As the U.S. tiptoes toward reform, weed stocks may be cheap.
Despite some reform measures at the federal level, the U.S. marijuana industry still labors under federal illegality and the tax burden, banking hassles and uncertainty that come with it. That leaves the industry to trade at a sharp discount on a variety of metrics, according to Matt Karnes, founder of consultancy GreenWave Advisors LLC. “When prohibition ends and the added costs specific to prohibition are no longer required, the free cash flow profiles for most cannabis companies will accelerate significantly and share prices will likely surge,” he says. With that in mind, investors will be best served to seek out marijuana companies that are strong even without federal legalization, such as these seven pot stocks.
Curaleaf Holdings Inc. (ticker: CURLF)
Although it’s hard to predict the timing of federal marijuana reform, Karnes expects continued legalization expansion at the state level. As that happens, large cannabis companies that are already operating in multiple states should be well positioned for expansion. Curaleaf is one of those. A U.S. multistate operator, or MSO, the company has 143 dispensaries and 29 cultivation sites in 21 states including Arizona, Florida, Illinois, Massachusetts, New Jersey, New York and Pennsylvania. In the third quarter, the company’s revenue grew 7% to nearly $340 million. It ended the quarter with $198 million in cash on its balance sheet.
Green Thumb Industries Inc. (GTBIF)
“In 2023, we expect the industry to remain challenged on a variety of fronts, but nonetheless the top-tier firms noted have established a solid track record in navigating through these complexities,” Karnes says of Green Thumb Industries and Curaleaf. Green Thumb is an MSO that operates 77 dispensaries in 15 U.S. markets and has 17 manufacturing facilities. GTBIF is one of the few cannabis stocks that has been consistently profitable, generating $9.8 million in net income in the third quarter as its sales grew nearly 12% year over year to more than $261 million.
Cresco Labs Inc. (CRLBF)
Cresco Labs is another top pick for Karnes in addition to Curaleaf and Green Thumb. “For the first nine months of 2022, all three of these companies generated enough cash flow from operations to pay the added costs of prohibition, most notably the enormous tax burden associated with IRS Code Section 280E,” he says. Cresco Labs is a U.S. MSO that holds leading market share in Illinois, Pennsylvania, Colorado and Virginia. Cresco operates in 10 states and has 21 production facilities and 54 owned dispensaries. The company is expanding its U.S. footprint, recently announcing growth in Orlando, Florida. In March, it announced a $2 billion buyout of Columbia Care Inc.
Trulieve Cannabis Corp. (TCNNF)
Acquisitions like Cresco’s purchase of Columbia Care are part of the industry consolidation happening as companies buy competitors, others merge into new companies and weaker companies go out of business. In a still-maturing industry, more of this is likely to happen. “We continue to expect consolidation as the strong get stronger,” Karnes says. One of the stronger companies is Trulieve Cannabis. It is primarily focused on Florida, where it dominates the medical marijuana market. The company also has leading market positions in Arizona and Pennsylvania. Overall, it operates in 11 states.
WM Technology Inc. (MAPS)
WM Technology is a somewhat unconventional play on the cannabis industry. Rather than producing and selling cannabis, WM Technology operates a leading online cannabis marketplace and provides e-commerce and compliance software solutions to the cannabis industry. Because it doesn’t touch the plant, WM Technology as a U.S.-based company is free to list on a major U.S. exchange, hence the Nasdaq ticker symbol. (Canadian weed companies that do touch the plant can list on the big U.S. exchanges because the drug is federally legal in the Great White North.) Its revenue was largely flat in the third quarter, but the company swung to a net loss. Still, it added more than 1,100 average monthly paying clients in the third quarter from the prior-year period.
Organigram Holdings Inc. (OGI)
This company is focused on producing indoor-grown cannabis for medical and recreational customers in Canada. It also has the financial backing of British American Tobacco PLC (BTI), which gives it a certain stability that many other marijuana companies don’t have amid uncertainty surrounding the industry, even as the U.S. government has taken some steps toward reform. On Dec. 2, President Joe Biden signed a bill making it easier for scientists to get marijuana for research, marking the first stand-alone marijuana bill ever. That followed Biden’s October announcement of a pardon for people convicted on federal charges of simple marijuana possession, as he called for a review of the way marijuana is federally scheduled and urged state governors to follow his lead.
Aurora Cannabis Inc. (ACB)
The U.S. and Canada aren’t the only markets where cannabis companies are eyeing expansion. Aurora is among a handful of companies that are well positioned to take advantage of the German cannabis market. In May, the company announced it had received European Union good manufacturing practice certification for a medical cannabis production facility in Germany. “International medical cannabis net revenues were slightly uneven in Q1 2023, characteristic of rapidly developing markets,” CEO Miguel Martin said in a press release accompanying the company’s fiscal first-quarter results. “However, the long-term growth trajectory remains solid for our unique, portable and profitable international medical program.”
7 best marijuana stocks to buy for 2023:
— Curaleaf Holdings Inc. (CURLF)
— Green Thumb Industries Inc. (GTBIF)
— Cresco Labs Inc. (CRLBF)
— Trulieve Cannabis Corp. (TCNNF)
— WM Technology Inc. (MAPS)
— Organigram Holdings Inc. (OGI)
— Aurora Cannabis Inc. (ACB)
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7 Best Marijuana Stocks to Buy for 2023 originally appeared on usnews.com
Update 12/07/22: This story was published at an earlier date and has been updated with new information.
