuana Stocks to watch this year

Cannabis projects are one of the fastest-growing industries. According to a report from New Frontier Data, U.S pot sales has the potential to triple by 2025 with an annual high turn out of $41.5 billion. It is a given that a customer base won't be impossible but there is a necessity to legalize cannabis and move consumers from illicit to legal channels. The analysis of monthly return in February validates the obvious hype surrounding pot stocks. 

The benchmark S&P 500 ended last month higher by 2.6%. Ten marijuana stocks passed over the finish line with at least a 20% gain. The top five best marijuana stocks of February in descending order are:

1.    MedMen Enterprises (NASDAQOTCBB:MMNFF): Up 208%.

2.    OrganiGram Holdings ( NASDAQ:OGI ): Up 66%.

3.    Sundial Growers( NASDAQ:SNDL ): Up 63%.

4.    Aphria ( NASDAQ:APHA ): Up 46%.

5.    GW Pharmaceuticals( NASDAQ:GWPH ): Up 40%.

The biggest factor in February that pushed marijuana stocks high was the retail investor-fueled rally arising from Reddit. Early on, most retail investors decided to direct their attention to heavily short-sold stocks. But this catalyzed a movement targeting highly liquid penny stocks. It is not surprising that the three biggest gainers in February are penny stocks, MadMen, OrganiGram, and Sundial. 

But market analysts find this troubling as penny stocks have low share prices for a reason. For example, Sundial has yet to assimilate the procedures and rules needed to generate profit and is currently in the middle of a business shift with a focus on retail. This might push its opportunity to be profitable even further out. 

It is not encouraging that the company has sent out more than 1.1 billion shares through offerings and debt to equity exchanges within five months. MadMen Enterprises on the other hand isn't guaranteed to survive as the company's previous management team was too aggressive with the expansion efforts. 

Also, having its location in the U.S limits its access to capital short of dilutive share offerings. This means that MadMen's remaining cash could be eaten up quickly by its operating losses. OrganiGram seems to be the only exception as the marijuana penny stock with high chances of being a long-term winner. OrganiGram runs a single facility, making it easy to tailor the supply chain to account for prevailing market conditions. 

OrganiGram uses a licensed indoor cultivation room and a three-tiered growing system to maximize yields. This company has heavily skewed all its future sales towards beverage additives and higher-margin edibles. Another catalyst for the gains in February is the expectation of the U.S federal government enacting cannabis reforms and legalization in the foreseeable future. 

Canadian licensed producers like OrganiGram and Aphria, following Joe Biden's presidential victory, have been marching higher since November. This pace received an additional boost when the Democrats won back to the Senate in early January, as it is no secret that they lean more favorably towards marijuana than Republicans. 

According to Gallup's annual survey, this comes with a never-before-seen record of 68% of respondents wanting to see cannabis legalized nationwide. This greatly increases the possibilities for federal legislation. All Canadian licensed producers have agreed not to enter the U.S marijuana market until the federal government legalizes cannabis to some extent. This is mostly to avoid legal complications and to avoid being delisted from major U.S exchanges. 

Since marijuana is not recognized at the Federal level U.S pot stocks can't list on major U.S exchanges. Apart from Canadian marijuana stocks being able to join the U.S market, legalization would also offer benefits to U.S multistate operators like Curaleaf. Legalization will allow easy access to basic banking services from financial institutions. This would also end the high number of redundant facilities one each state where the company has retail systems. Cannabis organization is sweeping over North America-15 states plus Washington, D.C., have all legalized recreational marijuana. In 2018, Canada got full legalization.

The last factor pushing this outperformance is the merger and acquisition activity going on in the cannabis space. Jazz Pharmaceuticals in February announced that it would acquire cannabinoid-focused drug company G.W Pharmaceuticals for $7.2 billion. GW Pharmaceuticals' Epidiolex has laid a solid foundation as a leading treatment for two rare forms of childhood-onset epilepsy. Its label has expanded to include tuberous sclerosis complex in 2020. It is expected that Jazz's successful portfolio will aid GW Pharma in funding more cannabinoid-focused research.