The cannabis sector can be challenging to navigate, with all the high-growth stocks to choose from. But it's worth knowing which stocks are the real deal and which ones are the duds, as there are some significant gains that can be made from the marijuana industry as legalization progresses around the world.
Three pot stocks that look to be great buys in December include Cresco Labs (CRLBF -4.11%), Curaleaf Holdings (CURLF -2.69%), and MariMed (MRMD 2.94%). They all have solid financials and are experiencing significant growth. Here's an in-depth look at each.
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1. Cresco Labs
What I like about cannabis producer Cresco Labs is its strategy to pick its spots carefully. Last month, the company opened its flagship Chicago location, just 300 feet from Wrigley Field. In a hotly contested marijuana market where businesses are building up their operations and looking for space, that's a key piece of real estate that could be a big moneymaker for the company.
But the company isn't overly aggressive in its pursuit of growth, a key reason Cresco generates strong margins. In December, it announced the opening of its 12th Florida location and 44th dispensary nationwide; Trulieve, a Florida-based cannabis producer, has more than double that tally just in its home state alone.
By the end of this year, Cresco projects that its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) margin will be 30% of revenue, at least. With gross margins of around 50% and not a lot of overhead to weigh it down, Cresco is a lean machine that is in an excellent position to grow without sacrificing profitability along the way.
Year to date, Cresco's stock is down 20% (the Horizons Marijuana Life Sciences ETF has fallen by 12%). But with the company posting a strong bottom line and closing in on an annual run rate of $1 billion in revenue (in 2020, sales were $476 million), it could be a hot buy entering 2022.
2. Curaleaf Holdings
Curaleaf is more aggressive in its growth strategy than Cresco Labs. In November, it opened its 38th location in Florida and 113th nationwide with the launch of Curaleaf Spring Hill.
The company is arguably the industry leader due to its sheer size and market share. It is in 23 states and says it is on track to generate at least $1.2 billion in sales for 2021 (that's close to double the $627 million it reported in revenue last year).
Despite its bigger operations, the company is also profitable on an adjusted EBITDA basis, reporting a margin of 22.5% in its latest quarterly results for the period ending Sept. 30. And in addition to the U.S. market, it has also staked out a position overseas with the launch of Curaleaf International this year. Through that business, the company's products supply five European markets, including Germany -- the largest on the continent.
Curaleaf shares are down more than 26% this year even amid some strong numbers for the company (sales were up 74% last quarter on a year-over-year basis). Trading near its 52-week low, now could be a prime time to buy this attractive growth stock.
3. MariMed
Cannabis producer MariMed is similar to Cresco in that its approach is more calculated and focused on growth while maintaining a strong bottom line. This year, MariMed projects that its revenue will top $118 million, and its adjusted EBITDA will come in at $42 million, or 36% of sales. But that could be a soft figure as CEO Jon Levine hints that the company may outperform, noting in the company's third-quarter results press release that "our strict financial discipline combined with our outstanding operations give us [the] confidence we will meet or beat our full-year financial guidance." In 2020, MariMed's sales totaled $51 million.
The company only has dispensaries in three states (Delaware, Illinois, and Massachusetts), so its footprint isn't anywhere near the size of Curaleaf's or other, larger multistate operators. But MariMed does have growth on its horizons as it looks to strengthen its top line by increasing capacity and production where it currently operates while also planning to expand into other states, noting in its most recent earnings report that M&A is a possibility.
There's a lot to like about MariMed's stock. Although it's up 46% this year and is the only one on this list in positive territory, there could be much more room for this microcap stock to go even higher. The biggest hurdle could be that its shares are only available over the counter. If it lists on another exchange, even the Canadian Securities Exchange (where many MSOs trade), there could be a lot more activity and bullishness behind it.
