Few industries offer long-term growth potential like the cannabis industry. U.S. and Canadian pot stocks are on very different paths in terms of performance and potential, however.
A recent report from cannabis-focused analytics company New Frontier Data projects that legalized pot sales in the U.S. can more than triple from $13.2 billion in 2019 to $41.5 billion by 2025. That's a 21% compound annual growth rate, for those of you keeping score at home. Even if marijuana were to remain illicit at the federal level, state-level legalizations and organic growth opportunities provide more than enough potential to generate some serious green for investors.
The best marijuana stocks to buy in 2021 to take advantage of this growth all focus on the U.S. cannabis market.
Green Thumb Industries
First up is vertically integrated multistate operator (MSO) Green Thumb Industries (GTBIF 1.13%). Green Thumb has 50 operational dispensaries at the moment, but holds 96 licenses in a dozen states. This places the company in the top three among publicly traded MSOs, based on licenses.
Green Thumb is notable for its location selectivity and product mix. As for the former, Green Thumb has focused its attention on states that offer billion-dollar annual sales potential by mid-decade. In particular, it's bought its way into both Illinois and Nevada. Illinois is a limited license state, affording Green Thumb plenty of opportunity to pick up market share. Meanwhile, Nevada's tourist-reliant industry is expected to lead the nation in per-capita cannabis spending by 2024.
In terms of product mix, Green Thumb has focused heavily on selling derivatives, a category that includes edibles, vapes, concentrates, topicals, and infused beverages. It's easy to oversupply and commoditize dried cannabis flower, so generating two-thirds of its revenue from derivatives has helped pump up the company's margins and push it toward recurring profitability faster than its peers.
Green Thumb should be second to only Curaleaf in surpassing $1 billion in annual sales. It shouldn't have any trouble turning the corner to recurring profitability in 2021.
The marijuana stock with the highest potential upside in 2021 might be small-cap MSO Jushi Holdings (JUSHF -5.32%). Jushi has 13 operational dispensaries at the moment. It holds licenses to open over two dozen locations in about a half-dozen states.
Jushi plans to focus on building up its presence in limited license states. These are states that either limit the total number of retail licenses they'll issue, or assign licenses based on a territory or county. The lion's share of Jushi's anticipated 2021 revenue will come from Pennsylvania, Virginia, and Illinois -- all limited license states. This selective placement should help Jushi avoid competition while building up its brand.
Jushi is also unique in that its insiders and executives put their own money on the line to grow the business. According to a recent investor presentation, $45 million of the roughly $250 million in capital raised since inception has come from insiders and executives. Insiders having skin in the game is usually a big positive for investors.
In 2021, Jushi should generate positive earnings before interest, taxes, depreciation, and amortization (EBITDA) as it looks to nearly triple its year-over-year sales.
Don't forget the ancillary players. Despite its huge run-up in 2020, hydroponic and organic gardening solutions retail chain GrowGeneration (GRWG -0.84%) looks poised to have another excellent year.
As state-level legalizations continue and legal pot revenue soars, more producers will enter the industry to get their piece of what might be a $75 billion annual U.S. sales pie by 2030. GrowGeneration provides everything large and small cultivators need to improve yield and protect their crop from a host of threats. GrowGen, as the company is known, had 36 stores in 11 states as of mid-November. It has plans to increase its retail footprint to 50 stores in 15 states by the end of 2021.
In each of the past seven quarters, year-over-year sales growth has tallied between 123% and 199%. Further, online sales are growing by a low triple-digit percentage, with same-store sales growth from locations open in Q3 2019 jumping by 73% in the latest quarter. This growth isn't just acquisition-based. GrowGen is seeing a significant uptick in sales from newly acquired and existing locations.
Still, acquisitions have played a key role in GrowGeneration's expansion. The company has made about a dozen purchases since 2014 -- the latest of which (The GrowBiz) added five new locations on the West Coast.
Look for GrowGen to once again trounce Wall Street's sales expectations in the upcoming year.
Last but not least, U.S. MSO Cresco Labs (CRLBF -9.09%) has all the makings of a top marijuana stock in 2021.
The Cresco growth story boils down to two catalysts. The first stems from the company's small but rapidly growing retail operations. Cresco has a presence in nine states and holds 29 total dispensaries. At the moment, it has 19 operational locations, roughly half of which are in Illinois. As noted, the Land of Lincoln is a limited license state. Cresco should have no trouble gobbling up share in a market that looks on track to top $1 billion in annual sales by or before 2024.
The other big catalyst is Cresco's mammoth wholesale segment. In January 2020, Cresco closed on its all-stock acquisition of Origin House. Origin was one of a select few companies that held a cannabis distribution license in the lucrative California market. Once this deal closed, it allowed Cresco Labs to place pot products into more than 575 dispensaries throughout the Golden State. As California continues to plow through red tape and open more dispensaries, the wholesale opportunity for Cresco should grow considerably.
Cresco Labs, like Green Thumb, seems like it will turn the corner to recurring profitability in 2021. It may have a shot at topping $1 billion in annual sales by 2022. It's one of the strongest MSOs investors can buy right now.