After the shellacking that many cannabis stocks have taken so far this year, you might think the best thing to do is run for the hills. That's exactly what many investors are doing. But it's also short-sighted.
Are there cannabis stocks that are good picks to buy in November? Absolutely. Three that I think especially stand out are Square (SQ -2.74%), EnWave (NWVCF 15.35%) (ENW), and Charlotte's Web Holdings (CWBHF -15.14%).
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1. Square
Is Square a cannabis stock? In a way, yes. The payment processing company announced in October that it's opening up its platform to merchants that sell cannabidiol (CBD) products. This decision came after Square conducted a pilot program with a limited number of CBD merchants for several months earlier this year.
If you've looked around, you know that there has been a frenzy of companies jumping into the CBD market. Square's small card readers, its payment processing capability, and its other applications will no doubt prove to be attractive to CBD retailers just as they've been to lots of other businesses.
While I think that Square will be quite successful in the CBD market, that's not my main reason for choosing the stock as my No. 1 pick to buy in November. Instead, I firmly believe that Square's long-term growth prospects are extraordinarily strong and that the stock has been beaten down more than is warranted.
I'm especially bullish about Square's Cash App, which continues to outperform PayPal's (PYPL -1.45%) Venmo peer-to-peer mobile payment app. I like the company's decision to offer no-commission stock trading on Cash App. Its lending business, Square Capital, has a significant growth runway. And we can't leave out Square's core payment processing business, which should keep growing as well. All of this -- plus the CBD opportunity -- make Square a great stock to buy, in my view.
2. EnWave
My No. 2 cannabis stock pick for November is a small Canadian company you perhaps have never even heard of. EnWave makes dehydration equipment that has become quite popular among marijuana and hemp producers.
Two of the biggest players in the Canadian cannabis market have licensed EnWave's Radiant Energy Vacuum (REV) dehydration systems -- Aurora Cannabis (ACB -0.92%) and Tilray (TLRY). EnWave also landed The Green Organic Dutchman (TGOD.F) as a customer.
But, as was the case with Square, I like EnWave for more than just its appeal in the cannabis industry. The company's technology is also used for other purposes, including in the food processing and pharmaceutical markets. For example, giant drugmaker Merck (MRK -0.17%) the REV system to quickly freeze-dry vials of drugs.
EnWave isn't profitable yet, but it's growing by leaps and bounds. The company reported year-over-year revenue growth of 49% in its fiscal 2019 third quarter. It's still really early innings for EnWave, but I like the company's chances.
3. Charlotte's Web
I've trumpeted Charlotte's Web's opportunity for quite a while. And I've done so even while the stock took investors on a wild roller coaster ride this year. That volatility doesn't diminish the positives for Charlotte's Web.
The company set the stage several years ago for the burgeoning hemp CBD market that we have today in the U.S. Unsurprisingly, Charlotte's Web claims the top market share in the overall hemp CBD market. And it posted the highest revenue in company history in the second quarter.
Charlotte's Web's share price has retreated, though, because its Q2 earnings fell from the prior-year period and there's some uncertainty about what the U.S. Food and Drug Administration (FDA) will do in regulating CBD products. My opinion is that this sets up the stock for a big rebound.
The company has more than doubled the number of retail stores that sell its products so far in 2019. It's boosted production capacity significantly in anticipation of heavier demand. Charlotte's Web also now has a consumer packaged goods industry veteran at the helm with Deanie Elsner. I don't think the short-term bumps in the road for this stock will derail Charlotte's Web from delivering tremendous gains over the long run.
Something you might have noticed
Take a guess what was missing from these top three cannabis stocks to buy in November. If you answered with Canadian cannabis producers, pat yourself on the back.
My concern with these Canadian stocks right now is that there's a lot of questions about how well the launch of the cannabis derivatives market will go. Many of the management teams of top companies in the Canadian cannabis industry have also been lacking in their ability to deliver what they say they'd deliver.
Don't get me wrong: I think that some of the Canadian marijuana stocks could be big winners down the road as the global cannabis market expands. For now, though, I think investors are much better off going with great ancillary players like Square and Enwave and a solid U.S. CBD leader with Charlotte's Web.
