Throughout 2017, 2018, and the first quarter of 2019, there wasn't a hotter industry on Wall Street than cannabis. With the North American black market selling tens of billions of dollars of weed annually, the expected legalization of pot in select U.S. states and Canada sent marijuana stock valuations through the roof.

However, promises can only take stock valuations so far. Inevitable growing pains struck the marijuana industry beginning in April 2019 and sent pot stocks tumbling. These issues have included supply bottlenecks, high tax rates on legal product, and a lack of traditional financing options.

But amid the chaos, and even an unprecedented pandemic, three pot stocks are showing Wall Street that they could be long-term weed winners. Last week, all three lifted the hood on absolutely stellar second-quarter operating results.

A jar packed with dried cannabis that's seated atop a fanned pile of twenty dollar bills.

Image source: Getty Images.

Trulieve Cannabis

Perhaps it's no surprise that the most profitable marijuana stock in North America on a nominal basis, Trulieve Cannabis (TCNNF -2.03%), once again smoked investor expectations.

When the curtain closed on June, Trulieve had brought in $120.8 million in net sales, representing a 109% improvement from the prior-year period. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rose 92% to $60.5 million, with net income of $6.6 million ($0.06 per share).

Since fair-value adjustments and one-time benefits can lead to wild swings in the company's bottom-line profit, I believe it's also worth mentioning that operating income, sans adjustments, was a hearty $54.3 million. That's up from an operating income (without fair-value adjustments) of $20.9 million in the prior-year period. This figure more accurately tells the tale of how dominant Trulieve was in Q2.

The company's success continues to be based on its laser focus of the Florida market. Trulieve recently opened its 57th total dispensary, 55 of which are located in the Sunshine State. By keeping its costs close to home (in a literal sense) and targeting Florida's medical marijuana industry, Trulieve has been able to successfully build up its brand, all while keeping marketing costs reasonably low. This has allowed the company to gobble up roughly half of Florida's medical cannabis market share.

What's more, Trulieve Cannabis increased both its revenue and adjusted EBITDA outlook for 2020. Previously, the company had offered a full-year sales and adjusted EBITDA midpoints of $390 million and $150 million, respectively. Trulieve now anticipates a midpoint of $475 million in sales and $215 million in adjusted EBITDA. 

This company is absolutely firing on all cylinders. The only question at this point is if its operating blueprint can be replicated in states outside of Florida.

An indoor hydroponic-based cannabis grow farm.

Image source: Getty Images.


Another pot stock that completely obliterated expectations (and was greatly rewarded for it) is GrowGeneration (GRWG 0.42%). GrowGeneration is an ancillary player that has 28 open retail locations in 10 states, providing hydroponic growing equipment, as well as lighting, nutrient, and soil solutions for cultivators.

Despite the unprecedented disruption brought about by the coronavirus disease 2019 (COVID-19) pandemic, GrowGen delivered its 10th straight quarter of record sales, with revenue up 123% from the prior-year period to $43.5 million. Same-store sales -- i.e., a comparison of sales growth for locations that were open in the year-ago period -- rose by 49%, with online sales surging 149% from the previous year. Similar to Trulieve, GrowGen increased in full-year sales guidance to a new range of $170 million to $175 million, up from a prior forecast of $135 million to $140 million, which was established in mid-May.

As for its bottom line, GrowGen produced $2.6 million in net income, which more than doubled the $1.1 million in net income from the prior-year period.

Pretty much everything is working right now for GrowGeneration. More states are legalizing cannabis and consumer demand has been ticking higher with people being stuck at home due to the pandemic. As businesses scale their operations, they'll be looking for ways to improve operating efficiency, which is where GrowGen and its arsenal of indoor cultivation supplies will come in handy. By the end of next year, GrowGeneration expects to have 50 open stores in 15 states.

With the company setting an early expectation of 46% sales growth in 2021 (at the midpoint), it's a name you're going to want to have on your radar moving forward. 

A large cannabis dispensary sign in front of a retail store.

Image source: Getty Images.

Green Thumb Industries

A third cannabis stock that blew past Wall Street's expectations is U.S. multistate operator Green Thumb Industries (GTBIF 1.52%).

By quarter's end, Green Thumb had produced $119.6 million in sales, representing a 168% increase from the prior-year period, with same-store sales growth of 75%, based on the 16 stores it had been operating at this time last year. For context, Green Thumb has 48 operational dispensaries in nine states, but holds 96 total licenses in a dozen states.

Although the company's loss actually grew to $12.9 million from the sequential first quarter, it's worth noting that operating income nearly doubled to $14.1 million in Q2 2020 from $7.6 million in Q1 2020, with adjusted EBITDA surging roughly 39%.

What's particularly interesting is CEO Ben Kovler's explanation of the company's success. "Demand is strong as cannabis continues to behave like a consumer staple," said Kovler. This is a powerful statement that demonstrates the highly recession-resistant nature of cannabis.

Beyond marijuana being recession resistant, Green Thumb is thriving because of its access to rapidly growing markets like Illinois and Nevada, as well as its focus on higher-margin derivatives, such as edibles, vapes, and infused beverages. A majority of Green Thumb's revenue is derived from these high-margin products.

Though Green Thumb didn't provide a full-year 2020 or 2021 outlook, the company's press release does note that sales in July rose to $94 million, a 22% increase from the sequential month of June. It would certainly appear that recurring profitability isn't too far off.