The market for cannabis stocks remains in a profound slump, creating an opportunity for long-term investors who want to buy on the cheap and hold until industry headwinds abate.
The New Cannabis Ventures Global Cannabis Stock Index is down more than 60% over the past year as of May 16, compared with a roughly 3% gain for the broader market, as measured by the S&P 500.
Legal marijuana companies have faced competition from the illegal market, where law enforcement is often lax, and have experienced falling prices for cannabis because of oversupply and competition within the legal market.
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In Canada, where the drug is legal, and in the U.S., where it remains federally banned, the industry has been weighed down by high taxes.
The U.S. industry also faces onerous hurdles to getting financing from banks. Because of federal illegality in the U.S., plant-touching companies can’t list on major exchanges, and many institutional investors don’t want to buy shares of companies trading over the counter, limiting marijuana firms’ ability to raise money.
However, the long-term outlook for some companies operating in the U.S. is bright.
According to a recent GreenWave Advisors newsletter, legal cannabis sales reached about $25 billion last year and could hit four times that amount with federal legalization.
“While timing is uncertain, the industry potential is undeniably staggering,” says GreenWave Advisors. “The growth prospects (have) sparked the interest of institutional investors, big pharma, tobacco and alcohol, all of which are (on) the sidelines waiting to step up in a meaningful way.”
| Marijuana stock | Cash at end of recent quarter | 1-year return as of May 16 |
| Trulieve Cannabis Corp. (ticker: TCNNF) | $195 million | -68.8% |
| Verano Holdings Corp. (VRNOF) | $95 million | -57.9% |
| Curaleaf Holdings Inc. (CURLF) | $163 million | -56.5% |
| Green Thumb Industries Inc. (GTBIF) | $185 million | -41.8% |
| OrganiGram Holdings Inc. (OGI) | $53.4 million | -64.8% |
| Columbia Care Inc. (CCHWF) | $40.2 million | -76.4% |
| SHF Holdings Inc. (SHFS) | $8.6 million | -96.3% |
Trulieve Cannabis Corp. (TCNNF)
For investors trying to gain exposure to weed through cannabis stocks, large marijuana companies that operate in more than one U.S. state where the drug is legal — known as multistate operators, or MSOs — offer advantages for those willing to buy shares and hold them for what will likely be a considerable time.
Larger companies have an advantage over smaller ones when it comes to surviving a tough regulatory environment.
For example, Trulieve, which has leading market positions in Florida, Arizona and Pennsylvania, is one of the MSOs able to fully fund its tax requirement with cash flow from operations, according to GreenWave Advisors.
The company ended its most recent quarter with $195 million in cash. Its shares are down 68.8% over the past year as of May 16.
Verano Holdings Corp. (VRNOF)
Verano is also in the enviable position of being able to pay its taxes with cash flow from operations, GreenWave says. This MSO has active operations in 13 U.S. states, 14 production facilities and 126 operational retail locations.
During the first quarter, the company increased its revenue to $227 million from $202 million during the same quarter in 2022, helped by the launch of recreational sales in Connecticut.
“We remain confident in our ability to continue growing the business in a challenged environment, will closely monitor developments in Washington, D.C., on the reintroduction of SAFE banking legislation, and look forward to leveraging our deep experience in transitioning markets as we approach the forthcoming launch of adult use sales in Maryland,” CEO George Archos said in comments accompanying the results.
The company ended its most recent quarter with $95 million in cash. Verano’s shares are down 57.9% over the past year as of May 16.
Curaleaf Holdings Inc. (CURLF)
This MSO has 152 dispensaries and 28 cultivation sites in 19 states, including Arizona, Florida, Illinois, Massachusetts, New Jersey, New York and Pennsylvania.
For the 2023 fiscal year, GreenWave Advisors expects Curaleaf will bring in $1.4 billion in revenue, the most of any top-tier MSO, with 5% revenue growth year over year.
The company ended the year with $163 million in cash on its balance sheet, a war chest that will help the company weather uncertainty in the industry, including positioning itself as a potential buyer during industry consolidation.
