The legal marijuana industry is a real buzzkill for investors right now.
Federal reform in the U.S. hasn’t panned out like investors were hoping. Taxes weigh down state-legal pot companies in the U.S. and federally legal marijuana businesses in Canada. Oversupply and competition within the legal market have depressed prices, and the cheaper illegal market lures customers who would otherwise spend on legal products.
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Meanwhile, in the U.S., marijuana companies have found it harder to secure loans after the regional banking crisis earlier this year, which brought a chill to an already difficult financing market. Banking laws are set federally, and most lenders don’t want to deal with the onerous paperwork that comes with lending to marijuana companies.
Marijuana stocks rallied Aug. 30 after Bloomberg reported that the U.S. Department of Health and Human Services recommended that the Drug Enforcement Administration reclassify pot as less risky (Schedule III rather than Schedule I). Still, the New Cannabis Ventures Global Cannabis Stock Index is down about 45% over the past year.
What Will Take Marijuana Stocks Higher?
“We think that the ultimate reversal of what is now a two-and-a-half-year bear market will require either the elimination of (IRS Section 280E) taxation or the ability of American cannabis stocks to trade on the Nasdaq or another higher exchange,” New Cannabis Ventures analysts said in a recent note.
IRS Code Section 280E prohibits marijuana companies from taking certain tax deductions and credits that federally legal businesses enjoy.
Being able to list on the Nasdaq or New York Stock Exchange, where there is more trading volume, would boost stock prices, says Josh Joseph, CEO of Nashville, Tennessee-based Big Plan Holdings, which has cannabis investments in the U.S.
A step short of federal legalization would be the passage of federal legislation that would allow cannabis companies to bank like other legal industries.
But until then, the industry will remain hamstrung, meaning the current market is better for investors willing to hold onto pot stocks for a long time in hopes that federal reform will give their valuations a boost.
That long time frame also means that investors may want to focus on larger and more well-established cannabis companies that may be in a position to buy up smaller rivals.
| Marijuana stock | Quarterly Revenue | Revenue Gain/Loss Year Over Year |
| Curaleaf Holdings Inc. (ticker: OTC: CURLF) | $339 million | 4% |
| Trulieve Cannabis Corp. (OTC: TCNNF) | $282 million | -10% |
| Green Thumb Industries Inc. (OTC: GTBIF) | $252 million | -1% |
| Verano Holdings Corp. (OTC: VRNOF) | $234 million | 5% |
| Cresco Labs Inc. (OTC: CRLBF) | $198 million | -9% |
| Tilray Brands Inc. (TLRY) | $184 million | 20% |
| Ascend Wellness Holdings Inc. (OTC: AAWH) | $123 million | 26% |
Curaleaf Holdings Inc. (OTC: CURLF)
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.
In the U.S., Joseph expects that eventually there will be between five and 10 large cannabis companies once the dust settles. He expects one will be Curaleaf, which brought in nearly $340 million in quarterly sales for the three months ended June 30, an increase of 4% year over year and more than any other senior cannabis company, according to a New Cannabis Ventures ranking.
“Curaleaf is arguably the largest cannabis company in the world, not just the United States,” Joseph says. “They’ve made very smart and strategic decisions to invest in Europe over the last couple of years, with the whole European industry now gaining some headwind as well. I’m very bullish mid- to long-term on Curaleaf.”
Trulieve Cannabis Corp. (OTC: TCNNF)
Coming in at No. 2 for quarterly revenue is Trulieve, an MSO with leading market positions in Florida, Arizona and Pennsylvania. Trulieve reported $282 million in second-quarter sales.
Still, that was a decline of 10% from $314 million in the prior-year period, and the company ended up posting a loss of $404 million that included a goodwill impairment triggered by stock price performance.
To help save some money, the company exited its California retail assets and started to wind down its Massachusetts operations. At the same time, it opened five new dispensaries in Georgia, Arizona and Pennsylvania.
“We are on track to exit this year as a leaner, stronger organization, ready to meet the opportunities ahead,” CEO Kim Rivers said in a statement accompanying the results.
