InvestorPlace – Stock Market News, Stock Advice & Trading Tips
Several regulatory updates in the United States of late have proven to be quite beneficial for the marijuana industry. Senate Majority Leader Chuck Schumer has released a draft of legislation this summer seeking to remove the federal government’s ban on marijuana. The wave of legalization at the state level throughout the U.S. has sparked hope among cannabis investors who are already bullish on this sector. Consequently, cannabis stocks continue to hold favor among speculators and hyper-growth investors right now.
Although the bill to legalize marijuana is certainly not entirely free of obstacles, investors have reason to be optimistic. Since 2017, there have been a number of impressive rallies in this sector sparked by federal legalization in Canada in 2018, and anticipation around the potential for U.S. legalization soon.
Interestingly, the Prime Alternative Harvest Index, which keeps a record of the performance of cannabis stock, shot up 46% in mid-April. However, this index came back to earth relatively quickly as investors re-rated the likelihood of federal legalization materializing. That said, this index was up by 14.5% year-to-date through mid-August.
Investors may be on edge with regards to how the cannabis sector will fare through the end of 2021. However, the drafting of this new bill to legalize marijuana has gotten investors on edge about the idea of legalization.
Here’s a list of seven cannabis stocks that can potentially surge this Fall in this context:
- Curaleaf (OTCMKTS:CURLF)
- Cresco Labs (OTCMKTS:CRLBF)
- Tilray (NASDAQ:TLRY)
- Cronos (NASDAQ:CRON)
- GrowGeneration (NASDAQ:GRWG)
- Green Thumb Industries (OTCMKTS:GTBIF)
- Innovative Industrial Properties (NYSE:IIPR)
Top Cannabis Stocks to Buy: Curaleaf (CURLF)
Source: Jetacom Autofocus / Shutterstock.com
Curaleaf Holdings is the largest cannabis company in the United States, with a massive market capitalization of $8 billion. Although based in the U.S., the company is listed in Canada and trades over the counter in the U.S.
Curaleaf is among the most vertically-integrated cannabis stocks. This company owns and operates more than 100 retail locations, along with 23 cultivation facilities and 30 processing sites. Curaleaf focuses its operations in 23 highly-populated, limited-license states such as New Jersey, New York, Florida, Arizona and Massachusetts.
Curaleaf is also unique in that this company is one of the few cannabis players to report positive EBITDA. As per the company’s first quarter financial reports released on May 10, Curaleaf registered sales of $260.3 million. Moreover, the company’s EBITDA profit came in at at $62.6 million. Total cash and outstanding debt was of $315 million and $340 million, respectively, as of Q1 of 2021.
In Q2 2021, Curaleaf registered an adjusted EBITDA of $84 million on $312 million in revenue. Both numbers registered massive quarter-over-quarter growth. Accordingly, investors bullish on the cannabis market domestically certainly have reason to consider Curaleaf one of the top cannabis stocks to buy heading into the Fall.
Cresco Labs (CRLBF)
Similar to Curaleaf, Cresco Labs is another major cannabis company operating in multiple U.S. states. The company does business across 10 states, with 18 manufacturing facilities and 32 dispensaries spread out across the country. The company is focused on expansion by any means necessary — organic and acquisition-based growth are welcome. Cresco Labs is significantly smaller than Curaleaf, with a valuation of $2.3 billion. Accordingly, investors looking for a higher-upside play targeted at the U.S. market may indeed take a look at this growth stock.
As per the company’s second-quarter financial results, Cresco reported significant revenue growth alongside impressive adjusted EBITDA. Cresco’s Q2 revenue surged an impressive 123% year-over-year, coming in at $210 million. Adjusted EBITDA, on the other hand, witnessed a 30% increase compared to the same quarter last year. Moreover, the net profit of the company rose 106% year-over-year to $2.7 million.
These triple-digit growth numbers are hard to come by in most sectors. For Cresco, this has been business as usual for some time.
In April 2021, Cresco announced the all-stock purchase of Bluma Wellness, which is a Florida-based operator. Cresco issued 15.9 million shares to pay for the acquisition. Bluma came with eight dispensaries throughout Florida along with 54,000 square feet of cultivable space.
Top Cannabis Stocks to Buy: Tilray (TLRY)
Source: Jarretera / Shutterstock.com
Two large Canadian marijuana producers merged in May to form Tilray. With a market value of $5.2 billion, Tilray is the second-largest cannabis manufacturer in Canada, only behind Canopy Growth. Tilray completed its merger with rival Aphria in May, forming the largest global cannabis player at the time in terms of revenue.
The German subsidiary of Tilray, Aphria RX GmbH, completed its first cannabis harvest in early July. The harvest took place in an indoor growing facility in the German town of Neumunster.
Tilray released its most recent quarter results along with the full-year financial results in July. Reports show Tilray’s revenue grew by 27% to stand at $513 million. The company also reported an adjusted EBITDA of $40.8 million, representing a massive 598% year-over-year increase.
