High Returns: A Bostonian’s Guide to Investing in Cannabis

Edited by Brittany Jasnoff

Illustration by Erwin Sherman

Inflation is up, the stock market is down, and whispers of a recession are on many financial analysts’ lips. What’s an eager investor to do? That’s easy: Consider getting high on the newest billion-dollar industry in Massachusetts. Given that cannabis is still federally illegal, though, it can be a tricky market to navigate—so to get you the best information available, we went straight to the source: Boston-based Jon Decourcey, who researches publicly traded U.S. cannabis companies as the director of equity research for Viridian Capital Advisors. When should you invest? What companies should you keep your eye on? And how, exactly, can you get your portfolio growing like a weed? Read on to find out.

FAQ

How is investing in cannabis even a possibility?

There used to be a time when investing in weed meant saving up enough babysitting money to buy a stake in a bag of schwag from some older kid who went to a different high school. Well, not anymore. Today, recreational and medical cannabis are legal in Massachusetts, as they are in 18 other states, and pot dealing is no longer the domain of rogue growers with a penchant for the Grateful Dead or, far worse, Mexican drug cartels: It’s big corporate business.

At the same time, marijuana remains federally illegal—which means, among other things, that cannabis companies can’t use traditional means of banking to borrow money or conduct business like nearly every other venture. But get this: That actually presents an excellent investment opportunity for you.

Here’s why: Cannabis companies require a lot of capital to get off the ground. Because their product is not allowed to cross over state borders, companies must fully build out their assets in whatever states they operate. Cultivation typically happens in massive indoor facilities with expensive utility bills, and retail is almost exclusively brick-and-mortar (just ask traditional stores how they’re handling skyrocketing real estate costs). Oh, and as a bonus, ensuring compliance with regulations is a cumbersome 24/7 investment.

Since cannabis companies can’t get regular loans to cover those costs, they’ve had to get creative—and that has often meant going public with equity offerings on the U.S. over-the-counter (OTC) markets and on the Canadian Securities Exchange (CSE) at a time when, traditionally, they still would’ve been in the incubation stage of development.

Some of these businesses have failed because they just weren’t ready for the
rigors of being publicly traded, while others struggled to scale beyond their initial aspirations. Many, though, have survived and thrived, making them sustainable entities with a path to high growth and outperforming returns for investors.

Today, hundreds of U.S. cannabis companies are listed on the U.S. OTC markets and the CSE, the biggest (and most investable) of which are commonly referred to as multi-state operators (MSOs) for their presence across multiple legal state markets—including right here in Massachusetts. These businesses generate revenue by growing cannabis flower; manufacturing branded products such as vapes, beverages, and edibles; and selling flower and related products through retail dispensaries and home delivery.

Why should I invest?

Put bluntly (no pun intended): Cannabis stocks are cheaper than they should be. Why? Typically, the more a company is projected to grow, the higher its relative valuation (and stock price) will be. This is the reason businesses that have not generated a single dollar in sales can still be hot stocks. Yet despite having an unquestionable path to growth ahead of them, cannabis companies are valued similarly to grocery stores and other non-growth industries. It’s not a lack of awareness that’s led to cut-rate prices: Federal illegality has essentially created a prohibition on traditional institutional investment from the likes of pensions, endowments, and mutual funds. (Consider that institutional investors own about 50 percent of consumer-staple companies and more than 70 percent of the tech space. That averages less than 5 percent for cannabis companies.)

This presents real advantages for everyday investors who are willing to take a chance on an industry that will only continue to grow like a, ahem, weed as legalization opens up new opportunities across the country. In April, New Jersey became the 11th state to permit recreational sales, followed by Rhode Island in May. Connecticut is expected to do so before the year’s end, with New York projected to open soon after. Here in Massachusetts, there’s been more than $3.3 billion in sales since recreational dispensaries opened their doors in 2018, and this year alone, sales are already on track to reach more than $1.4 billion. That’s a lot of weed—and a lot of money.

When should I invest?

You don’t need a time machine to get in on the cannabis market and make a profit, but if you an do it today, you should. That’s because the banking laws may be changing soon, and when they do, your chance to invest at depressed levels will wither. In July, Senate Majority Leader Chuck Schumer introduced a bill to fully legalize cannabis at the federal level. While that’s unlikely to pass, a cannabis-banking-reform proposal is simultaneously gaining steam among both Democrats and Republicans and may well get through the U.S. Senate before the end of the year as a stand-alone entity or as an attachment to a broader measure. If not this year, 2023 looks promising regardless of midterm election results, as Republicans see benefits to stealing this issue from Democrats.

Whenever, and however, it happens, banking reform will allow the biggest investors (including the Fidelities and Wellingtons that we know well here in Boston) to join the party, immediately raising valuations of cannabis companies on nothing more than new deep-pocketed demand. Until the bill passes, though, the market still favors retail and hobbyist
investors—including you, dear reader—and offers the potential for rarified gains even if the stock market crashes elsewhere. In other words: Get in while you still can, because this moment may be fleeting.

How do I invest?

