All eyes are on marijuana stocks in 2021. Ongoing activity in the cannabis space is drawing more attention from investors who are looking for some growth stocks to put their money in for the long haul. The mega-merger between two Canadian companies Tilray and Aphria hyped up the sector. But I want to shift your attention from the merger to the U.S. cannabis industry, which is outperforming its Canadian counterpart.
My favorites are these two growth pot stocks that have been shining for a while now. Massachusetts-based Curaleaf Holdings (CURLF 0.66%) and Chicago-based Cresco Labs (CRLBF 4.04%) have shown solid revenue growth and consistent positive EBITDA and have a strong footing in the U.S. cannabis market. Cresco Labs is even profitable.
Over the past 12 months, Curaleaf stock has gained almost 366% while Cresco stock has gained 493%, wildly outperforming the S&P 500, which is up by 66% over the same period.
Both the companies' recent quarterly results show how their growth strategies could make them leaders in the cannabis space. Let's take a look at why they are promising cannabis picks.
Image source: Getty Images.
Curaleaf Holdings' revenue growth is unstoppable
Curaleaf has been consistently performing well over the last few quarters. And that performance continued in its fiscal 2020 fourth quarter (ended Dec. 31, 2020). The company saw a revenue jump of 205% year over year to $230 million.
The thing to applaud is the rate at which the company is expanding. So far this year it has opened five new stores in Florida, Pennsylvania, and Maine. At the start of 2020, it had only 54 dispensaries across 17 U.S. states; now it has 101 stores in 23 states. It has come a long way, which has allowed its retail revenue to jump 242% to $165 million in Q4 versus the year-ago period.
Wholesale revenue also saw a whopping 578% increase year over year to $64.4 million. Its smart and timely acquisitions in 2020, like Grassroots, Curaleaf NJ, Arrow, and Maine Organic Therapy, have been a driving factor for revenue.
The staggering top-line growth pushed positive adjusted EBITDA to $54 million from $14 million in Q4 2019. With growing revenue and consistent EBITDA, Curaleaf is not far away from making profits.
Cresco Labs is a profitable marijuana company
In terms of revenue growth, Cresco Labs has also made some drastic progress. In its recent third quarter ended Sept. 30, its top line jumped by 323% year over year, from $36.2 million to $153.2 million. Its revenue comprises two segments -- wholesale contributed 59% of the total and retail added the rest. Its retail revenue includes both medical and recreational sales in the U.S. and nicotine vape sales from Canada.
Not only is its revenue growth eye-catching, but it is also a profitable marijuana company. The top-line growth invited another quarter of positive adjusted EBITDA, which bounced to $52 million from $11 million in the year-ago period. Managing costs effectively also added to consistent EBITDA. The company lowered its selling, general, and administrative (SG&A) expenses to 30% of total revenue from 70% from the year-ago period. These factors led to it gaining a net income of $4.9 million in Q3.
Cresco has a market presence in nine U.S. states, holding licenses for 15 production facilities and 29 retail outlets. Cresco took advantage of the sizzling new marijuana market in its home state of Illinois and opened two new stores that led to higher retail revenue. Illinois legalized recreational marijuana Jan. 1 last year and sales across the state have been sky-high since -- with total legal sales touching $1 billion last year.
Image source: Getty Images.
The U.S. cannabis industry is a catalyst for these pot stocks
When you invest in a mature industry, there is hardly any room for growth. But marijuana is a nascent and quickly evolving industry. Stocks for Curaleaf and Cresco have surged 36% and 33%, respectively, so far this year. That compares to industry benchmark fund Horizons Marijuana Life Sciences ETF's gain of 36% over the same period.
Interestingly, these two have performed outstandingly well even in a limited legal cannabis market in the U.S. So imagine the growth when the legal market expands to more states. After the November elections, five more U.S. states legalized their respective cannabis programs, bringing the total medical cannabis states to 35 and recreational cannabis states to 15. Furthermore, chances are Virginia, New Jersey, and New Mexico could soon follow suit.
Now, picture the growth when federal legalization happens, the prospects of which look good. The illegality status of the drug restricts banks and financial institutions from providing financial help. So federal legalization will clear the biggest hurdle for U.S. cannabis companies, which is access to capital. The U.S. legal cannabis industry is poised to grow at a compound annual growth rate (CAGR) of 21%, resulting in a value of more than $41 billion by 2025.
A chance to take
The good thing is financially both of these companies are stable enough to make further expansions. Cresco ended the third quarter with $58 million in cash and cash equivalents and no debt. Meanwhile, Curaleaf had $73.5 million of cash on hand and $291.5 million of outstanding debt, net of unamortized debt discounts.
Data by YCharts.
Investing is more or less like planting a seed. You invest in a growing sector and then wait for your investment to bear fruit. Patience is the key here! If you are bullish on the marijuana industry and trust the sector's potential, then these two marijuana growth stocks are your best bets.
