The 3 Best Marijuana Stocks in May

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For the first time all year, marijuana stocks didn't have investors seeing green -- or at least the right kind of green. Pot stocks took investors on a nauseating ride lower in May, with the Horizons Marijuana Life Sciences ETF, the first very first cannabis exchange-traded fund, shedding more than 13% of its value last month, which was almost double the decline of the broad-based S&P 500.

Out of the 56 marijuana stocks I regularly keep tabs on, a mere nine ended May higher, with five of those names advancing by roughly 5% or less. Meanwhile, of the 47 pot stocks that ended May lower, 35 of them ended down by at least 10%. Suffice it to say, the buzz surrounding the green rush came to a crashing halt, at least for one month.

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May's best pot stocks all rose by a double-digit percentage

However, despite this overwhelming negatively, three marijuana stocks shone through with double-digit percentage gains. Here are May's best marijuana stocks.

Medical Marijuana, Inc.: Up 26%

Following numerous months as one of the industry's worst-performing pot stocks, cannabis penny stock Medical Marijuana, Inc. (NASDAQOTH: MJNA) ascended the ladder to be the top performer of May. The company's 26% gain was predominantly sparked by the release of its first-quarter operating results on May 22.

Medical Marijuana, which sells hemp-oil and hemp-derived cannabidiol (CBD) in a handful of countries, expects to be a prime beneficiary of the farm bill being signed into law in the U.S. this past December. With CBD -- the nonpsychoactive cannabinoid best known for its perceived medical benefits -- gaining accolade rather quickly in the U.S., and a new generation of North American cannabis consumers thirsting for alternative consumption options beyond smoking cannabis, the thesis is that Medical Marijuana's products should be seeing a healthy uptick in sales.

In the first quarter, the company reported $20.2 million in revenue, a 92% increase from the prior-year period. More important, gross margin increased 9 percentage points from the prior-year quarter to 78%, and the company recorded its best operating results (sans one-time benefits and costs) in history: a $1.5 million profit. Inclusive of one-time benefits from its investment portfolio, Medical Marijuana recorded a $9.5 million quarterly profit.

Now, before you get too excited, keep a couple of things in mind. For instance, Medical Marijuana has just over 3.6 billion shares outstanding, so this quarterly profit only works out to $0.00264 in earnings per share, or about a quarter of one penny.

This is also a company that ended the first quarter with $45.4 million in goodwill and another $33.8 million in investments, most of which are tied to cannabinoid-focused biotechnology company Axim Biotechnologies, which was crushed in May. That's over $79 million of the company's $104.3 million in asset value tied to promises and hope, rather than tangible assets. This means that despite Medical Marijuana's rapid ascent in May, it still comes with plenty of risk.

Namaste Technologies: Up 24%

Another major surprise was Namaste Technologies (NASDAQOTH: NXTTF), which, like Medical Marijuana, has been a regular on the worst-performers list for months. An announcement roughly two weeks ago concerning new board appointments looks to be the primary catalyst behind a good chunk of its 24% move higher in May.

Namaste's biggest new hire has to be Andrew Wilczynski to its board of directors. Wilczynski has worked for a variety of businesses over the past 40 years, and has overseen corporate restructurings, as well as managed corporate takeovers.

For those who may not recall, Namaste has considered the idea of putting a for-sale sign on its front lawn following a corporate scandal that shook investors' trust in the company. An independent committee, which was formed after the release of a scathing report from noted short-seller Citron Research in October, found that former CEO Sean Dollinger had sold company assets to a related party without reporting the sale, thereby destroying any trust shareholders had in the company's management team. Namaste is actively aiming to rework its board and some of its executive positions to demonstrate to investors that it's serious about dotting its i's and crossing its t's, so to speak. The reaction of shares this past month suggests that investors may be slowly coming around to Namaste's changes.

But as with Medical Marijuana, your excitement should be reined in, especially following the release of first-quarter operating results last week. Although Namaste has plenty of cash on hand, quarterly revenue fell to 4.6 million Canadian dollars from CA$5.6 million in the prior-year period. Most notably, Namaste's vape revenue sunk to CA$3.0 million in Q1 2019 from CA$4.4 million in Q1 2018, with a CA$1 million decline in U.S. vape sales being the primary cause of that decline.

Similarly, promising telemedicine site NamasteMD managed only CA$85,143 in sales in the first quarter, with the company's various businesses combining for a CA$10.3 million net loss, which is more than triple what it lost last year.

Again, Namaste is well capitalized, but things aren't looking great from an operating standpoint at the moment.

Shopify: Up 13%

The third and final marijuana stock to end the month of May higher by a double-digit percentage was Shopify (NYSE: SHOP), with a gain of 13%. Unlike Medical Marijuana and Namaste, whose businesses almost entirely revolve around cannabis or cannabinoids, Shopify generates a relatively small (but undisclosed) percentage of its sales from providing point-of-sale services to the pot industry. That means marijuana is more of an icing-on-the-cake business for Shopify than its lifeblood.

Also unlike the duo mentioned above, there wasn't a clear-cut catalyst in May that sent its share price higher. There were certainly instances of analysts dueling over Shopify's valuation, but nothing news-specific in May that investors can point to as the reason behind its rising share price. Rather, the most logical explanation could be carryover from the company's late-April first-quarter earnings results.

In late April, Shopify announced that first-quarter revenue rose by a brisk 50% to $320.5 million, with merchant solutions revenue up 58%, and subscription solutions sales rising by 40%. Pretty much every metric appears to be heading in the right direction.

What excites marijuana stock investors most about Shopify is the supply chain knowledge it could bring the industry. As a predominantly cash-based industry, cannabis companies haven't known much about their customer base for a long time. Shopify's point-of-sale platforms will not only allow businesses to learn about their customer base, but it'll help with ordering new products and could even assist with predictive technology to get the right product on dispensary shelves.

There's no denying that Shopify's stock is pricey, but it looks to offer the best long-term outlook of the three top-performing pot stocks in May.

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Sean Williams has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Shopify. The Motley Fool recommends Namaste Technologies. The Motley Fool has a disclosure policy.