Over the past few years, the cannabis industry has been growing at an exponential rate. According to Grand View Research, the legal marijuana market is anticipated to reach $73.6 billion by 2027 from $17.7 billion in 2019, marking a compound annual growth rate (CAGR) of more than 18%.
It hasn't been an entirely smooth ride -- federal legalization issues in the U.S., oversupply and lack of demand in Canada, and other headwinds have dragged on many pot stocks in recent months. But sales are up significantly amid the COVID-19 pandemic, with cannabis declared an "essential item" and many people stockpiling it to relieve anxiety (and boredom).
As of 2019, the medical marijuana segment held the most market share at 71%, but recreational use is rising, with four more U.S. states voting to legalize adult cannabis use this month. Companies such as GrowGeneration (GRWG +3.15%), Truelieve Cannabis (TRUL +5.18%), and Curaleaf Holdings (CURLF +6.75%) have all contributed to this exploding industry, and all three are growing like weeds (sorry). Here's how and why they might fit into your portfolio.
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1. GrowGeneration
One of the fastest-growing pot stocks in North America, GrowGeneration (GRWG +3.15%), does not produce cannabis. The company instead provides hydroponics, soil, nutrients, grow lights, grow tents, and other products that assist with marijuana growth -- and that means it doesn't have to worry about pot being federally illegal. This is a marijuana-focused company without a marijuana segment.
The coronavirus pandemic has allowed GrowGeneration to demonstrate its stability even during unprecedented times. The company reported impressive results Nov. 11 for its third quarter ending Sept. 30, showing a 153% year-over-year revenue increase to $55 million and positive adjusted earnings before interest, taxation, depreciation, and amortization (EBITDA) of $6.6 million. It was the 11th quarter in a row of record revenue numbers. In revenue projections for 2021, management anticipates $280 million to $300 million in sales and an adjusted EBITDA of $34 million to $36 million. With 31 store locations in 11 states, the company is in a great position to continue generating strong sales in the future.
GrowGeneration has also made several acquisitions lately to expand its bandwidth. On Oct. 20, the company acquired Michigan-based gardening center Big Green Tomato. It also acquired Phoenix-based Hydroponics Depot in October, and this month bought The GrowBiz, the nation's third-largest chain of hydroponic garden centers. From a growth perspective, GrowGeneration has a bright future, especially given its healthy sales and acquisitions even during a global pandemic.
2. Trulieve Cannabis Corp.
A dominant player in its home state of Florida, Trulieve Cannabis (TRUL +5.18%) has demonstrated strategic growth in California and Connecticut as well. By the end of June, the marijuana producer had 57 stores nationwide; management anticipates entering the Massachusetts market in 2021, which will help with its goal of attaining a total of 68 stores.
In its results for the second quarter, released Aug. 12, Trulieve showed dazzling revenue growth of 109% year over year, to $120.8 million, and positive EBITDA of $60.5 million, representing the 10th straight quarter of consecutive growth and profitability. It also has a strong financial position, with more than $150 million in cash and cash equivalents as of the end of June.
There is some risk attached to this company, in part because it works solely in the medical marijuana market. But if and when widespread legalization of any sort happens in the U.S., Trulieve could be much bigger in the future thanks to its strong financial position and expansion strategy.
3. Curaleaf Holdings
As the fastest-growing U.S.-based pot stock with a market cap of $5.7 billion and counting, multistate operator Curaleaf Holdings (CURLF +6.75%) recently garnered investor attention with its revenue growth. During its second quarter, which ended June 30, Curaleaf reported an incredible 142% year-over-year (and 22% sequential) revenue increase, to $117.5 million, and a positive adjusted EBITDA of $28 million.
Curaleaf currently owns 95 dispensaries across 23 states and distributes its products to over 1,150 stores. It has market share in states including New York, Pennsylvania, New Jersey, Florida, Arizona, Massachusetts, and Illinois. And management has a smart acquisition strategy -- Curaleaf's purchase of Grassroots this year created the world's largest cannabis company by revenue in the United States.
The move expanded Curaleaf's reach from 18 states to 23 and brought in a total of 135 dispensary licenses, 22 cultivation sites, 88 dispensary locations, and 30 processing facilities. Curaleaf also completed the acquisition of medical marijuana dispensary Alternative Therapies Groups (ATG) on Nov. 3, adding 53,600 square feet of capacity to bring its cultivation capacity in Massachusetts to 157,600 square feet.
As new store openings continue, Curaleaf sales are expected to explode. We will know more about its growth initiative in third-quarter results, set to be released this week. In the meantime, Curaleaf investors should expect positive results.
Why not pick all three?
Curaleaf and GrowGeneration are better growth picks because of their revenue growth and smart expansion strategies. However, investors looking for multiple ways to play the marijuana sector may want to consider Trulieve as well. That company's local focus and smart management make it a worthy pick for those interested in the medical marijuana space.
