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Better Marijuana Stock: Green Thumb Industries vs. KushCo Holdings

By Keith Speights – Apr 21, 2019 at 11:15AM

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Two U.S. marijuana stocks. One winner.

Marijuana might still be illegal at the federal level in the U.S. But 33 states now allow the legal use of medical cannabis, and 10 states have legal adult-use recreational marijuana markets. It's not surprising that the U.S. claims the world's largest marijuana market. Two publicly traded companies that have made their marks in this big market are Green Thumb Industries (GTBIF -0.25%) and KushCo Holdings (KSHB).

Green Thumb Industries (GTI) has been the bigger winner so far in 2019, with its stock soaring close to 80%. KushCo is up by only a few percentage points year to date. However, past performance isn't very important when evaluating how stocks might perform in the future.

Which of these two marijuana stocks is the better pick for long-term investors now? Here's what you need to know about Green Thumb Industries and KushCo Holdings.

Marijuana leaves on top of $100 bills

Image source: Getty Images.

The case for Green Thumb Industries

When billionaire investor Leon Cooperman decided to dip his toes into investing in the cannabis industry last year, Green Thumb Industries was one of the three stocks he bought. There are several factors that likely made GTI stand out for Cooperman then and are applicable for investors considering the stock today.

Perhaps the most impressive achievement for GTI is the scope of operations the company has built. As of March, GTI conducted business in 11 states. But with its pending acquisitions, that total will increase to 12 states.

These states include several of the strongest cannabis markets in the U.S. California is already the biggest legal marijuana market in the world. Florida and Massachusetts are likely on track to have annual cannabis sales of more than $1 billion by 2022. Three large states with medical cannabis markets in which GTI currently operates could be on their way to legalizing recreational pot as well -- Illinois, New Jersey, and New York.

GTI grows and produces cannabis in its 13 facilities. The company also is a major cannabis retailer, with 18 stores already open and licenses for another 70 retail locations.

Cannabidiol (CBD) products present another growth opportunity for GTI. The company recently launched a line of CBD-infused skincare products under the brand Beboe Therapies. These products will be carried in upscale retailers including Barneys New York and Neiman Marcus.

In its latest quarter, GTI reported revenue of $20.8 million, up 237% year over year and 21% quarter over quarter. The company isn't yet profitable, but it's still investing heavily in expansion. As U.S. cannabis and CBD product markets continue to grow, it seems likely that GTI could become quite profitable.

The case for KushCo Holdings

KushCo Holdings ranks as the top supplier of packaging solutions to the cannabis industry in the U.S. and Canada. The company has also expanded into additional areas through acquisitions.

California is KushCo's top market. The state accounts for well over half of the company's total revenue. KushCo benefits especially from the sale of vape hardware and accessories in California.

Growth of the legal adult-use recreational marijuana market in California has been negatively impacted by the continued strength of the black market in the state. However, California is taking steps that should help address some of the issues behind this -- and help boost KushCo's sales in the process.

While California is currently KushCo's top market, the company's revenue is growing at a faster rate in other areas. In particular, sales in Massachusetts and Michigan are skyrocketing as both states have legalized adult-use recreational marijuana in addition to medical cannabis. KushCo thinks that the northeastern U.S. states together should be a bigger market than California in the not-too-distant future.

KushCo also stands to benefit from the legalization of hemp in the U.S. For one thing, demand should increase for its packaging products. Also, KushCo's energy and natural products, which markets solvents and hydrocarbons used in extracting oils and cannabinoids from cannabis, is likely to enjoy sales growth as increasingly more CBD is extracted from hemp plants.

The company recently reported great fiscal 2019 second-quarter results. Revenue soared to an all-time high of $35.2 million, up 240% year over year and 39% quarter over quarter. KushCo also increased its full-year revenue outlook. Like GTI, though, KushCo isn't profitable at this point. 

Better marijuana stock

Both of these U.S.-based marijuana stocks could be big winners over the long run. I think that KushCo gets the nod as the better pick, though.

KushCo's shares trade at a little over five times trailing-12-month sales. That's a bargain compared to GTI, which trades at a whopping 46 times sales. My view is that the future for KushCo is bright enough that it's only a matter of time before investors recognize that the stock is a diamond in the rough. 

Keith Speights has no position in any of the stocks mentioned. The Motley Fool recommends KushCo Holdings. The Motley Fool has a disclosure policy.

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