You might not know it by looking at the poor performance of most cannabis stocks over the past 17 months, but marijuana is projected to be one of the fastest-growing industries this decade. With tens of billions of dollars in North American pot sales conducted in the black market each year, Canada's legalization of adult-use weed in Oct. 2018 and a steady stream of state-level legalizations in the U.S. has rolled out the green carpet for illicit users to become legal-channel consumers.
This exceptional growth potential is what's encouraged investors to pile into the most prominent cannabis stocks. I'm talking about Canopy Growth and Aurora Cannabis in Canada and U.S. multistate operators (MSOs) like Curaleaf, Green Thumb Industries, Cresco Labs, and Trulieve Cannabis.
But the thing is, most marijuana stock investors know or follow these companies. If you want truly exciting pot stocks that aren't yet on many investors' radars, then take a gander at these three cannabis companies.
If you're torn between investing in the U.S. or Canadian market, TerrAscend (TRSSF 3.31%) is the pot stock you'll want to pay close attention to. That's because it has a presence in both Canada's retail and medical weed market and acts as an MSO in three U.S. states (Pennsylvania, New Jersey, and California).
Within the U.S., TerrAscend's focus is on limited license markets, like Pennsylvania and New Jersey, as well as high-dollar markets, such as California. The Golden State is the largest pot market in the world by annual sales. TerrAscend currently operates four stores but has a license for a fifth, all of which are located in the high-income San Francisco Bay area. TerrAscend's products can be found in more than 90 dispensaries throughout California.
Including New Jersey and Pennsylvania, TerrAscend has seven open dispensaries in the U.S. but outlined plans in its most recent investor presentation to open two dispensaries each quarter, through the first quarter of 2021.
TerrAscend's success also derives from its role in selling high-margin derivatives. The company's Funky Farms and Original Hemp brands can be found in more than 10,000 stores throughout the U.S. and include a variety of tinctures, edibles, vapes, and gel caps. Since derivative products boast higher price points, they'll play a key role in the company's push toward profitability.
Speaking of that push, TerrAscend has delivered two-consecutive quarters of positive earnings before interest, taxes, depreciation, and amortization (EBITDA), with the company actually generating about 4 million Canadian dollars in operating income, before taking fair-value adjustments and other income/expenses into account, in the second quarter. In other words, TerrAscend is creeping up on recurring profitability, which means investors should be paying close attention.
Another MSO that's flying under the radar of most pot stock investors is Florida-headquartered Jushi Holdings (JUSHF -2.98%). With a $228 million market cap, Jushi is bordering on microcap territory and is therefore going to be overlooked by lots of investors. That could be a mistake.
Similar to TerrAscend, Jushi is a big fan of targeting limited-license markets. By focusing on states that allow for limited competition (i.e., competitive advantages), MSOs like Jushi will be able to keep their marketing and build-out costs reasonably low while ensuring a steady stream of growth and demand. In particular, Jushi's focus is on Pennsylvania, Illinois, and Virginia.
Following the company's acquisition of an 80% stake in Agape Total Health Care in June, Jushi can now open as many as 15 retail locations in Pennsylvania. That's great news, considering it reported organic same-store sales growth of 50% in the Keystone State from the sequential first quarter.
Organic same-store sales grew an even more robust 330% in the company's two open Illinois locations from the sequential quarter. By 2024, Illinois is expected to be generating north of $1 billion in annual weed sales per year. Jushi has the ability to double its retail locations in the Land of Lincoln to four.
As of July, the company had an annual run rate of $89 million in sales but has forecast $200 million to $250 million in full-year revenue for 2021. Part of this will come from new stores being opened, and some will be the result of the company's aforementioned rapid organic growth. More important, Jushi expects to be generating positive adjusted EBITDA by the fourth quarter of 2020.
As one added note, Jushi is well-capitalized, and its executives have played a role in securing the company's financial foundation by putting up some of their own money in previous rounds of financing. Generally speaking, companies with executives who have serious skin in the game are businesses you'll want to follow.
Planet 13 Holdings
A final exciting overlooked pot stock that you're going to want to get on your radar is U.S. MSO Planet 13 Holdings (PLNH.F 2.27%).
Planet 13 is definitely a bit different than the highly followed and even under-the-radar MSOs I've listed above. Instead of targeting as many states as possible, Planet 13 is all about the "wow" factor. That's because its only open dispensary right now is the 112,000-square-foot SuperStore located west of the Las Vegas Strip.
For some context here, the average Walmart is only 105,000 square feet. Inside the company's SuperStore, you'll find a consumer-facing processing center, an events stage, a restaurant, and plenty of square footage devoted to the broadest selection of dried flower, derivatives, and paraphernalia that you'll ever see.
I actually visited the SuperStore in April 2019, well before any of its ancillary ventures (the processing center and restaurant) were complete. What really stood out was both the store layout and the focus on convenience. Planet 13 offers personal budtenders to aid consumers with their purchases, but also has self-pay kiosks located in high-traffic areas (e.g., the dried cannabis display case) to expedite sales for return customers. In terms of layout, the highest-margin derivatives are conveniently placed near the front of the store and by the registers.
While there's no question that the pandemic clobbered Planet 13 and its tourist-heavy business model for a few months, the company's focus on deliveries to locals has added a new growth element that didn't exist before.
Planet 13 is also planning to open its second megadispensary in Santa Ana, Calif., with 40,000 square feet, later this year. The company is hoping to replicate its success in Las Vegas and become the must-see cannabis destination in the most lucrative weed market in the world. It's absolutely a pot stock you'll want to monitor very closely.