Marijuana Stocks Lose their Buzz, but These Dividend Plays are Poised for Growth
Marijuana stocks declined sharply on Wednesday and are on track for a disappointing quarter on renewed regulatory risks and signs of an over-saturated market.
Leading Marijuana Index Hits One-Month Lows
The North American Marijuana Index declined 4% on Wednesday to settle at $235.39, its lowest since Feb. 27. Thirty-three of the 39 index members recorded losses, with Canadian stocks shouldering the heaviest losses.
Cannabis stocks are down more than 35% from their early January peaks, which was right around the time U.S. Attorney General Jeff Sessions reversed Obama-era guidance on marijuana laws. The move gives federal drug enforcement agencies more leeway to pursue legal action against cannabis companies – even those that operate in states where recreational use is legal.
Canadian marijuana stocks also witnessed an upsurge in investor interest at the start of the year, but demand has declined steadily ever since. However, unlike the United States, Canada’s federal government is moving full steam ahead toward legalization this summer.
The Canadian Marijuana Index was down 4.5% on Wednesday to $662.61. The index peaked at $1,056.40 on Jan. 9, but has since declined more than 36%.
Meanwhile, the smaller U.S. version of the index fell 2.4% to $74.28.
The Fundamental Outlook
Despite being down for the past two months, cannabis stocks still enjoy strong upside tied to pent-up demand, an established pharmaceutical presence and a decisive shift in public support for legalization.
To the last point, a U.S. Gallup poll last October found that nearly-two thirds of respondents supported legalizing cannabis. That was the highest level ever recorded.
Marijuana stocks are also beginning to attract high-profile companies. A firm by the name of the American Cannabis Company (AMMJ) recently announced that Amazon (AMZN), Wal-Mart (WMT) and Home Depot (HD) will begin selling some of its products.
Cannabis companies generated more than $1.2 billion in business deals through the first five weeks of 2018, offering strong evidence that demand is growing even with the recent downshift in stock prices.
As we reported previously, the marijuana industry extends far beyond weed growers to include biotechs, hemp products, cultivation and retail and even “non-cannabis companies” such as Scotts Miracle-Gro (SMG).
Scotts has quickly emerged as one of the leading players in the sector and currently boasts one of the most attractive dividend payments. The company currently yields 2.5%, which is right around the average for basic materials. It has reported dividend growth for the last eight years, which means it is reliable and boasts strong fundamentals.
Another leading dividend payer is AbbVie Inc. (ABBV), the New York-listed pharmaceutical development company making significant inroads in cannabis-based treatments. AbbVie is considered to be a dividend aristocrat for its ability to generate steady yield decade after decade. The company has a current dividend yield of 4.1%, which dwarfs the healthcare average of around 0.7%. ABBV dividends have been rising steadily since 1973.
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