If you’re an investor in the legal marijuana industry, or are thinking about becoming one, there’s a key attribute you’ll need: patience.
It was about a decade ago that the cannabis bubble was in full flower. Marijuana stocks soared to heady valuations only to crash in a massive loss of value as the realities of the industry set in. Since then, there have been times of excitement, only to have investors’ hopes dashed.
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“Valuations soared in the early days, but many of those numbers were disconnected from the realities of the market,” says Aaron Pelley, founding partner at Cultiva Law. “While some of those losses were inevitable given the inflated valuations, the road ahead remains rocky.”
Although state-level legalization is more widespread than it was a decade ago, marijuana remains illegal at the federal level and is classified as one of the most dangerous drugs. That leaves the industry to face far higher taxes than federally legal industries and a prohibition on trade between states. Meanwhile, legal weed sales continue to face stiff competition from the illegal market.
In August, the Drug Enforcement Administration scheduled a hearing for Dec. 2 to consider moving cannabis to a less restrictive classification from its current status, which is on par with heroin. “The market had hoped for quicker news, leading to a bearish response for major marijuana stocks,” says Michael Martin, vice president of market strategy with TradingBlock. “The growth of the marijuana industry is 100% contingent upon the drug being reclassified by federal agencies. If and when this happens, the battered industry may have a chance at revival in 2025.”
Currently, because they are “trafficking” in a Schedule 1 substance, marijuana companies are prohibited by IRS Code Section 280E from taking certain tax deductions and credits that federally legal businesses enjoy. That means the effective tax rate for marijuana retailers can exceed 70%. A downgrade to Schedule 3 would remove that tax headache and pave the way for more institutional investment and traditional banking services.
In addition to the tax burden, rising competition within the legal industry is putting downward pressure on retail prices, making it difficult for companies to offset the high tax costs, says Michael Kodari, CEO of Kosec-Kodari Securities.
“Despite these headwinds, there are still opportunities, particularly for companies innovating with cannabinoids in wellness products or for those in the burgeoning hallucinogenics category, which has significant upside pending FDA regulation,” Kodari says.
For the rest of this year and 2025, Kodari expects larger companies to buy smaller competitors and operational efficiency to be key for the sector, while company earnings remain unpredictable amid regulatory uncertainty and mounting pricing pressures.
If there’s one thing that the long slump in cannabis stocks has done, it’s help shake out some of the weaker players. Here’s a look at seven of the stronger offerings:
| Marijuana Stock | Market Cap | Strengths |
| Ascend Wellness Holdings Inc. (ticker: OTC: AAWH) | $167.2 million | Cultivates, processes and manufactures its own products |
| Curaleaf Holdings Inc. (OTC: CURLF) | $2.2 billion | Top cannabis sales, hemp-derived THC beverages |
| Trulieve Cannabis Corp. (OTC: TCNNF) | $2.2 billion | Foothold in Florida |
| Green Thumb Industries Inc. (OTC: GTBIF) | $2.4 billion | Top-rated for sales, adjusted operating income |
| Cresco Labs Inc. (OTC: CRLBF) | $553.5 million | Investment in core growth states |
| Tilray Brands Inc. (TLRY) | $1.4 billion | Nasdaq listing |
| TerrAscend Corp. (OTC: TSNDF) | $399 million | Operational excellence |
Ascend Wellness Holdings Inc. (OTC: AAWH)
Ascend is a vertically integrated cannabis operator that has licenses and assets in seven states. Large marijuana companies that operate in more than one U.S. state where the drug is legal are known as multistate operators, or MSOs.
Vertical integration means that Ascend sells marijuana products that it cultivates, processes and manufactures itself, rather than buying weed wholesale to mark up and sell in dispensaries.
As with other vertically integrated companies on this list, the business model gives Ascend more control over how its products are grown and made, and that means it doesn’t have to pay a premium to buy marijuana from others. It also creates operational efficiencies.