Green Thumb Industries Inc. (OTC: GTBIF)
Green Thumb Industries is an MSO that operates 84 dispensaries in 15 U.S. markets and has 18 manufacturing facilities. Green Thumb is one of the few cannabis stocks that has been consistently profitable.
The company, which is one of Joseph’s top picks, reported net income of $13.4 million in the second quarter, down from $24.4 million during the same quarter in 2022.
With $252 million in revenue, the company came in at No. 3 for quarterly sales on the New Cannabis Ventures ranking. That revenue was down 1% from the prior-year period primarily because of the lower prices the company received for its marijuana. But that was partially offset by continued growth in New Jersey, Virginia and Connecticut.
Verano Holdings Corp. (OTC: VRNOF)
Another of Joseph’s picks, Verano ranked No. 4 on the list with $234 million in revenue for the second quarter, a company record and a 5% year-over-year increase. But the company’s net loss widened from $9.8 million to $13 million because of increased interest and income tax expenses.
Still, the company raised the lower end of its free cash flow guidance for the year to $65 million from $50 million. It kept the high end of that guidance at $75 million.
The MSO is active in 13 states, with more than 130 operational retail locations, 14 production facilities and more than 1 million square feet of cultivation capacity.
Cresco Labs Inc. (OTC: CRLBF)
Another of Joseph’s picks, this MSO brought in $198 million in revenue in the second quarter, placing it sixth on the New Cannabis Ventures ranking. But its net loss widened to $43 million from $8 million as the company was hit with $22 million in impairment charges.
Still, retail transactions of 1.3 million represented an 11% year-over-year increase, and the company opened five dispensaries in Florida and Pennsylvania, bringing its national store count to 68.
In July, the company said it and Columbia Care Inc. (OTC: CCHWF) were terminating plans for a merger, one of the casualties of the “tough economic time for the cannabis industry,” as Cresco Labs CEO Charles Bachtell put it in a press release.
Tilray Brands Inc. (TLRY)
Because of U.S. federal illegality, American companies that “touch the plant” by growing, processing or selling marijuana domestically can’t list on big U.S. exchanges.
Companies based in Canada, where the drug is federally legal, as well as U.S. companies that don’t earn money from plant-touching businesses in the U.S., can list on exchanges there. Tilray falls into this category and has been able to secure a coveted Nasdaq listing.
For the three months ended May 31, Tilray reported $184 million in net revenue, a company record representing 20% growth year over year.
Brandon Dorsky, a cannabis-industry attorney who is generally bearish on marijuana stocks, says Tilray is the one cannabis company he might be willing to invest in.
“If I had to choose one cannabis stock to bet on, I would probably pick Tilray because of Tilray’s strategy of diversifying into alcohol,” Dorsky says. That “makes them the safer bet out of publicly traded cannabis stocks simply because they are acquiring brands and products that have valuable market share and diversifying their risk across vice products.”
He also likes the company’s foray into cannabis-infused beverages, one of the fastest-growing segments of the market.
Ascend Wellness Holdings Inc. (OTC: AAWH)
Joseph adds this U.S. multistate operator, along with Curaleaf, Green Thumb, Verano and Cresco, to his list of “some of the big companies that I think, at the end of this whole run, we’re going to end up seeing being there at the end.”
Ascend Wellness clocked in at No. 9 on the quarterly revenue ranking, with sales of $123 million, up from $97.5 million during the same quarter last year, thanks to growth in its retail and wholesale businesses. A tax credit allowed the company to swing to a profit of $841,000 from a loss of more than $21 million in the comparable quarter in 2022.
“I’m a big fan of Ascend Wellness,” says Joseph, whose company has a $6 million investment in Ascend and recently, in a partnership with Evelyn Capital, bought a cannabis tenant retail building in Pennsylvania from the MSO in a lease-back deal.
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7 Best Marijuana Stocks to Buy in 2023 originally appeared on usnews.com
Update 08/31/23: This story was previously published at an earlier date and has been updated with new information.
