Canadian cannabis producers receive a lot more publicity than U.S. cannabis companies do. But even though marijuana remains illegal at the federal level in the U.S., companies operating in the states are generating a lot more revenue than most of their Canadian peers.
Cresco Labs (CRLBF -4.11%) and Green Thumb Industries (GTBIF -1.37%) rank as two of the most successful U.S. cannabis companies. Which of these two marijuana stocks is the better pick for long-term investors? Here's how Cresco and GTI stack up against each other.
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The case for Cresco Labs
Cresco Labs is one of the largest multistate cannabis companies. It was founded in 2013 in Chicago, Illinois, and now operates 18 production facilities with 1.2 million square feet of total cultivation space.
The company continues to deliver impressive growth. In the third quarter, Cresco's sales skyrocketed 181% year over year and 21% quarter over quarter to $36.2 million. It should report annual revenue of more than $120 million for 2019. Although Cresco isn't consistently profitable at this point, it's regularly generating positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).
Look for more strong growth in the future. Cresco has operations in eight states and should soon add another three states to that total. These states represent 41% of the U.S. population and 63% of the country's estimated addressable cannabis market. And several of these markets are only in their early stages, notably including Cresco's home state of Illinois.
Cresco recently completed its acquisition of Origin House in what the company called a "transformational" deal. The addition of Origin House instantly makes Cresco one of the top distributors of cannabis products in California, the biggest cannabis market in the United States. The company's pending acquisition of Tryke will position it as a key player in the fast-growing cannabis markets in Nevada and Arizona.
The company's market cap currently stands at a little over $2 billion. With the U.S. cannabis market projected to reach $80 billion by 2030 and Cresco in a strong position to extend its national presence, the stock appears to have plenty of room to run.
The case for Green Thumb Industries
Green Thumb Industries has a lot in common with Cresco Labs. Like Cresco, the company is headquartered in Chicago. Also like Cresco, GTI is one of the biggest multi-state vertically integrated cannabis companies.
One key differentiator for GTI is its operational footprint. The company currently operates in 12 states with a combined population of 151 million. It has 13 production facilities and 41 retail stores.
GTI's revenue soared 296% year over year and 52% quarter over quarter in Q3 to $68 million. These results were boosted by the company's acquisition of Integral Associates, a deal that added three Las Vegas retail cannabis stores plus eight additional retail licenses in Nevada.
The company's growth opportunities are similar to Cresco's. GTI should see especially strong sales growth in 2020 in the Illinois and Nevada recreational marijuana markets. It's also competitive in Florida's medical cannabis market. An important growth driver for the company is in opening new retail stores: GTI currently has 55 retail licenses in addition to its existing stores.
Like Cresco, GTI isn't profitable yet but is generating positive EBITDA. With the U.S. cannabis market continuing to expand rapidly, GTI could deliver strong long-term returns.
Better marijuana stock
My view is that both Cresco and Green Thumb Industries offer interesting opportunities to profit from the U.S. marijuana boom. However, I think that Cresco is the better pick.
There are risks for any marijuana stock, though. One key risk for Cresco is that a future presidential administration could legalize marijuana at the federal level but do so with onerous restrictions on multi-state operators. The company's lack of profitability could also cause it to have to issue more shares in the future, resulting in the dilution in the value of existing shares.
However, I think that the completed acquisition of Origin House and the pending acquisition of Tryke make Cresco a formidable player in the U.S. cannabis industry. My view is that Cresco's valuation is attractive in light of the tremendous growth prospects for the company.