Curaleaf Holdings Inc. (OTC: CURLF)
In its most recent quarter, the company reported sales of $342.3 million, which puts it on top of other MSOs in a New Cannabis Ventures ranking. Still, even though Curaleaf is on top when it comes to sales, it falls to the bottom of the top 10 in the ranking when it comes to adjusted operating income, a metric that can be helpful when comparing cannabis companies. This method adjusts reported income for changes in the fair value of biological assets and often excludes one-time items.
Adam Terry, CEO of infused beverage company Cantrip, likes Curaleaf because of its foray into hemp-derived THC drinks. “Curaleaf is leveraging their Select brand,” Terry says, referring to the company’s line of THC seltzers.
Trulieve Cannabis Corp. (OTC: TCNNF)
Trulieve has $49.8 million in adjusted operating income, and its $303.4 million in quarterly sales represent 8% year-on-year growth. This vertically integrated MSO has leading market positions in Arizona, Florida and Pennsylvania. The company has especially been on a tear in Florida, where it announced the opening of 10 medical cannabis dispensaries from Aug. 15 to Oct. 7.
The legalization of marijuana for recreational use is on the ballot in Florida this November. If the measure passes, that would expand a large market in the U.S., handing an advantage to companies that already have a medical footprint in the state.
Green Thumb Industries Inc. (OTC: GTBIF)
Green Thumb Industries is an MSO that has 98 open dispensaries and operations in 14 U.S. markets, including 20 locations in Florida. Green Thumb is one of the few cannabis stocks that has been consistently profitable.
When you look at adjusted operating income for the most recent quarter, the company comes in on top of the New Cannabis Ventures tracker, with $54 million. Its sales weren’t too shabby either, at $280.1 million, representing 11% annual growth.
The company paid more than $50 million in taxes during the quarter. “We continue to pay our taxes, subject to 280E, while at the same time generating cash and maintaining a balance sheet that supports long-term value creation for shareholders,” CEO Ben Kovler said in prepared remarks accompanying the company’s quarterly report.
Cresco Labs Inc. (OTC: CRLBF)
This vertically integrated marijuana company has a presence in eight states. It ranks fourth in adjusted operating income, posting $32.4 million in its most recent quarter.
Its strategy is dependent on consumer brands and retail operations through its Sunnyside dispensaries. The company has also been investing in core growth states and exploring merger and acquisition possibilities.
“As the pace of reform challenges even the most patient of us, it’s important for all stakeholders to remember that cannabis reform consistently polls higher than any candidate in any election, and the public has made it clear that it’s time for change,” Cresco CEO Charlie Bachtell said in comments accompanying the firm’s most recent quarterly report. “The DEA’s comment period on rescheduling recently closed, with 92% of over 40,000 comments submitted in overwhelming support for reclassifying cannabis as a Schedule 3 substance or declassifying cannabis entirely.”
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. That’s not the case for companies based in Canada, where the drug is federally legal, nor for U.S. companies that don’t earn money from plant-touching businesses in the United States. Tilray falls into the latter category and has been able to secure a coveted Nasdaq listing.
Terry says Tilray has expanded into THC beverages alongside Curaleaf. “Both companies have now launched hemp-derived THC drinks, which shows foresight and planning to expand their brands via the broadly accessible channel that is U.S. hemp beverages in liquor and convenience stores,” Terry says. “While I think Tilray would have been better served adapting existing brands to launch their hemp beverages line, their entry into the space shows they are thinking critically about the future of cannabis in the United States.”
TerrAscend Corp. (OTC: TSNDF)
Cannabis companies that will be successful in coming months are focused on operational excellence and brand building, Terry says. “Even with rescheduling on the horizon, the elimination of 280E is hardly likely to save poorly functioning, debt-riddled operators,” he says.
TerrAscend is one of the leaders in operational excellence, he says. The company has vertically integrated operations in Pennsylvania, New Jersey, Maryland, Michigan and California. It also has retail operations in Canada.
With $12.6 million in adjusted operating income, TerrAscend comes in seventh in the New Cannabis Ventures ranking by that metric.
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7 Best Marijuana Stocks to Buy in 2024 originally appeared on usnews.com
Update 10/11/24: This story was previously published at an earlier date and has been updated with new information.
