How to Score the Best Marijuana Stocks – Barron's

There’s profit to be had in the growing marijuana industry, and MarketWatch columnist Michael Kahn has advice on how to harvest it.

Last year, analysts at Cowen and Co. estimated that the cannabis industry has $6 billion of annual sales. Another $25 billion could be added to that from black market sales, and if and when those transition to the legal market, it could be worth $50 billion by 2026, the report found.

The first ETF tracking stocks in the legal medical marijuana industry began trading on the Toronto Stock Exchange a month ago. The Horizons Medical Marijuana Life Sciences ETF (Ticker: HMMJ), is trading an average of 1.7 million shares daily, meaning there’s plenty of investor interest.

Many companies in the pot business “a bit sketchy, with questionable claims and very small market values,” Kahn writes. Investing in the ETF, he says, can spread out risk and take advantage of the index sponsor’s vetting.

Another way in is to invest indirectly—in established firms that get a portion of their revenue from the marijuana industry. You may have heard of Scotts Miracle-Gro , (Ticker: SMG), for instance.

Scotts provides fertilizers, lighting and hydroponic supplies to the cannabis market. Most of its revenue still comes from traditional lawn and garden products, so its exposure to marijuana is of less risk for shareholders.

And “any progress in the legalization of marijuana can only add to its bottom line,” Kahn adds.

Zynerba Pharmaceuticals (Ticker: ZYNE), meanwhile, is working on a cannabis-based treatment for epilepsy. It has only a $332 million market cap, but it trades a decent number of shares, and dollar volume, per day to alleviate some of that small-size risk.

More-established companies with a

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