3 Top U.S. Marijuana Stocks to Buy in 2019

Much of the excitement in the world of marijuana stocks focused on Canada in 2018. But that could change with the new year. Investors might want to look more to the U.S. in 2019 for several reasons.

The legalization of hemp (which, by definition, is cannabis that contains low levels of psychoactive compound THC) could open the way for a much larger hemp-based cannabidiol (CBD) market in the U.S. Several new marijuana markets in U.S. states should mature in 2019 -- with new markets also launching in other states. And there's a distinct possibility that efforts to revise federal laws to recognize the authority of the individual states to enforce their own marijuana laws could succeed.

But which U.S. marijuana stocks are most likely to be winners in the new year? Here's why Charlotte's Web Holdings (NASDAQOTH: CWBHF), Liberty Health Sciences (NASDAQOTH: LHSIF), and Scotts Miracle-Gro (NYSE: SMG) look like top picks to buy in 2019.

1. Charlotte's Web Holdings

Technically speaking, Charlotte's Web Holdings is a hemp stock rather than a marijuana stock. But that's splitting hairs. Regardless, Charlotte's Web should be a big winner from U.S. legalization of hemp.

Charlotte's Web already ranks No. 1 in market share in the U.S. for hemp-based CBD wellness products. The company's products are now sold in more than 3,000 retail locations. In addition, Charlotte's Web sells its products directly to consumers through its website.

Business is booming. Charlotte's Web posted sales of $48 million in the first three quarters of 2018, up 75% year over year. The company also reported a profit of $8.7 million during the period, a 71% increase over the first three quarters of 2017.

Charlotte's Web's products could enjoy even wider acceptance by retailers and consumers with the legalization of hemp in the U.S. In addition, the company plans to expand its lineup to include beverages, animal nutrition, and other wellness-related products.

2. Liberty Health Sciences

Liberty Health Sciences comes with an asterisk, too. It's actually a Canadian company, but Liberty focuses exclusively on the U.S. market.

The company's biggest opportunity right now is in Florida. The state only issued 14 medical cannabis operations licenses, with Liberty holding one of them. Liberty estimates that it currently claims a market share of around 15% in the state. However, that market share could increase significantly as the company launches additional dispensaries and completes the retrofitting of its Liberty 360 facility in early 2019.

Arcview Market Research and BDS Analytics project that medical marijuana sales in Florida will top $1.7 billion by 2022. If this estimate is even close to correct. Liberty should have a tremendous runway for growth. But the company is also opening a dispensary in Ohio and is in the process of acquiring a company in Massachusetts that holds a provisional medical cannabis license.

Liberty should also benefit from U.S. legalization of hemp. The company recently announced that it plans to launch a line of premium hemp-based CBD athletic, wellness, beauty, and pet products.

3. Scotts Miracle-Gro

Is there a caveat for Scotts Miracle-Gro? Yep. Most of Scotts' revenue still comes from its consumer lawn and garden products business. However, Scotts Miracle-Gro still qualifies as a U.S. marijuana stock because of its Hawthorne Gardening subsidiary.

Scotts CEO Jim Hagedorn stated in August that his company is "distancing ourselves from our competitors and clearly establishing Hawthorne as the market leader" in the cannabis industry. His assessment appears to be right on target. Thanks to a series of acquisitions, Hawthorne has quickly grown to become the top supplier of hydroponics products to the U.S. cannabis industry.

Hawthorne's top market is California, which isn't surprising considering the state claims the biggest legal marijuana market in the world. The opening of California's legal recreational marijuana market in 2018 got off to a rocky start. However, expect the situation to improve significantly in 2019 and beyond, boosting Hawthorne's sales.

Even more growth is on the way in other states. Michigan's vote in November to legalize recreational marijuana brings the total number of states to do so to 10. At least three other big states could also legalize recreational marijuana in the near future -- Illinois, New Jersey, and New York. The combined populations of these three states are greater than that of California, potentially translating to great opportunities for Scotts in the future.

What could go wrong

While there are several positive developments that should put the wind in the sails of these three stocks, there are also things that could go wrong in 2019.

For example, although the U.S. has officially legalized hemp, the Food and Drug Administration still has authority over regulating CBD. It's possible that the agency could throw up roadblocks that hurt the prospects for companies like Charlotte's Web and Liberty Health Sciences.

Liberty Health Sciences could struggle to emerge from the shadow of a controversy over short-seller allegations related to Aphria that spilled over to Liberty. Aphria previously owned a stake in Liberty and two of its executives sit on Liberty's board of directors.

And there's always a chance that Scotts Miracle-Gro's core lawn and garden products business could hold it back even if everything looks great for its Hawthorne subsidiary. Scotts stock took a beating in 2018 primarily because a longer-than-expected winter season hurt sales of its lawn and garden products.

Still, I think that 2019 is more likely than not to be a better year for the cannabis industry overall than 2018 was. And I suspect that Charlotte's Web, Liberty Health Sciences, and Scotts Miracle-Gro will reap the rewards.

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Keith Speights has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.