Tech stocks might be all the rage on Wall Street, but it's cannabis that could be this decade's most promising growth story.
According to a recent report from New Frontier Data, legal weed sales in the U.S. could jump more than threefold between 2019 and 2025 to $41.5 billion. Meanwhile, in 2019, New Frontier Data also estimated that Canadian weed sales would more than double to $4.6 billion by 2024.
North America is going green at a rapid pace, and marijuana stocks will need plenty of their own green (i.e., cash) to take advantage of this growing demand. The following five marijuana stocks entered 2021 with the most cash on their balance sheets, based on their most recent quarterly filing.
Canopy Growth: $1.37 billion
It probably comes as little surprise that the largest pot stock in the world, Canopy Growth (CGC -2.06%), is once again the cannabis cash king.
The bulk of Canopy's cash came from multiple rounds of equity investments from spirits giant Constellation Brands (STZ -1.15%). Constellation initially invested about $190 million in October 2017 before really sinking its teeth in during the following year with a roughly $4 billion investment. At the moment, it owns a little over 38% of Canopy's outstanding shares.
While $1.37 billion in cash might sound fantastic, this is actually down by more than $2 billion since November 2018, which is when the large equity investment from Constellation Brands closed. Canopy's aggressive acquisition strategy, coupled with the previous management team turning a blind eye to the company's bottom-line results, led to a persistent cash outflow.
David Klein, the former Constellation Brands CFO and current Canopy Growth CEO, has been doing everything he can to rein in costs over the past year. For instance, Klein oversaw the closure of 3 million square feet of indoor cultivating capacity in British Columbia to cut costs. Unfortunately, Canopy Growth is still losing a lot of money, meaning its cash-rich position isn't as secure as you might think.
Cronos Group: $1.3 billion
Canadian licensed producer Cronos Group (CRON -1.76%) is the second-most cash-rich pot stock. Like Canopy Growth, its cash value ($1.3 billion) is down from the previous year.
Cronos only had about $20 million in cash on its balance sheet prior to closing a $1.8 billion equity investment from tobacco behemoth Altria Group (MO -0.31%) in March 2019. This deal gave Altria a 45% stake in Cronos.
The expectation has always been that Altria would offer its development, marketing, and distribution expertise to aid Cronos in developing high-margin vape products and other cannabis derivatives. The problem is that Canadian regulators didn't OK the sale of derivative products until mid-December 2019. Plus, the rollout of these products has been marred by supply bottlenecks, often at the provincial level. As a result, Cronos has produced little in sales and burned through some of its cash on hand.
Likewise, the $300 million purchase of the Lord Jones cannabidiol-based beauty brand ($225 million of which was paid in cash) hasn't yet paid commensurate dividends for Cronos. This is yet another cash-rich cannabis stock that's far from a safe bet.
GW Pharmaceuticals: $480 million
The executives at GW Pharmaceuticals (GWPH) hate being lumped in with the highly volatile pot industry, but that's what you get for focusing on developing cannabinoid-based treatments.
GW Pharmaceuticals ended the third quarter with a hearty $480 million in cash on its balance sheet. Seeing large cash piles for biotech and pharmaceutical companies isn't anything new. Drug developers need plenty of cash to take into account the clinical, preclinical, and discovery-based costs that go into developing a drug. Plus, not every treatment being researched is going to be a success. Having plenty of capital is a must for a company like GW Pharmaceuticals.
The good news is that it appears ready to turn the corner to profitability in 2021. Lead drug Epidiolex has delivered higher sales as a treatment for two rare forms of childhood-onset epilepsy. It was also granted a label expansion last year to also include tuberous sclerosis complex. Epidiolex is expected to push the company's sales north of $500 million in 2020 (Q4 sales figures haven't been reported yet), and closer to $750 million in the current year.
Aphria: $315 million
This figure sort of comes with an asterisk as Canadian licensed producers Aphria (APHA) and Tilray (TLRY) announced their intention to merge in mid-December. This reverse merger will lead to Aphria's shareholders owning 62% of the company. More importantly, it will bolster the duo's combined cash total to around $456 million. Aphria ended its most recent quarter with $315 million in its coffers.
Both companies note that this combination will create the largest global marijuana company by trailing-12-month sales. The thing is, Aphria generates quite a bit of revenue from its pharmaceutical distribution subsidiary, CC Pharma. In the fiscal first quarter of 2021, $64.7 million of its $114.7 million in sales were from low-margin distribution revenue. It's something to keep in mind as investors analyze this merger and the lofty sales figures being tossed around.
However, combing Aphria and Tilray does create the undisputed leader in Canadian adult-use weed sales ($232 million over the trailing-12-month period). Considering Tilray's ongoing operating losses and cash concerns, this was a much-needed deal. Now, Aphria shareholders have to hope that management can quickly realize cost synergies and capitalize on their combined adult-use market share.
Trulieve Cannabis: $193 million
Finally, there's U.S. multistate operator Trulieve Cannabis (TCNNF -2.51%), which chimes in with $193 million in cash on its balance sheet.
Although Trulieve Cannabis has offered stock to raise capital, it's currently the most nominally profitable pot stock, and is generating the most robust cash flow of any pure-play company. Over the trailing 12 months, Trulieve has generated almost $81 million in operating cash flow. With the company raking in the dough, cash is no longer a huge concern.
Trulieve's secret to success is its willingness to stay laser-focused on one state: Florida. It has 75 operational dispensaries in total, 70 of which are located in the Sunshine State. Such incredible saturation has allowed the company to effectively build up its brand without spending a lot on marketing expenses. According to Trulieve, it holds roughly half of Florida's medical marijuana market share.
With pro-legalization groups targeting 2022 for possible recreational legalization in Florida, Trulieve's piece of the pie in the Sunshine State could grow even larger.