Marijuana is one of the fastest-growing industries on the planet right now, with sales of $12.2 billion in 2018 that are forecast grow by four to six times by 2029/2030, depending on the source of the estimate. That's a double-digit compounded growth rate over the next decade, which builds on the double-digit sales growth rate we've witnessed for much of this decade from cannabis.
But what you might find surprising is that, despite premium valuations throughout much of the industry on the heels of this rapid growth rate, marijuana value stocks do exist. There are three pot stocks right now -- all of which are small caps (i.e., under $2 billion market cap) -- that have a lower forward price-to-earnings ratio than the broad-based S&P 500, which was 17.26 as of Friday, June 14, according to data from The Wall Street Journal. That's saying something given the exceptionally high growth rate of cannabis stock compared to the broader market.
If you've been eyeing marijuana stocks, but consider yourself more of a value investor, here are three companies to consider buying.
Image source: Getty Images.
Charlotte's Web
Within the cannabis movement, there's probably nothing hotter right now than cannabidiol (CBD)-based products. Unlike tetrahydrocannabinol (THC), the cannabinoid that gets users high, CBD is a nonpsychoactive cannabinoid that's touted for its perceived medical benefits. It can be extracted from cannabis plants or, in many cases, can be extracted from low-cost hemp production, which is exactly what Charlotte's Web (CWBHF 1.30%) has been doing.
Charlotte's Web currently has the largest piece of hemp-derived CBD market share in the United States, albeit competition is picking up as every company wants their share of a pie that could be worth as much as $22 billion in the U.S. by 2022. Having ended 2018 with its products in nearly 3,700 retail doors, Charlotte's Web finished March with its CBD-based topicals, capsules, and oils in over 6,000 retail locations. Aside from the growing acceptance of CBD in the U.S., expansion has been aided by the passage of the farm bill in December, which legalized industrial hemp production and hemp-derived derivatives, such as CBD.
In the company's most recently quarterly report, management announced its intentions to more than double its hemp planting and extraction from 300 acres a year to 700 acres in order to meet growing product demand. This certainly helps explain why Wall Street projects the company will nearly double sales in 2019 and grow revenue by another 135% in 2020.
Right now, Charlotte's Web has a forward P/E of just under 15, yet full-year sales could more than quadruple between 2018 and 2020. That's what we call an amazing value.
Image source: Planet 13.
Planet 13
Although it's easily the smallest pot stock on this list, specialty dispensary operator Planet 13 (PLNH.F) packs quite the value punch.
Whereas most U.S. multistate operators are attempting to open as many retail locations, cultivation farms, and processing facilities, as possible in the United States, Planet 13 has taken a different approach. It's angling to be the go-to cannabis experience in the United States.
The company's flagship SuperStore just off the Strip in Las Vegas, Nevada, currently spans 16,200 square feet, but will hit 112,000 square feet once expansion is complete. The third quarter should feature the opening of a coffee shop, pizzeria bistro, events center, and consumer-facing processing center with around a dozen windows. Since opening its doors at the beginning of November, the number of visitor per day has come close to doubling (1,848 in November versus 3,439 in May), with the average ticket rising by nearly $11 to $90.63 in May.
Having visited Planet 13's SuperStore in April, I saw firsthand the incredible work that's gone into the shopping experience. Most notable is the inclusion of technology in the SuperStore. A handful of self-checkout kiosks help to expedite the shopping experience for regular cannabis users (although consumers will still have to wait for a budtender to grab and package their product).
With Planet 13 announcing plans to expand into Southern California with a 40,000-square-foot store that's just 10 minutes driving distance from Disneyland, the company's sales should begin to rise rapidly in the months to come. Perhaps, then, it's no surprise that Planet 13's forward price-to-earnings ratio is less than 17, making it a deep discount in the cannabis industry.
Image source: Getty Images.
Trulieve Cannabis
However, there is no deeper discount in the marijuana industry than multistate dispensary store operator Trulieve Cannabis (TCNNF -3.22%).
Trulieve has licenses in four states, but has remained laser-focused on its home market of Florida. Of its 30 currently open dispensaries, 28 of them are located in the Sunshine State, where medical marijuana is legal. By centralizing its efforts on its home turf, Trulieve has been able to take the market share lead in the potentially billion-dollar Florida cannabis market, as well as keep its costs down.
Of course, Trulieve does expect to build its brand in markets outside of Florida. Acquisitions give Trulieve the ability to grow in Massachusetts, Connecticut, and California – the latter of which projects at the largest marijuana market in the U.S. (and world), with up to $11 billion in annual sales expected by 2030. Even with the higher costs of building its brand outside of Florida, its success in the Sunshine State should easily keep Trulieve Cannabis profitable.
According to robust growth estimates from the company following its most recent quarter, full-year sales should more than double to a range of $220 million to $240 million in 2019 from $102.8 million last year, and then hit up to $400 million in 2020. This forecast is a big reason Wall Street's consensus profit projections for next year have been on the rise.
With a forward price-to-earnings ratio of 11.7, Trulieve is the perfect example of value existing within the marijuana space.
