3 High-Flying Pot Stocks to Buy

If you're considering pot stocks for your portfolio, you could be on to something. The marijuana market is worth $150 billion per year worldwide, and the potential to create new cannabis-derived products, including beverages and edibles, has beer and wine giant Constellation Brands (NYSE: STZ) thinking legal marijuana sales could eclipse $200 billion in 15 years. It's too early to know for sure which companies will be the biggest winners, but HEXO (NYSEMKT: HEXO), CannTrust Holdings (NYSE: CTST), and Aurora Cannabis (NYSE: ACB) may be the best marijuana stocks to buy right now to take advantage of this upcoming windfall.

HEXO: an under-the-radar pot stock worth owning

Unlike some other marijuana companies, HEXO's arguably been flying under investors' radars. The company only recently jumped toward the front of the pack in terms of forecast peak production, though, so investors can't be blamed too much for overlooking it.

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Previously, it was targeting peak pot production of 108,000 kilos annually based on its expansion plans. However, earlier this year it announced it's acquiring Newstrike, a deal that boosts its peak production forecast by 38% to about 150,000 kilos annually.

Despite the increase to its outlook, HEXO remains one of the cheapest pot stocks investors can buy based on price to future sales. 

HEXO's production was 4,938 kilos, and its net revenue was CA$13.4 million, up 1,017% year over year, in the quarter ending Jan. 31. That may only hint at what's to come. During management's quarterly earnings conference call with investors, it said its targeting sales of CA$400 million in fiscal 2020, largely thanks to its expected increase in production. As a result, shares are trading at only about 4 times future revenue, which is lower than almost all of its peers. 

Admittedly, there's no telling when HEXO could turn a profit. But its 52% gross margin was higher, and its operating loss of CA$6.9 million was lower than that of many peers, suggesting it could have a profit-friendly edge that allows it to generate earnings faster than others in the industry.

Are investors overly pessimistic about CannTrust?

A CA$700 million shelf offering has created an overhang following fourth-quarter financials that failed to impress, but avoiding CannTrust in portfolios could be a mistake.

Yes, the company's likely to tap investors for cash, but that's not necessarily bad. Spending on infrastructure is necessary to capitalize on this megamarket opportunity. And, sure, CannTrust's fourth-quarter results show growing pains, but they were hardly bad. Revenue was CA$16.2 million, up 132% year over year, and kilograms harvested totaled 4,816 in the quarter, up 712% from the prior year.

A decline in gross margin and price per gram of cannabis oil, plus increased spending and a temporary delay to its expansion plans, caused a wider-than-expected loss of CA$25.5 million. But CannTrust's hydroponic approach to growing marijuana gives it a shot at some of the lowest production costs in the industry. In addition, the company recently announced plans to acquire 200 acres for even lower-cost outdoor growth. The acreage could increase production by 200,000 kilos beginning in 2020, putting CannTrust on track for total production of 300,000 kilos annually by 2021, up from about 50,000 kilos exiting 2019.