Please ensure Javascript is enabled for purposes of website accessibility

The Big Under-the-Radar Marijuana Stock You'll Want to Closely Watch This Year

By Keith Speights - Updated Apr 10, 2019 at 2:53PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

You might not have even heard of this marijuana stock, but it's bigger than CannTrust and HEXO -- combined.

You've probably heard of most of the marijuana stocks with multibillion-dollar market caps. They're the ones that make headlines by establishing partnerships with big companies outside of the cannabis industry and teaming up with well-known celebrities. 

There's a good chance you've also heard of some marijuana stocks that aren't quite as large but are listed on U.S. stock exchanges. CannTrust and HEXO are good examples.

However, there's one big marijuana stock that has likely flown under the radar for many investors. This stock's market cap of $2.4 billion makes it bigger than CannTrust and HEXO combined. And it's a stock you might want to closely watch this year. Which stock is it? Cresco Labs (CRLBF -0.26%).

Magnifying glass on top of a marijuana leaf

Image source: Getty Images.

Cresco who?

Cresco Labs ranks as one of the largest cannabis operators in the U.S. The company holds cannabis licenses in 11 states. At least five of these states are on track to have legal marijuana markets of $1 billion or more by 2022.

The company will soon have 14 cannabis production facilities in nine states. These facilities combined provide Cresco Labs with an estimated annual production capacity of over 147,500 pounds of cannabis (nearly 67,000 kilograms). However, Cresco expects its expansion projects will boost this capacity to over 515,000 pounds (more than 233,000 kilograms) by the end of 2019.

But Cresco Labs isn't just a cannabis producer; it's a cannabis retailer, too. The company currently operates 21 cannabis dispensaries in eight states. Overall, Cresco holds 51 cannabis retail licenses.

Cresco focuses largely on the U.S. medical cannabis opportunity. However, its retail stores in Massachusetts and Nevada sell adult-use recreational cannabis. The company's average revenue per square foot of $6,500 beats well-known retail leaders including Apple, Starbucks, and Tiffany.

A big deal in the works

Cresco Labs could soon be even larger. The company announced earlier this month that it plans to buy Origin House (ORHOF) in the biggest acquisition of a public U.S. cannabis company ever. The deal isn't finalized yet, as Origin House shareholders must vote to approve the acquisition. This vote is expected to take place in June.

Origin House started out focusing on royalty streaming deals with cannabis companies. However, the company shifted gears. Origin House is now the leading distributor of cannabis products in California. It also markets several of its own brands and is continuing to expand its lineup.

In addition, Origin House is looking to build up its business in Canada. The company acquired leading Canadian vape retailer 180 Smoke, which operates 23 retail stores. Origin House plans to use 180 Smoke as a launching pad to roll out cannabis retail stores in Canada that carry its own in-house brands plus other brands.

Cresco's acquisition of Origin House will make the company an even formidable contender in the U.S. cannabis market. Combined revenue including Origin House should be around $383 million in 2019. By 2021, Cresco Lab's revenue could jump to more than $1 billion with projected EBITDA of $317 million. 

A bet on the U.S. cannabis market

I think that Cresco Labs could represent one of the best ways to profit from growth in the U.S. cannabis market -- and that growth should be significant. An annual U.S. legal cannabis market of $22 billion or more is expected by 2022.

Cresco also has entered the U.S. hemp market. In February, the company established a new hemp cannabidiol (CBD) subsidiary, Well Beings. Cresco plans to expand its hemp CBD products to all 50 states. Estimates vary on how big the U.S. hemp CBD market will be, but there's almost certainly a multibillion-dollar opportunity.

In the third quarter, Cresco Labs made $12.2 million in revenue and $2.9 million in earnings. That revenue total is more than twice as much as Canadian marijuana producer Cronos Group reported in its last quarter. And Cronos lost money instead of making a profit. Despite the much better performance, Cresco Labs' market cap is less than half that of Cronos Group.

Probably the main reason why this is the case is that marijuana remains illegal at the federal level in the U.S. But efforts are underway to change that. As progress is made on this front, Cresco Labs' valuation could come more into alignment with the valuations of Canadian marijuana stocks. Cresco might be under the radar for many investors now, but it probably won't be for too much longer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Cresco Labs Inc. Stock Quote
Cresco Labs Inc.
CRLBF
$3.83 (-0.26%) $0.01
Origin House Stock Quote
Origin House
ORHOF

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
344%
 
S&P 500 Returns
120%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.