It wasn't all that long ago that billion-dollar U.S. cannabis companies were rarer than four-leaf clovers stuck on the horns of unicorns. That's changed. Cresco Labs (CRLBF 0.81%) and Trulieve Cannabis (TCNNF -0.83%) are now among several U.S. cannabis companies that sport market caps of $1 billion or more.
Trulieve ranks as one of the top-performing marijuana stocks of 2020 so far. On the other hand, Cresco's shares remain in negative territory year to date. But which of these stocks is the better pick for long-term investors?
The case for Cresco Labs
Cresco Labs ranks as one of the biggest vertically integrated multi-state cannabis operators in the U.S. It's also the largest branded cannabis-products wholesaler in the country. Cresco currently operates 19 retail locations in nine states.
The company's business is absolutely booming. In the second quarter, Cresco reported revenue of $94.3 million, up 42% from the previous quarter. It generated quarter-over-quarter sales growth of at least 30% in every state where it operated, except in Massachusetts. And that sole exception stemmed from the state temporarily halting sales of recreational marijuana.
Can Cresco keep up the momentum? It seems likely. Most of the company's retail growth in Q2 came from increased sales at its existing stores. Cresco holds licenses to open another 10 retail locations and is also increasing wholesale market penetration in California, home to the biggest legal marijuana market in the country.
Look for Cresco to expand its operations into additional states over time. The company doesn't have a presence yet in 24 states where cannabis is legal in some form. Even more states could legalize either medical or recreational cannabis in the November elections.
The main knock against Cresco right now is that it's not yet profitable. However, the cannabis operator's bottom line is trending in the right direction. Cresco also generated positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in Q2 of $16.5 million, more than five times the result in the previous quarter.
The case for Trulieve
Trulieve operates 61 retail cannabis stores. Fifty-nine of them are in the company's home state of Florida, with a couple of other stores in California and Connecticut.
The company delivered another record performance in the second quarter. Trulieve reported revenue of $120.8 million, a 26% quarter-over-quarter jump. It continued to dominate the medical cannabis market in Florida with a 50% market share.
Trulieve's goal is to open at least another nine stores in Florida by the end of 2020. It has also expanded into four additional states, most recently signing deals to acquire two cannabis operators in Pennsylvania.
Massachusetts presents another growth opportunity for the company. Trulieve's acquisition of Life Essence gives it provisional licenses to build and operate three medical cannabis dispensaries plus three recreational marijuana retail locations. The legal cannabis market in the state is expected to top $1.2 billion by 2022.
Unlike Cresco Labs, Trulieve is already profitable. The company posted net income of $6.6 million in Q2 with adjusted EBITDA of $60.5 million. Trulieve expects to generate revenue of between $465 million and $485 million this year with adjusted EBITDA of between $205 million and $225 million.
Better marijuana stock?
I think that both of these stocks should be winners over the next few years. Trulieve definitely claims a stronger financial position right now and should continue to grow. But if I could only pick one, Cresco would get the nod.
That choice might seem strange, considering that Cresco isn't profitable yet while Trulieve is. However, while Trulieve is the 800-pound gorilla in Florida, the company will likely find it harder to compete in other states. And its growth in Florida will probably slow as it saturates the market with retail stores.
I think that Cresco's solid presence in nine states (several of which have early-stage fast-growing cannabis markets) sets it up for a better growth trajectory.