Making the Grade

Top 10 Pot Stocks Ranked by Adjusted Operating Income

The weed patch has become overrun with thorns.

After a devastating six-month bear market, the marijuana indexes are deep in the red for the year.

And the “Negative Nellies” have had plenty of headlines to pull from.

But there is one group of cannabis companies showing strength.

That’s why this week we’re looking at the top 10 cannabis companies with the highest adjusted operating incomes.

Roadblocks at Every Turn

Let’s not kid ourselves… it’s been a frustrating six months for pot stock investors.

First, Canadian and U.S. licensed producers suffered large losses as they built out their operations.

Then there was CannTrust Holdings’ (NYSE: CTST) illegal grow room scandal. Followed by the abrupt firing of Canopy Growth Corp. (NYSE: CGC) CEO Bruce Linton – an industry pioneer.

In the U.S., we’ve suffered through the painfully slow slog of Hart-Scott-Rodino Act approvals. This act was put in place so that mergers and acquisitions cannot be completed until the Federal Trade Commission and Department of Justice approve the transaction and determine it will not hurt U.S. commerce under the antitrust laws.

This means that billions of dollars in mergers and acquisitions of American multistate operators (MSOs) are waiting to be approved.

Now the vaping crisis is gaining steam and spreading to nearly every state. This is weighing on shares, even though the illicit market is to blame for the deaths.

Vape pens are one of the highest-margin products for marijuana companies. And we’ve already seen a dip in vape cartridge sales.

Cannabis stocks are facing so much downward pressure that not even the historic passage of the Secure and Fair Enforcement Banking Act by the House of Representatives is providing relief.

But – as I mentioned earlier – one group of cannabis companies is still kicking.

Let’s take a look…

Top 10 Pot Stocks

Chart - Top 10 Cannabis Companies by Adjusted Operating Income

Way out in front is the Florida-centric MSO Trulieve Cannabis (OTC: TCNNF). The company continues to expand, with 33 dispensaries in the Sunshine State. And its adjusted operating income is nearly $21 million.

A distant second is the largest greenhouse operator in North America, Village Farms International (Nasdaq: VFF).

I said earlier this year that pot stock real estate has a ways to go. Not only is Village Farms on this list, but so are cannabis real estate investment trust Innovative Industrial Properties (NYSE: IIPR) and hydroponics retailer GrowGeneration Corp. (OTC: GRWG).

We also see CBD producers Charlotte’s Web Holdings (OTC: CWBHF) and CV Sciences (OTC: CVSI).

But here’s the most important thing…

Year to date, seven of these 10 companies have outperformed the industry benchmark, the Horizons Marijuana Life Sciences Index ETF (OTC: HMLSF)…

Chart - YTD Performance of Top 10 Pot Stocks

The best performers so far are MediPharm Labs (OTC: MEDIF), Innovative Industrial Properties and GrowGeneration. These three are up more than 95% each so far in 2019, despite significant pullbacks from their year-to-date highs.

They’ve weathered the storm and are still in the green.

The three underperformers are OrganiGram Holdings (Nasdaq: OGI), CV Sciences and MariMed (OTC: MRMD).

It’s worth noting that MediPharm and OrganiGram were the only two Canadian companies in the top 10 for adjusted operating income. This shows that American CBD makers and MSOs have strong markets to tap into – and likely some very serious upside.

Hang In There

Over the near term, it’s been tough sledding for cannabis shares. But the long-term outlook is extremely bullish.

There may not be many highfliers among pot stocks at the moment. However, I think we’ll look back at this moment as a great moneymaking opportunity.

In the meantime, investors looking for the safest bets need to start focusing on profits and operating income instead of revenue. Those are the two metrics throwing investors life preservers this year.

Here’s to high returns,