The cannabis sector, often characterized by significant volatility, is currently presenting intriguing opportunities for discerning investors. Despite recent declines of 65% or more for several large companies over the past three years, strategic movements by prominent hedge funds suggest a potential for considerable gains in certain undervalued “pot stocks.” This dynamic environment, according to industry experts, is poised to define the cannabis market’s trajectory in the coming years, driven by a confluence of evolving market conditions and regulatory shifts.

Market dynamics within the cannabis industry are profoundly influenced by rapid news cycles, which in turn fuel trading volumes. Anthony Coniglio, CEO of NewLake Capital Partners, emphasizes that investor eagerness to capitalize on upward price movements will likely result in recurring cycles of rallies and pullbacks, making selective investment crucial. Understanding these ebb and flow patterns is key to identifying the most promising “pot stock investments” amidst the constant fluctuations.

Despite the sector’s inherent instability, some analysts maintain a bullish outlook on specific cannabis companies. Sonny Randhawa of Seaport Global Securities, for instance, has initiated coverage on several “cannabis stocks,” anticipating a shift in market conditions. He posits that constrained consumer budgets could accelerate new customer penetration rates as individuals prioritize the cost-effectiveness of cannabis over alcohol, leading to increased demand for products from “emerging cannabis companies.”

A primary catalyst for “cannabis industry growth” over the next five years is the expansion of new adult-use markets. Jordan Tritt, CEO of BDSA, a cannabis market intelligence firm, advises investors to focus on established companies possessing the necessary resources to effectively capture this anticipated growth. This strategic approach aligns with the objective of identifying resilient and well-positioned players within the “marijuana market trends.”

The evolving regulatory environment represents another significant driver for the cannabis market. The potential reclassification of cannabis from Schedule I to Schedule III could counteract IRS Rule 280E, which currently restricts the deduction of operating expenses for cannabis businesses. Industry observers believe such a change could substantially increase the cash flows of “cannabis stocks” by tens of millions of dollars, creating a more favorable operating landscape for these entities.

Our methodology for identifying the “12 cheap pot stocks” involved a meticulous selection process. We sourced candidates from Green Stock News’s Cannabis Stocks list and subsequently ranked them based on the number of hedge funds holding each stock, leveraging data from Insider Monkey’s Q1 2025 database. In instances where multiple stocks shared the same number of “hedge fund cannabis picks,” we utilized their price-to-earnings (P/E) ratios as a tiebreaker, prioritizing the stock with the lower P/E to ensure value-oriented selection.

Among the highlighted companies is Flora Growth Corp. (NASDAQ:FLGC), a global cannabis entity based in Florida with operations spanning over 15 countries. The company offers a diverse product portfolio, including pharmaceuticals, CBD wellness goods, and THC-infused products. Notably, Flora Growth strategically invested $1 million into digital assets like Ethereum and Solana in 2025, signaling a commitment to Web3 innovation. The company is also aggressively expanding its THC-infused beverage segment with new brands like “Melo” and “Cloud Cola” and is entering Germany’s cannabis pilot program, positioning itself for international market capture.

Greenlane Holdings, Inc. (NASDAQ:GNLN) is another key player, renowned as a leading distributor of premium cannabis accessories and vaporization products. In a strategic pivot, Greenlane expanded into the health and wellness sector in 2025. The company also enhanced its digital marketing capabilities through a partnership with JointCommerce and secured a U.S. distribution agreement with Greentank Technologies, a leader in vape innovation. Furthermore, the acquisition of Señorita, an award-winning hemp-derived THC beverage brand, underscores Greenlane’s focus on consumer interest in low-calorie, alcohol-free alternatives, with Agrify Corporation (NASDAQ:AGFY) also mentioned as a company with growth potential in this space. These companies exemplify the dynamic strategies employed by “emerging cannabis companies” to adapt and thrive.

Ultimately, identifying these “hedge fund cannabis picks” offers a compelling investment thesis, as historical research indicates the potential to outperform the broader market by emulating the investment strategies of top-performing hedge funds. The strategic maneuvers of companies like Flora Growth Corp. and Greenlane Holdings, combined with evolving market and regulatory landscapes, underscore the lucrative opportunities that may exist for those willing to navigate the unique complexities of the cannabis sector.