High hopes for growth bode well for these cannabis stocks.
The U.S. House of Representatives passed a measure April 1 that would federally decriminalize cannabis. Ostensibly, that’s a good thing for the industry, but with the Senate unlikely to approve the bill, federal legalization doesn’t yet appear to be a near-term catalyst for investing in cannabis stocks. But bargain hunting is, at least for six of the stocks on this list, which have all fallen over the past year. The seventh has gained ground during its short life on the stock market. Growth prospects for the industry mean all seven could be good investments over the long term.
Green Thumb Industries Inc. (ticker: GTBIF)
Even though this tier-one U.S. multistate operator has been delivering positive net income for six quarters in a row and positive cash flow from operations for eight, it is trading at about half of its 52-week high. The company “continues to execute and impress,” says Matt Karnes, founder of cannabis research and consulting firm GreenWave Advisors. Jeff Rassas, chief strategy officer with dispensary franchisor Item 9 Labs Corp. (INLB), says Green Thumb’s consumer packaged-goods strategy of offering a wide range of premium house brands has been yielding increased profit margins and branding equity. Timothy Seymour, founder of Seymour Asset Management in New York and portfolio manager of the Amplify Seymour Cannabis ETF (CNBS), says the company’s overall financial profile may be the best of the majors, and the company has a strong share of major end markets.
Ayr Wellness Inc. (AYRWF)
Another multistate operator Rassas likes that focuses on premium house brands is AYR Wellness. After growing through an aggressive acquisition strategy in key states including Illinois, Florida, Pennsylvania and Arizona, the company is now moving toward growing its business more organically, he notes. Its sales of house brands are yielding increased profit margins, he adds. Seymour says the company has “excellent execution on integrated assets.” The company falls into the category of tier-two multistate operators that could be acquisition targets, Karnes says. It “remains to be seen how many will be standing solo by the end of the year as consolidation continues,” he says. “Shareholders will benefit due to the associated takeout premium.”
Curaleaf Holdings Inc. (CURLF)
This multistate operator has one of the strongest balance sheets in the industry, Rassas says. At the end of last year, Curaleaf had nearly $300 million in cash. And in late 2021, the company announced a $425 million debt financing, allowing it to refinance at a lower interest rate. The company’s house brands continue to feed increasing gross profit margins, while investments in key states are anticipated to greatly pay off in 2022. This sets the stage for an early-mover advantage with an aggressive international expansion strategy, Rassas says.
Trulieve Cannabis Corp. (TCNNF)
Seymour is bullish on several multistate operators. “They have largely reset growth and margin expectations,” he says. “We are starting to see some inflection higher on better sales figures in February and expectations for stronger 2H’22 (second half of 2022) as more projects come on line and we lap difficult COVID growth comps.” Trulieve, in particular, has best-in-class margins, he says. The company increased its revenue by 80% year over year to $938.4 million in 2021 and said it is expecting 2022 revenue of $1.3 billion to $1.4 billion. “We expect to realize improved performance in the second half of 2022 relative to the first half of 2022,” the company stated.
Cresco Labs Inc. (CRLBF)
Jay Czarkowski, founding partner with Canna Advisors, says this multistate operator is an underrated stock. Its shares are down more than 50% over the past year despite record revenue in its 2021 fiscal year, a year-over-year adjusted EBITDA increase of nearly 220% and an end-of-year cash position of $224 million. Last month, the company said it would buy rival Columbia Care in a $2 billion deal that Seymour says leaves Cresco “well positioned in the wholesale markets.” Karnes warns that the company may see some short-term volatility in operating performance as it integrates and divests Columbia Care assets. But “the combined company establishes a new number-one multistate operator, at least for now,” he says.
AFC Gamma Inc. (AFCG)
Marijuana debt providers and real estate investment trusts “should be part of a balanced and diversified approach to investing in cannabis,” Seymour says. AFC Gamma can be part of that strategy. The REIT provides institutional loans to companies involved in cannabis cultivation, processing and distribution. Investment positives, according to Karnes, include that the company has raised its dividend for three quarters in a row to an attractive annual yield of more than 12% and has steadily increased its lending commitments. But he worries about shareholder dilution from equity raises and how rising interest rates make the fixed-rate loans it holds less attractive.
Northern Lights Acquisition Corp. (NLIT)
This is the only stock on this list that’s not down over the past year. That’s partly because it’s only been trading since August and partly because of investor anticipation of strong performance from a niche financial services provider. With the federal prohibition of marijuana still in place, many banks have shied away from providing loans to cannabis companies. Not Safe Harbor Financial, though. It’s been providing banking services to the industry since 2015 and this year announced it would go public via a special-purpose acquisition company, or SPAC, merger with Northern Lights Acquisition Corp. Over the last seven years, Safe Harbor has amassed nearly 600 accounts in 20 states and processed over $11 billion in transactions, with $4 billion of them in 2021 alone. It has grown deposits at a 73% compound annual growth rate. “Additional growth is expected to come from a one-stop shopping platform that will provide investment, insurance and broker-dealer services,” Karnes says.
These seven marijuana stocks are primed for bargain hunters:
— Green Thumb Industries Inc. (GTBIF)
— Ayr Wellness Inc. (AYRWF)
— Curaleaf Holdings Inc. (CURLF)
— Trulieve Cannabis Corp. (TCNNF)
— Cresco Labs Inc. (CRLBF)
— AFC Gamma Inc. (AFCG)
— Northern Lights Acquisition Corp. (NLIT)
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Update 04/08/22: This story was published at an earlier date and has been updated with new information.