Why the Smallest Pot Stocks Pack the Biggest Wallop

There’s no denying it: The legal marijuana trend is here to stay. And pot stocks are only gaining more momentum as legalization sweeps the nation (and the world).

So then the question becomes, how do I invest? Do I buy the growers of “legal weed”? Financiers? How about the folks selling hemp? Or turning it into CBD oil? Do I invest here in the United States? Or abroad?

The fact is, I see compelling investments in ALL of those areas – if done properly. I’ve made no secret of that.

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So, how do we narrow it down? Let’s start by simply comparing the valuations.

Take Canopy Growth (NYSE:CGC) stock, for example, which just enjoyed its fifth birthday. From that humble IPO as “Tweed Inc.,” it’s now become one of the premier marijuana stocks since Canada legalized last year. Canopy is also enjoying a major influx of cash from a big investment by Constellation Brands (NYSE:STZ), and it’s honing its brand by signing splashy deals with the likes of Martha Stewart and Snoop Dogg.

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CGC stock has a current market cap of $14.9 billion on just $184 million in projected sales for 2019. That equates to a forward price-to-sales (P/S) ratio of 81.

For context, even the likes of Facebook (NASDAQ:FB) and Netflix (NASDAQ:NFLX) have a forward P/S more like 9.

That’s something to consider before jumping on the bandwagon.

Now, I realize that some investors are willing to pay up like this, to own the biggest names in an industry. But when it comes to marijuana stocks, some of them will actually make MORE in sales…yet are still “flying under the radar.” That’s where we can really make money.

The Green Organic Dutchman (OTCMKTS:TGODF) certainly fits that bill. It’s much newer than Canopy Growth, having just IPOed last May. It’s smaller, too, at $890 million in market cap. From two facilities it’s building in Ontario and Quebec, it will grow 255,700 pounds of cannabis per year.

Those two facilities are strategically located to serve two-thirds of the Canadian population, and TGODF has some key partnerships with power generation firms. Both of which allow it to produce more cheaply than competitors. And by the time its product is extracted, purified, and made into oils, creams, edibles, foods, and more — in addition to the marijuana flower itself — TGODF is expected to turn in $280 million in sales for 2019.

That comes out to a forward P/S of just 3.2.

You can see how, if it gets even to half or a quarter of Canopy Growth’s valuation, those of us who buy TGODF stock will find ourselves richly rewarded for investing in future production.

What I especially like about this company is that it’s uniquely positioned — at the intersection of “legal weed” and the high demand (among millennials, in particular) for organic products.

But I’m even more excited about Charlotte’s Web (OTCMKTS:CWBHF), another small-cap cannabis stock with room for big upside. This one, in fact, was my pick for the InvestorPlace Best Stocks for 2019 contest.

CWBHF is certainly not one of your typical “pot stocks.” This one is a pure play on cannabidiol (CBD), an extract of hemp that is non-psychoactive. So, while it doesn’t get you high, it does have the anti-inflammatory and pain-relieving properties that folks are looking for in medical marijuana products.

I’ve talked at length about CWBHF stock and its origins in dramatically reducing a little girl’s debilitating seizures. It’s such a cool story.

And the numbers are quite solid, too.

As one of the first reputable CBD producers — and the number-one brand, by market share, of hemp-based CBD — Charlotte’s Web is expected to generate $176 million in sales this year.

With its current $2 billion market cap, that puts CWBHF stock at just an 11.3 forward P/S…even after a 124% climb in 2019 to date.

And that’s before it gets onto the shelves of a major retailer.

Once it signs a distribution deal with Walmart (NYSE:WMT), CVS Health (NYSE:CVS), or Walgreens (NASDAQ:WBA) — and the latter two are already on the prowl — Charlotte’s Web will soar even higher. Given that this is one of the only CBD companies with the ability to supply a large retailer, I see this as inevitable.

There’s another event on the horizon that will make CWBHF stock go parabolic:

Charlotte’s Web CEO Hesaam Moallem has already made it clear that he’s ready to go from the minor leagues to the major leagues…