In fact, since early 2022, the company has completed its acquisition of Bloom Dispensaries in Arizona and has taken a majority stake in Four 20 Pharma in Germany.
The company’s stock is down 56.5% over the past year as of May 16.
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Green Thumb Industries Inc. (GTBIF)
Green Thumb is an MSO that operates 79 open dispensaries and operations in 15 U.S. markets and has 18 manufacturing facilities.
During the first quarter, the company reported $249 million in sales, a 2% increase year over year despite lower cannabis prices, and it ended the quarter with $185 million in cash.
“Our $185 million cash balance continues to give us the (option) to make investment decisions that will position us for the increasing demand for legal cannabis,” CEO Ben Kovler said in comments accompanying the results.
The stock is down 41.8% over the past year through May 16.
OrganiGram Holdings Inc. (OGI)
This company is focused on producing indoor-grown cannabis for medical and recreational customers in Canada. OrganiGram has the financial backing of British American Tobacco PLC (BTI), which owns 20% of the company. That gives it a certain stability that many other marijuana companies don’t have amid uncertainty surrounding the industry.
“That deal was transformational for the company, allowing it to repay all debt,” according to a recent note from New Cannabis Ventures, which lists OrganiGram as a cannabis bear market bargain.
“Today, the company is growing in a challenging market, and it trades at just 44% of tangible book value,” New Cannabis says.
The company ended its most recent quarter with nearly 72 million Canadian dollars ($53.4 million) in cash and short-term investments. Its shares are down 64.8% over the past year as of May 16.
Columbia Care Inc. (CCHWF)
This MSO is active in 16 markets across the U.S. and operates 94 dispensaries and 32 cultivation and manufacturing facilities, including some under development.
Last year Cresco Labs Inc. (CRLBF) announced a $2 billion buyout of Columbia Care, another of New Cannabis Ventures’ bargain picks. But that deal hasn’t gone through yet because of regulatory requirements for divestitures, which the companies are working on.
New Cannabis Ventures thinks the combination will go through. And that would mean that Columbia Care’s shares, which are down 76.4% over the past year, would rally.
“The stock is trading at a massive discount of 55% at a 0.25 ratio,” New Cannabis says. “Even if Cresco were to lower the deal cost in shares by 20% (a ratio of 0.446), Columbia Care shares would soar.”
Even if the deal doesn’t go through, New Cannabis doesn’t see much downside to Columbia Care’s stock. The company ended its most recent quarter with $40.2 million in cash.
SHF Holdings Inc. (SHFS)
Most financial institutions stay away from lending to the marijuana industry out of fear of being charged with money laundering or aiding and abetting a federal crime.
But there is a loophole if companies file certain paperwork with each transaction, a chore that SHF Holdings, through Safe Harbor Financial, undertakes to provide traditional banking services to cannabis, hemp, CBD and ancillary operators.
New Cannabis Ventures lists SHF Holdings, which has lost 96.3% of its value over the past year and has a market cap of just $16.3 million, as a bargain in this cannabis bear market. (Investors should be mindful that positions in the low-market-cap stocks on this list can have limited liquidity.)
“The company isn’t widely followed, which we think is helping to create this bargain,” New Cannabis says. “The valuation is incredibly low for this company that runs Safe Harbor Financial.”
That brand is important because of its experience in cannabis lending. The company should be able to leverage its existing relationships if the federal government loosens marijuana banking laws, an eventuality that would increase competition for SHF Holdings.
SHF CEO Sundie Seefried contends that even if federal banking laws ease, not all banks are going to want to get into marijuana lending, meaning there will still be a place for specialty cannabis banks.
On May 15, SHF’s first-quarter report showed a revenue increase of 150% year over year and a 55% increase in monthly average balances on deposit.
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7 Best Marijuana Stocks to Buy in 2023 originally appeared on usnews.com
Update 05/17/23: This story was previously published at an earlier date and has been updated with new information.
