Please ensure Javascript is enabled for purposes of website accessibility

2 Soon-to-Be New Cannabis Stocks That Could Get Hot This Year

By David Jagielski - Jan 28, 2021 at 5:25AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Looking for the next big pot stock investment opportunity? Keep a close eye on these two.

Cannabis stocks have been hot in recent months, and as a result, the Horizons Marijuana Life Sciences ETF has nearly doubled since November. With a new president in charge in Washington and more states voting in favor of marijuana reforms, there's growing optimism that federal legalization may not be too far away. But all that optimism has made pot stocks more expensive for investors who still want to buy them.

For growth investors worried that it may be too late to invest in cannabis stocks, there are a couple of new issues that should hit the markets later this year: Weedmaps and Verano Holdings. Let's look at both companies and consider why they could be great investments once they go public.

Cannabis plant.

Image source: Getty Images.

What to expect from Weedmaps

WM Holding operates the popular online listing site Weedmaps, and last month, investors learned that it will go public via a merger with NASDAQ-based Silver Spike Acquisition Corp. The deal values Weedmaps at $1.5 billion.

Weedmaps helps consumers find places to buy cannabis and lets them review stores; it has more than 10 million monthly active users. It also sells cloud-based software to marijuana retailers that helps them manage their operations. For investors, it will present a great opportunity to diversify their cannabis industry holdings beyond companies that manufacture or sell pot and marijuana-derivative products.

Not only is Weedmaps a unique business in the space, but it will also offer a rare opportunity for investors to buy a U.S.-based pot stock that's traded on a big exchange like the NASDAQ. The company's shares can be listed there since Weedmaps isn't technically making or selling marijuana. Shares of big multistate operators like Curaleaf and Trulieve Cannabis trade on the over-the-counter (OTC) market and through the Canadian Securities Exchange (CSE), which has looser rules than the Toronto Stock Exchange and mainstream U.S. exchanges. Other exceptions to the rule include GrowGeneration, which provides tools for growing cannabis and other crops, and real estate investment trust (REIT) Innovative Industrial Properties, which leases properties to growers. They list on the NASDAQ and NYSE, respectively. By listing on a larger exchange, Weedmaps can reach more investors and bigger buyers who might avoid the OTC markets.

But that's not the only reason the stock might be a good buy. The company has projected 2020 revenue of $160 million, and it has remained profitable in each of the 12 years it has been in business. Over the past five years, its top line has grown at a compound annual rate of 40%. A profitable pot stock that's also growing revenues at a great rate is another rarity in the industry. I believe that Weedmaps could stand out from the pack.

The case for Verano Holdings

If you'd prefer to invest in a more standard, up-and-coming multistate operator, then Verano could be the more attractive option. Its valuation will be nearly $3 billion out of the gate, and like many of its peers, it will go public on the CSE through a reverse takeover of a shell company -- in this case, Majesta Minerals. For comparison, Trulieve's market capitalization today is about $4.7 billion while Curaleaf's is near $9 billion.

According to BNN Bloomberg, Verano estimated that its revenue for 2020 would come in as high as $380 million, which would be more than triple the $121 million it took in during the previous year. And amid all that incredible growth, it was also expecting its adjusted EBITDA to $160 million. Larger peers Trulieve and Curaleaf generated sales of $353.1 million and $396.4 million, respectively, in just their past three quarters. But if Verano hit its forecast for 2020 revenue, that would put its price-to-sales (P/S) multiple at around 7.4 when it first begins trading -- well below the more than 10 times sales that both Curaleaf and Trulieve trade at today.

And given Verano's aggressive growth, its sales numbers could quickly soar beyond that. In November, the company announced plans to merge with Alternative Medical Enterprises. This would expand its presence from 12 states to 14, including Florida, where it will battle with Curaleaf and Trulieve for market share.

For growth investors looking for hot new stocks to buy that are still relatively cheap and have plenty of potential, Verano could be worth considering. It expects to complete the transaction that takes it public within the first quarter of 2021.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Curaleaf Holdings, Inc. Stock Quote
Curaleaf Holdings, Inc.
$5.18 (1.37%) $0.07
Horizons Marijuana Life Sciences Index ETF Stock Quote
Horizons Marijuana Life Sciences Index ETF
$3.02 (4.40%) $0.13
Innovative Industrial Properties Stock Quote
Innovative Industrial Properties
$119.33 (4.94%) $5.62
Trulieve Cannabis Stock Quote
Trulieve Cannabis
$13.02 (1.09%) $0.14
GrowGeneration Corp. Stock Quote
GrowGeneration Corp.
$4.18 (1.21%) $0.05
Silver Spike Acquisition Corp. Stock Quote
Silver Spike Acquisition Corp.

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.