Despite not being listed on name-brand senior exchanges such as NYSE, Nasdaq, and the Toronto Stock Exchange (TSX), cannabis stocks can be invested in with most online retail brokerage platforms, including E-Trade, Fidelity, Robinhood, Charles Schwab, and TD Ameritrade. If you’re looking for an investment play with significantly less research effort, many of these companies can also be invested in indirectly via the industry’s top U.S. marijuana exchange-traded funds (ETFs), including the Pure US Cannabis ETF and the Poseidon Dynamic Cannabis ETF.

Another investment option is through the stocks of ancillary service providers, which sell products that support the industry but don’t actually touch the cannabis plant (think software solutions and paper for packaging products and rolling joints). The success of these businesses—Agrify, Greenlane, Turning Point, and Weedmaps among them—is directly tied to the cannabis market, and stock returns should be correlated.

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Ten Cannabis Stocks to Follow

4Front Ventures

(U.S. OTC: FFNTF)
HEADQUARTERED IN: Phoenix, Arizona
CEO: Leo Gontmakher

WHAT IT DOES: If sea-salt-and-THC-infused caramels sound like a good investment to you, you might want to give 4Front a look. A leading cultivator that also produces edibles, pre-rolls, vaporizers, and more, the company is known for its low production costs and branded products.

WHERE TO FIND IT LOCALLY: 4Front has three dispensaries in Massachusetts under the Mission name in Georgetown, Worcester, and Brookline.

Ascend Wellness Holdings

(U.S. OTC: AAWH)
HEADQUARTERED IN: New York, New York
CEO: Abner Kurtin

WHAT IT DOES: If cannabis banking reform is successful, you can at least partially thank Ascend. A leading MSO with dispensaries in six Midwest and East Coast states, it’s currently leading a lawsuit against the federal government over a lack of banking access for the industry.

WHERE TO FIND IT LOCALLY: In Boston, Ascend Cannabis has a flagship location on Friend Street between Faneuil Hall and TD Garden that’s become a destination for concert-goers and Bruins and Celtics fans alike—and will likely be a top candidate for a consumption lounge whenever legislation permits, given that the neighborhood is already accustomed to bar traffic.

Ayr Wellness

(U.S. OTC: AYRWF)
HEADQUARTERED IN: Miami, Florida
CEO: Jonathan Sandelman

WHAT IT DOES: After acquiring the Massachusetts medical market operator Sira Naturals, Ayr is now one of the biggest MSOs in the country, with dispensaries in six states. Its products, meanwhile, include the extremely popular infused seltzer brand Levia.

WHERE TO FIND IT LOCALLY: Ayr recently opened dispensaries in Watertown and the Back Bay. Given the latter’s location steps from the marathon finish line, it should quickly become a leading tourist destination. (Yes, cannabis tourism is a real thing in legal states.)

Cresco Labs

(U.S. OTC: CRLBF)
HEADQUARTERED IN: Chicago, Illinois
CEO: Charles Bachtell

WHAT IT DOES: Keep your eye on Cresco in the coming months: The leading MSO is currently in the process of scooping up Columbia Care (U.S. OTC: CCHWF) for $2 billion. When it does, Cresco will be the largest operator in U.S. cannabis in terms of both revenue and state exposure.

WHERE TO FIND IT LOCALLY: Both Cresco and Columbia Care have a significant presence in Massachusetts, including Columbia Care’s Financial District dispensary on Milk Street.

Curaleaf

(U.S. OTC: CURLF)
HEADQUARTERED IN: Wakefield
CEO: Matt Darin

WHAT IT DOES: Want proof that Massachusetts is the king of legal cannabis? Look no further than Curaleaf: With more than 130 dispensaries across 22 states, it’s by far the largest company in the cannabis industry.

WHERE TO FIND IT LOCALLY: Curaleaf owns and operates a medical-only dispensary in Hanover and has recreational dispensaries in Oxford, Ware, and P-town.

Green Thumb Industries

(U.S. OTC: GTBIF)
HEADQUARTERED IN: Chicago, Illinois
CEO: Ben Kovler

WHAT IT DOES: Rise. Essence. Bluepoint. Affinity. Those aren’t names of yoga studios—they’re the names of this MSO’s medical and recreational cannabis dispensaries, which operate across 13 states.

WHERE TO FIND IT LOCALLY: Green Thumb owns and operates dispensaries under the Rise brand in Amherst, Chelsea, Dracut, and Maynard, and under the Affinity brand (for medical use) in the South End and Springfield.

Jushi Holdings

(U.S. OTC: JUSHF)
HEADQUARTERED IN: Boca Raton, Florida
CEO: Jim Cacioppo

WHAT IT DOES: With nearly 20 medical marijuana outposts in Pennsylvania, this fast-growing MSO is uniquely poised to benefit from the potential legalization of recreational cannabis there.

WHERE TO FIND IT LOCALLY: Jushi acquired Nature’s Remedy of Lakeville last year for $91.2 million and now operates its log-cabin-esque dispensaries in Millbury and Tyngsborough.

MariMed

(U.S. OTC: MRMD)
HEADQUARTERED IN: Norwood
CEO: Robert Fireman

WHAT IT DOES: It grows! It sells! It even makes a THC-infused energy-drink mix! A “seed to consumer” company, MariMed is a retailer and wholesale supplier to legal cannabis markets with a presence in six states.

