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5 Best Cannabis Stocks of 2019 So Far -- Are They Buys Now?

Keith Speights, The Motley Fool

Cannabis stocks are hot again. After a dismal performance in the latter part of 2018 for most cannabis stocks, the pendulum swung in the opposite direction during the first half of this year.

The big Canadian cannabis producers haven't been the biggest winners, though. Which cannabis stocks delivered the most impressive year-to-date gains? Here are the five best cannabis stocks of 2019 so far -- and which ones appear likely to keep the momentum going.

Marijuana leaf at the end of a line trending upward

Image source: Getty Images.

5. Scotts Miracle-Gro

In 2018, Scotts Miracle-Gro (NYSE: SMG) stock plunged nearly 43%. But Scotts shares jumped 60% in the first half of this year. What turned things around? 

Scotts' consumer lawn and garden products business is roaring in 2019 after a late start to spring last year caused revenue shortfalls. The company's Hawthorne subsidiary ranks as the leading supplier of gardening products to the cannabis industry. Thanks in part to an aggressive promotion campaign, Hawthorne returned to solid growth in the first part of 2019 as well. 

4. Neptune Wellness Solutions

Neptune Wellness Solutions (NASDAQ: NEPT) is another ancillary provider to the cannabis industry that's having a great year so far. Its stock vaulted 71% in the first six months of 2019 after rising less than 8% in 2018.

Two catalysts have been key to Neptune's improving fortunes. In April, the company announced that it had begun to offer turnkey product development services for the U.S. hemp market. Neptune also signed a major agreement to provide extraction and purification services with Tilray in June, followed soon by a similar deal with The Green Organic Dutchman

3. GW Pharmaceuticals

GW Pharmaceuticals (NASDAQ: GWPH) made history in 2018 by winning the first-ever approval from the Food and Drug Administration for a prescription drug made from the cannabis plant. Despite that great news, the biotech stock sank 26% last year. It's been a different story in 2019, however, with GW's share price zooming 77% higher in the first half of the year.

Sales are booming for the company's cannabidiol (CBD) drug Epidiolex. GW started off 2019 by posting great Q4 results from the initial U.S. launch of Epidiolex. It then followed up with even better Q1 results in May, with the drug's sales more than doubling what analysts expected.

2. Innovative Industrial Properties

No U.S.-based cannabis stock has performed better so far this year than Innovative Industrial Properties (NYSE: IIPR). Shares of the cannabis-focused real estate investment trust (REIT) soared 172% in the first six months of 2019 after gaining 40% last year.

It's easy to see why investors have flocked to Innovative Industrial Properties. The company's revenue continues to grow by triple-digit percentages. It's the most profitable cannabis stock around with its profits growing even faster than sales. Innovative Industrial Properties also pays an attractive dividend. 

1. Village Farms International

The biggest winner among cannabis stocks so far this year is none other than Village Farms International (NASDAQ: VFF). After losing nearly half of its value in 2018, Village Farms stock skyrocketed 253% higher in the first half of 2019.

Village Farms had enjoyed plenty of good news this year. The company's Pure Sunfarms joint venture with Emerald Health Therapeutics won a supply agreement with the Canadian province of Ontario in February. Village Farms stock began trading on the Nasdaq stock exchange. It announced steps to enter the U.S. hemp market. The company also delivered solid Q1 results.

Are they buys?

Just because a stock performs well over a six-month period doesn't mean that it will be a winner over the long run. Are any of the year's best-performing cannabis stocks so far great candidates to put on your buy list? 

I'd answer that question with a "no" for Village Farms. My view is that there will be a shakeout in the Canadian cannabis industry within the next couple of years as supply exceeds demand. Companies with strong international medical cannabis operations should survive and thrive after that shakeout. Others might not. Village Farms could fall into the latter category, considering that its primary focus is the Canadian market and it has a low crop yield compared to peers. 

My take is that Neptune and GW Pharmaceuticals are stocks to hold off on buying for now but keep them on your radar screen. Neptune seems to have significant potential as demand for cannabinoid extraction grows. It's still a small company that's losing a lot of money, though. GW's Epidiolex should keep on rolling. My concern with the stock is that its valuation largely factors in the growth for Epidiolex.

Two of these stocks do look like great long-term picks to me, though. I like Scotts Miracle-Gro and Innovative Industrial Properties. Both companies have solid growth prospects as the U.S. cannabis industry expands. Both are profitable. Both stocks would benefit tremendously if efforts to legalize cannabis in the U.S. at the federal level gain traction. And both Scotts and Innovative Industrial Properties pay nice dividends. There's a lot to like about these two top-performing cannabis stocks.

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Keith Speights has no position in any of the stocks mentioned. The Motley Fool recommends Innovative Industrial Properties and Nasdaq. The Motley Fool has a disclosure policy.