With respect to the Canadian market, Tilray intends to expand its market share to 30% by 2023. For the U.S. market, Tilray is awaiting federal legalization, which will allow the company to fully participate in the growth the U.S. market provides.
Cronos is another one of the largest Canadian marijuana stocks right now. Interestingly, Altria (NYSE:MO), popular for its Marlboro cigarettes, owns a 43.5% stake in the Canadian cannabis producer. In the future, it’s expected Altria will purchase another 10% of the company, thereby acquiring the controlling rights. Thus far, the cigarette maker has invested $1.8 billion in this Canadian company.
Accordingly, investors in Cronos know that their investment is backed up by some rather large institutional money (smart money) that wants to see Cronos thrive, particularly in the U.S. This is a company making strides in the U.S. through a $110.4 million investment in PharmaCann, which allows it to acquire 10.5% stake in the company. PharmaCann is a U.S-based cannabis producer with operations in six U.S. states, including New York.
This deal is, however, dependent on the federal legalization of cannabis in the United States. Cronos’ deal with PharmaCann is quite similar to that between Canopy Growth (NASDAQ:CGC) and Acreage Holdings (OTCMKTS:ACRHF) in 2019.
Cronos has been planning to expand its cannabis business across five continents. The company focuses on creating a global cannabis network through major partnerships, acquisitions, production, and distribution. It is also looking to develop its abilities in cannabis research and development.
Top Cannabis Stocks to Buy: GrowGeneration (GRWG)
GrowGeneration stock has more than quadrupled over the past two years. Indeed, this is a stock that has done extremely well relative to its peers. And for good reason.
GrowGeneration’s business model is a bit different than the other cannabis players on this list. That’s because this company’s focus is on hydroponics sales to retail and commercial customers. Accordingly, GRGW stock is often viewed as a “picks and shovels” play on the broader growth the cannabis sector is likely to see over time.
Those bullish on tremendous growth stemming from legalization in the U.S. ought to like this company’s prospects looking forward.
Looking at historical performance, it appears GrowGeneration is more than on the right track. This cannabis producer registered 60% growth in its same-store sales over the third quarter in 2020. Revenue grew by 153% as compared to the previous year, while net income surged over 5-times year-over-year to $5.1 million. These results encouraged the company management to boost its entire year sales guidance.
GrowGeneration acquired HGS Hydro in July. HGS Hydro is one of the biggest hydroponic retailers in the U.S., with annual sales of around $50 million. GrowGeneration has a total of 65 stores in 12 states. It aims to expand its network of stores in several states, including New York, Illinois, Arizona and New Jersey.
Although the company’s sky-high growth rate is expected to decline over time, the attractive valuation of this stock relative to other cannabis stocks right now cannot be ignored.
Green Thumb Industries (GTBIF)
Green Thumb Industries is another leading cannabis manufacturer in the United States. Although based in Chicago, the company similarly trades on the Canadian stock exchange. Green Thumb comes with 13 production facilities and 97 retail locations across 12 U.S. states.
Green Thumb has a market capitalization of $6 billion. Analysts predict 2021 sales to touch $902 million and $1.2 billion in 2022.
Considering Green Thumb’s cash of $359.2 million and total debt of $197.6 million as of June 30, 2021, the company has an enterprise value of nearly $5.7 billion. Therefore, the EV-to-sales multiple for 2022 comes in at 7.55. Surprisingly, this stock is quite cheap relative to its peers. Factoring in the fact that the U.S. cannabis market is expected to grow to $100 billion in the upcoming years, this stock looks even more attractively priced.
Interestingly, Green Thumb is quite a profitable cannabis manufacturer. However, the company’s low EV-to-sales multiple and EV-to-EBITDA multiple make the stock valuation quite attractive. Hence, Green Thumb can be viewed as a great speculative cannabis play with long term potential.
Top Cannabis Stocks to Buy: Innovative Industrial Properties (IIPR)
Now for a cannabis stock that isn’t really a cannabis stock.
Innovative Industrial Properties is a popular REIT that typically invests in industrial facilities used by cannabis companies. The company has a diverse portfolio of properties across 17 U.S. states. It acquires and manages spaces which it later leases out as regulated cannabis manufacturing facilities.
As per the company’s latest quarterly reports, investors have seen stellar results. The REIT registered tripled-digit revenue growth, alongside a 124% rise in net income.
IIPR has acquired additional industrial space of 250,000 square feet in Illinois for $6.5 million. In addition, it will also provide $43.75 million to 4Front Ventures (OTCMKTS:FFNTF) as reimbursement. As the space is ready, 4Front Ventures will use it as a cannabis cultivation and processing unit.
Innovative Industrial Properties comes with a high stock price, which has significantly reduced its dividend yield. However, IIPR is still one of the few cannabis stocks that produces any income.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.
The post 7 Cannabis Stocks Ready to Light up the Market This Fall appeared first on InvestorPlace.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.