WHERE TO FIND IT LOCALLY: MariMed operates a medical dispensary under the Panacea brand in Middleborough—with plans to open more in the state before year-end—while the company’s edibles brand, Betty’s Eddies, is one of the top sellers in the state. In a move that local sweets lovers can appreciate, MariMed released cannabis-infused ice cream in collaboration with Emack & Bolio’s.

TILT Holdings

(U.S. OTC: TLLTF)
HEADQUARTERED IN: Phoenix, Arizona
CEO: Gary Santo

WHAT IT DOES: TILT makes money in two ways: through traditional multi-state operations and a technology business that supplies the industry with vape hardware.

WHERE TO FIND IT LOCALLY: Look for dispensaries in Brockton and Taunton under the name Commonwealth Alternative Care. The company is also a wholesale supplier to the Massachusetts cannabis market, bringing some leading West Coast brands here.

Trulieve

(U.S. OTC: TCNNF)
HEADQUARTERED IN: Quincy, Florida
CEO: Kim Rivers

WHAT IT DOES: Despite still only permitting medical sales, Florida is one of the biggest markets in the U.S.—and Trulieve is the undisputed leader there. Beyond the Sunshine State, the company has recently expanded into Arizona, California, Connecticut, Maryland, Massachusetts, Pennsylvania, and West Virginia.

WHERE TO FIND IT LOCALLY: Trulieve owns and operates dispensaries in Framingham, Northampton, and Worcester.

Meet the Expert

Jon Decourcey is the director of equity research for Viridian Capital Advisors and is responsible for the research coverage of publicly traded U.S. cannabis companies. Through its broker–dealer relationship with Bradley Woods & Co. Ltd., Viridian Capital Advisors provides investment banking services to companies within the legal cannabis industry. Decourcey does not own any of the companies mentioned, nor does he have a direct financial interest in the industry. By no means expecting his career to become fully aligned with the industry, Decourcey voted in favor of Massachusetts recreational cannabis legislation in 2016. Nevertheless, he has yet to purchase or consume legal cannabis. For more information on Decourcey’s research coverage of the U.S. cannabis market, go to viridianca.com.

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Glossary of Terms

Cannabis: When talking about legal marijuana businesses, cannabis is the term to use. By contrast, “weed” and “pot” refer to marijuana plants and products grown and produced illegally and consumed discreetly in basements and the woods.

Multi-State Operator (MSO): A cannabis company that does business in more than one state. It sounds simple, but because of the federal prohibition on cannabis, these businesses must create completely separate legal entities in every state they operate in.

Over-the-Counter (OTC) Markets: The place where securities that aren’t on the major exchanges are traded—and the home of most cannabis companies.

Ancillary Service Providers: Companies that support the cannabis industry and make money as a result of the industry but don’t actually grow or sell cannabis.

Marijuana ETFs: Pooled investment funds that focus specifically on cannabis companies.

Seeing Green: A Cannabis Investing Timeline

1970
The federal government classifies marijuana as a Schedule 1 controlled substance, the highest classification.

1996
In a move that ripples across the country, California becomes the first state to legalize medical marijuana.

2009
Medical Marijuana Inc. becomes the first publicly traded U.S. cannabis company.

2012
Pass the joint, please: Colorado and Washington are the first states to legalize recreational marijuana.

2016
Four more states pass laws to legalize recreational cannabis, including Massachusetts.

Banking-reform legislation passes for the first time in Congress, promising a boost to the cannabis industry—but not so fast. It stalls in the Senate (as it’s done six more times since then).

2017–2018
Most of today’s largest cannabis companies go public on Canadian stock exchanges.

2020
COVID is a boon for cannabis companies, both in legitimizing the businesses (deemed essential in many states) and inflating demand.

2021
Cannabis stocks hit peak valuations in the winter due to legislative buzz at the federal level and state legalization efforts. Stalled progress has resulted in disappointing stock returns since.

2022
U.S. Senator Chuck Schumer promotes federal legalization. Though that’s unlikely, banking-reform legislation is garnering meaningful bipartisan support, with progress expected following the midterms in November.

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Understanding the Risks

Despite the potential for stacks of greenbacks, cannabis investing is not for the faint of heart: The market today swings on legislative buzz, skyrocketing anytime there is a whiff of progress on banking reform, only to come back to Earth when political realities get in the way. In recent years, those disappointments have led to underperforming stock returns. While reform appears within reach, legislative progress is not guaranteed, and stock valuations may remain deflated until success is imminent.

What’s more, despite progress for companies on many long-term initiatives, they remain in the early stages of development, so earnings results can be fickle from quarter to quarter and challenging to predict. And due to the lack of banking access, there are real constraints on capital for some companies.

So, what’s a budding cannabis investor to do? The safest way to play the space is to invest in companies that will benefit from legislation but are also gaining share and improving profitability on their own. And, of course, if a business can’t sustain itself from a capital standpoint now, consider it a red flag.

First published in the print edition of the September 2022 issue with the headline, “High Returns.”