Investing in rapidly growing industries is a no-brainer. And if technology stocks aren't your thing, don't worry: There's a (more laid back) alternative. Over the next decade, Cowen Equity Research estimates that the market for cannabis products will grow at a compound annual rate of approximately 20%. That's significantly faster growth than the entire tobacco market, not to mention the markets for other leisure products like liquor, beer, and wine.
Even amid the ongoing green gold rush, picking the right stocks in the marijuana industry is a bit of a challenge. Many companies aren't profitable, and quite a few shareholders have lost their shirts when nonexistent earnings have given way to crumbling stock prices. Thankfully, as the industry has started to mature, investors now have a few good options to choose from, so let's dive in and take a look at three of the leaders.
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1. Curaleaf
Curaleaf Holdings (CURLF 4.67%) is currently the largest cannabis company in the U.S. by revenue, with $238.8 million in pro forma sales during the fourth quarter of 2020. It's also one of the fastest-growing companies in the industry, with its latest update reporting year-over-year revenue increasing by 161% and its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rising by 456%. In short, Curaleaf is selling cannabis like gangbusters, and it's becoming significantly more efficient at doing so as time goes by.
Accomplishing this feat takes (at least) three ingredients. First, it conducted eight acquisitions in 2020, giving it a presence in 23 states. At least four of these states already have medicinal marijuana laws that the company expects to give way to full legalization for adult use in the near future, allowing it to compete in both markets. Second, it massively scaled up its number of cultivation sites, doubled the number of cannabis processing sites, and nearly doubled its retail footprint. Finally, Curaleaf is pursuing a vertically integrated model, so it doesn't fall victim to erratic earnings caused by fluctuations in the price of cannabis like many of its competitors.
In other words, Curaleaf is worth buying right now because its growth is on a roll, and management has taken prudent steps to ensure that it can continue to grow over the next few years.
2. Trulieve
Trulieve Cannabis (TCNNF 1.41%) is significantly smaller than Curaleaf, and it only operates in six states, with the majority of its locations concentrated in Florida, where it is the medicinal marijuana market leader. There, it controls a whopping 50% of the market, and management has its eye on Massachusetts, Connecticut, and California next. While its fourth-quarter results are forthcoming, its quarterly revenue grew by more than 90% over the course of 2020.
One of Trulieve's best qualities is that customers seem to love it; management estimates a retention rate of 79%. Plus, customers seem to be spending more and more with the company each year that passes. When paired with its enduring profitability and ongoing expansion to new markets, shareholders will have quite a few potential catalysts for their investment to grow over the next few years.
3. Green Thumb Industries
Like Trulieve, Green Thumb Industries (GTBIF 1.28%) is a Canadian marijuana business with operations that are confined to the U.S. In terms of its differentiating characteristics, in my view, Green Thumb's most notable is its substantial commitment to corporate social justice. Between its cannabis clemency initiatives and a veritable smorgasbord of community outreach activities, it's clear that management wants the company to be a force for good.
That doesn't mean that investors need to settle for lower returns, however. Per its latest earnings report, Green Thumb's quarterly revenue ballooned 133.8% year over year to reach a total of $556.6 million in 2020, and its adjusted EBITDA exploded by 374% in the same period. Furthermore, the company has now been cash flow positive from its operations for four consecutive quarters, meaning that investors can have a measure of confidence that the trend of increasing financial strength is genuine.
Right now, the company is active in 12 states. Its efforts are focused on Illinois, which just approved adult-use cannabis sales as of 2020, and Pennsylvania. Moving forward, it will break into the cannabis beverage segment in these markets in an attempt to carve out a share that its less-nimble competitors can't touch. As CEO Ben Kovler recently said, "the real fun is just beginning" for Green Thumb.
