Anyone following marijuana stocks hears about the big Canadian players a lot. But don't overlook the U.S.-based companies. And some of them are pulling in a lot more revenue than their counterparts across the border.
Cresco Labs (CRLBF -5.34%) and Green Thumb Industries (GTBIF -5.60%) rank among the biggest U.S.-based cannabis operators. Both companies have strong growth prospects, but which is the better marijuana stock right now? Here's how Cresco and GTI compare.
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The case for Cresco Labs
Cresco Labs currently operates in six states. It has 23 production facilities and runs 29 retail cannabis stores. But those numbers will soon increase significantly.
The company is expanding into Massachusetts, Michigan, and New York. It already owns 56 retail cannabis licenses, with the pending acquisition of Tryke boosting the count to 62 plus adding two production facilities. Cresco also awaits the closing of its acquisition of Origin House, a deal that will give it a big advantage in the important California marijuana market.
It's not that Cresco absolutely needs acquisitions to fuel growth, though. The company posted sales of $36.2 million in the third quarter, a year-over-year jump of 184% and a quarter-over-quarter increase of 21%. Cresco's growth opportunities continue to look very good, especially with the legal recreational marijuana market opening in the company's home state of Illinois in less than a month.
There's a decent argument that Cresco even qualifies as a value stock right now. Shares trade at 35 times expected earnings, which doesn't scream bargain buy. But the company's earnings should grow tremendously with the growth of cannabis markets in key states including California, Nevada, Illinois, and Michigan.
What are the downsides for Cresco? The company still isn't profitable. Its aggressive expansion strategy requires capital, and that has translated into dilutive stock offerings -- including a recently announced at-the-market offering.
The case for Green Thumb Industries
Green Thumb Industries boasts an even greater footprint than Cresco Labs. It currently operates in eight states. The company has 34 retail cannabis stores open with plans to boost that number to close to 40 by the end of 2019.
Acquisitions have played a key role in GTI's expansion strategy. The company recently acquired two medical cannabis dispensary operators, New York-based Fiorello Pharmaceuticals and Connecticut-based Bluepoint Wellness. GTI also entered the big California retail marijuana market and expanded its presence in Nevada through its acquisition of Integral Associates.
GTI posted blowout third-quarter results in November. Revenue skyrocketed 296% year over year and 52% quarter over quarter to $68 million, thanks in part to the Integral Associates buyout. The company, like Cresco Labs, is based in Illinois and expects to enjoy a big sales boost next year with the launch of the state's recreational marijuana market.
It's hard to call Green Thumb Industries a bargain at its current valuation. Shares trade at nearly 82 times expected earnings. However, the company's growth should soar over the next few years. GTI's market cap of under $2 billion makes the stock more attractively valued than many pot stocks.
The primary drawback to investing in GTI is that the company continues to lose money, posting a Q3 net loss of $17.1 million. However, the good news is that GTI's bottom line is trending in the right direction.
The better marijuana stock
If I could only choose one of these two U.S. pot stocks, it would be Cresco Labs. I think it should deliver stronger revenue growth than GTI thanks largely to the Origin House and Tryke acquisitions. Cresco also has a significantly lower valuation.
However, my view is that both Cresco and Green Thumb Industries are better picks than most Canadian marijuana stocks. Both of these companies have better near-term growth opportunities, are in stronger financial positions, and claim more attractive valuations than Aurora Cannabis and many of its peers.
