Here’s what investors need to know about U.S. cannabis stocks.
Cannabis investors had high hopes for the Canadian recreational marijuana market back in 2018, but revenue growth has disappointed up to this point as many legal Canadian cannabis producers continue to burn cash. In the U.S., cannabis investors were optimistic about the outlook for federal legalization when President Joe Biden won the November 2020 election and Democrats gained control of both houses of Congress. Unfortunately, Democrats have made limited progress on cannabis reform, and U.S. multistate operator, or MSO, stocks have struggled. Here are eight under-the-radar U.S. cannabis stocks that financial services firm Cantor Fitzgerald analyst Pablo Zuanic is watching in 2021.
Cresco Labs Inc. (ticker: CRLBF)
Cresco labs is a Chicago-based MSO that operates in nine U.S. states. Zuanic is optimistic that Cresco can exceed analyst estimates in the next couple of quarters as it continues to expand its business and consolidate recently acquired assets. He says Cresco’s Illinois and Pennsylvania wholesale franchises provide value for investors. Unfortunately, the company lacks scale in the key Florida market and it is dealing with stiff market share competition in Massachusetts and Illinois. Zuanic says he is also still skeptical about Cresco’s business model in California. Cantor Fitzgerald has an “overweight” rating and a $13.50 price target for CRLBF stock.
Curaleaf Holdings Inc. (CURLF)
Curaleaf is headquartered in Massachusetts and operates in 23 different states. The company is also one of Zuanic’s top MSO stock picks. In the second quarter, Curaleaf reported 18% quarter-over-quarter organic sales growth, which Zuanic says likely outpaced the underlying growth in Curaleaf’s markets. Curaleaf’s margins also expanded. However, Zuanic says the company’s $73 million operating cash flow loss in the quarter was likely the worst in its history, thanks to inventory buildup in key states ahead of recreational cannabis launches and an overall uptick in expenses. Cantor Fitzgerald has an “overweight” rating and a $24 price target for CURLF stock.
Green Thumb Industries Inc. (GTBIF)
Green Thumb Industries operates brick-and-mortar dispensaries and wholesale businesses. It is also another of Zuanic’s top MSO stock picks. In the second quarter, Green Thumb reported 14% sequential revenue growth — double the 7% growth expected by analysts. Zuanic says new capacity in Illinois drove the second-quarter revenue beat, and additional capacity in New Jersey, Ohio and Pennsylvania should boost revenues by mid-2022. He says the introduction of flower in the New York and Virginia medical marijuana programs could be a bullish near-term catalyst. Cantor Fitzgerald has an “overweight” rating and a $46 price target for GTBIF stock.
Trulieve Cannabis Corp. (TCNNF)
Trulieve has the largest cannabis market share in Florida and is another of Zuanic’s top MSO stock picks. Zuanic says analysts don’t fully appreciate the “slew of growth drivers” ahead for Trulieve in the next year, including expansion of its Pennsylvania and Massachusetts businesses, the integration of Harvest Health & Recreation Inc. (HRVSF) assets and the potential for a cultivation license in Connecticut. He says post-merger Trulieve will be much more diversified outside of Florida and will likely be the top cannabis seller in both Arizona and Pennsylvania. Cantor Fitzgerald has an “overweight” rating and a $50.50 price target for TCNNF stock.
TerrAscend Corp. (TRSSF)
TerrAscend is a licensed cannabis producer in Canada and also operates vertically integrated businesses in Pennsylvania, New Jersey and California. TerrAscend shares are down about 18% year to date, lagging most of its MSO peers. Zuanic says investors should buy the TerrAscend dip and that the stock deserves to trade at a valuation premium to peers due to the strength of its businesses in Pennsylvania and New Jersey. Canadian cannabis giant Canopy Growth Corp. (CGC) also owns a 20% stake in TerrAscend contingent upon U.S. federal cannabis legalization. Cantor Fitzgerald has an “overweight” rating and a $15.50 price target for TRSSF stock.
Acreage Holdings Inc. (ACRHF)
Acreage Holdings is an MSO that will be acquired fully by Canopy Growth in the event of U.S. federal cannabis legalization. Zuanic says Acreage has made significant progress on profitability in recent quarters, and it is well positioned in its key growth markets of New Jersey and New York. He says Canopy is likely pleased with the progress Acreage has made under CEO Peter Caldini. The minimum offer price of the Canopy deal is $6.41 per Acreage share, suggesting a 100% upside from current levels. Cantor Fitzgerald has a “neutral” rating and a $4.80 price target for ACRHF stock.
Columbia Care Inc. (CCHWF)
Columbia Care was one of the first U.S. medical cannabis providers. Columbia Care stock is down more than 30% year to date, making it the worst performer of the eight cannabis stocks mentioned. Zuanic says Columbia shares trade at a discount to peers because of its lower margins and relatively high exposure to lower-growth mature markets in California and Colorado. Still, he says Columbia has promising footprints in emerging recreational cannabis states like New York, New Jersey and Virginia and could potentially be an attractive buyout target. Cantor Fitzgerald has a “neutral” rating and a $5.30 price target for CCHWF stock.
AYR Wellness Inc. (AYRWF)
AYR Wellness is an MSO with core operations in Massachusetts and Nevada. AYR recently expanded into Pennsylvania, Ohio and Arizona via acquisition deals as well. Zuanic says AYR has financial flexibility and margin expansion opportunities as it opens stores and additional cultivation properties in Pennsylvania and Florida. Also, AYR’s recent acquisitions give the company medical-to-recreational optionality and an attractive seven-state footprint. Nevertheless, Zuanic says AYR still has a lot to prove to investors in integrating its new assets and differentiating itself as a top MSO stock. Cantor Fitzgerald has a “neutral” rating and a $33.50 price target for AYRWF.
Cannabis stocks poised to grow:
— Cresco Labs Inc. (CRLBF)
— Curaleaf Holdings Inc. (CURLF)
— Green Thumb Industries Inc. (GTBIF)
— Trulieve Cannabis Corp. (TCNNF)
— TerrAscend Corp. (TRSSF)
— Acreage Holdings Inc. (ACRHF)
— Columbia Care Inc. (CCHWF)
— AYR Wellness Inc. (AYRWF)
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Update 08/16/21: This story was published at an earlier date and has been updated with new information.