In the next few years, sector players are predicting that the U.S. marijuana market could expand at an astonishing rate of 20% per year to over $100 billion, a staggering increase from a size of roughly $13 billion in 2019. So far, 15 states and the District of Columbia have legalized recreational cannabis and 36 and D.C. permit medical marijuana. The green wave sweeping the nation shows no sign of subsiding; Federal decriminalization of marijuana may be on the table for the new Biden administration.
Significant opportunities lie ahead for pot growers domesticated in the U.S. and foreign distributers that hope to expand across the nation. Let's look at three of the top growers to buy now.
CBD oil and cannabis seeds. Image source: Getty Images.
1. Curaleaf
Curaleaf Holdings (CURLF -5.94%) is the nation's largest marijuana grower, with a wide selection of products including cannabidiol (CBD) offerings, pre-rolls, oil extracts, and edibles. Its earnings report for the third quarter, which ended Sept. 30, showed revenue growth of 164% year over year to $193.2 million. And its EBITDA operating income increased more than threefold versus the year-ago quarter, to $42.3 million. Curaleaf also expanded its operations into Ohio, Illinois, and Pennsylvania. The pot grower now has a presence in 23 states and runs close to 100 dispensaries.
As with all growth stocks, Curaleaf shares do not come cheap. The company trades at a pricey premium of 11.6 times sales and 4.9 times book value, compared to an industry average of 7.8 times revenue and 5.4 times net assets. But a company that can more than double its revenue each year is well worth the price. And there may even be more upside than that for the stock, as suggested in this look at its latest earnings.
2. Green Thumb Industries
Another very successful U.S. marijuana grower, Green Thumb Industries (GTBIF -5.60%) was founded in 2014 and is now on track to generate over $500 million in sales in 2020. That's a significant gain from the approximately $200 million it won in 2019.
What's surprising about Green Thumb's success is that it is generating such robust financial results on just six consumer brands. Its competitor Canopy Growth (CGC -3.01%), for example, generates less revenue than Green Thumb while relying on 10 brands. Green Thumb's dried flowers, vapes, edibles, pre-rolls, and concentrates are sold in 49 dispensaries in 12 states covering 45% of Americans.
Of the three companies here, Green Thumb is the only one that's profitable. Right now, it trades for 8.7 times sales and 4.6 times book value, indicating more bang for your buck versus Curaleaf.
3. Aurora Cannabis
Aurora Cannabis (ACB -6.81%), one of Canada's biggest pot growers, is also making its first expansion into the U.S. market. This May, Aurora closed its $40 million acquisition of hemp CBD company Reliva. However, that's all it has to show for its future in the U.S. right now, as the company is still heavily focused on Canadian operations.
Right now, Aurora has a lot of production capacity but sees very little demand. It sells about 16,000 kilograms of cannabis per quarter but can produce up to 100,000 kilograms each year from its flagship Aurora Sky facility alone.
In fact, Aurora wrote down over CA$1 billion ($767 million) in assets this year as it closed down many of its plants and laid off more than 500 employees. During the first quarter of 2021, revenue declined from CA$75.25 million last year to CA$67.8 million.
It has one last shot at returning to growth, and that's if it can export some of its excess capacity to meet the growing demand for recreational weed in the U.S. market. That is, assuming the U.S. one day federally legalizes of cannabis. That reality is probably unlikely in the short term, even under a new Biden administration.
Aurora stock offers the best value of these three, trading at just 4.7 times revenue and 1 times book value. Marijuana investors looking for cheap pot growers that could really turn around thanks to new legalization trends in the U.S. should consider Aurora. However, new investors should beware that the company will not be able to export its products to the U.S. until the drug is legalized at the federal level.
