Troubled Pot Industry Shows Its Pick-and-Shovel Trades

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Investment legend has it that the best money in the California gold rush was made selling picks and shovels. Fertilizer and real estate are equivalent bets on the volatile pot boom.

Shareholders in cannabis stocks have lost money lately. Companies that “touch the plant”—those that cultivate and sell pot, such as Cronos Group and Green Thumb Industries—have shed up to 50% of their market value over the past six months, as worries grow about profitability in the sector and the resilience of black-market sellers in legalized states like California. Big corporate investors are among the casualties: Tobacco giant Altria MO 0.69% ’s 45% stake in Cronos is now worth 10% less than the $1.8 billion the Marlboro maker paid for it last December.

Even after the selloff, cannabis names are pricey. Shares in Canopy Growth , CGC 5.51% the loss-making pot company in which Corona brewer Constellation Brands owns a 36% stake, fetches 13 times next year’s projected revenue, according to FactSet data. Companies servicing the cannabis industry look cheap and less volatile by comparison.

Scotts Miracle-Gro is a 150-year-old company that for most of its existence made money selling lawn fertilizer to domestic gardening enthusiasts. More recently, it has been supplying cannabis companies in legalized markets with the equipment they need for

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