When it comes to investing, patience is key -- even when you're investing in a quickly evolving industry like marijuana.
There are three cannabis companies in particular that I think are worth buying and holding for the long haul. Massachusetts-based Curaleaf Holdings (CURLF 7.38%) and Chicago-based Cresco Labs (CRLBF 2.76%) have shown solid performance over the past few quarters, with robust triple-digit revenue growth and consistent positive EBITDA (earnings before income, tax, depreciation, and amortization). Both have laid a strong foundation in the U.S. cannabis market, and their recent quarterly results are proof that they could be the stars of your portfolio years down the road. I also have faith that Canada-based Canopy Growth will soon become a market leader; though it's not profitable yet, the company is on the right path.
Let's take a look at their progress so far and determine why these pot stocks could make you rich 10 years down the line.
1. Cresco Labs ended 2020 on a high note
Cresco Labs' results for the fourth quarter (ended Dec. 31) came in better than ever. Its total revenue jumped a whopping 292% year over year to $162.3 million. Expansion in Illinois and Pennsylvania along with strong sequential same-store growth contributed to the revenue surge. The company also saw another quarter of positive adjusted EBITDA, net of biological assets of $50 million, which was much higher than $2.8 million in the year-ago quarter. The EBITDA growth shows how far the company has come in managing its costs. Cresco ended its quarter with cash and cash equivalents of $136.3 million, working capital of $167.1 million, and total debt net of issuance costs of $184.5 million.
It was wise of Cresco to direct its resources toward its home state of Illinois, where revenue performance was strong. Cresco's Sunnyside retail platform generated average revenue per store of $3.6 million in the quarter, according to the management. The company opened one more store in Illinois in December, bringing the total number of Sunnyside stores there to 10.
Illinois has seen outstanding sales since it legalized recreational marijuana on Jan. 1, 2020. Total cannabis sales in 2020 touched $1 billion, and 2021's prospects look even better. In the first two months of the year, total sales have already reached $170 million, suggesting that major opportunities still lie ahead for Cresco in the state.
2. Curaleaf's consistent performance is impressive
Curaleaf also had an excellent fourth quarter (ended Dec. 31), with revenue up 205% year over year to $230 million, thanks largely to expansion -- the company now operates 101 stores in 23 states. This has helped its retail revenue to jump 242% in Q4 versus the year-ago period, to $165 million. Wholesale revenue also saw a dramatic 578% increase year over year to $64.4 million.
The company is gearing up for a stronger 2021, and has so far opened five new stores (in Florida, Pennsylvania, and Maine) just three months into the year.
Its smart and timely acquisitions of Grassroots, Curaleaf NJ, Arrow, and Maine Organic Therapy in 2020 have also helped grow its revenue and produce consistent positive EBITDA of $54 million, compared to $14 million in Q4 2019. EBITDA measures a company's profit before any deduction of expenses, determining operating performance. Net income ("real profits"), meanwhile, represents the total earnings of the company after those deductions, including income, tax, depreciation, and amortization. Curaleaf ended the quarter with $73.5 million of cash on hand and $291.5 million of outstanding debt, net of unamortized debt discounts. With growing revenue, consistent EBITDA, and wise growth strategies, it won't be too long before Curaleaf starts making those real profits.
3. Canopy Growth is making all efforts to thrive in the cannabis space
Canopy might not have seen revenue growth like its U.S. counterparts, but it is steadily expanding. Canopy also holds an advantage over its peers: the backing of a strong partner. It entered into a partnership with U.S. beverage giant Constellation Brands (STZ -0.14%) in October 2017, wherein the latter invested $245 million Canadian into Canopy. In Canopy's third quarter of fiscal 2021 (ended Dec. 31), its net revenue surged 23% from the year-ago period to CA$153 million. Furthermore, its cost-reduction efforts under new CEO David Klein also helped manage its operating expenses, meaning lower EBITDA losses, which came in at CA$68 million compared to CA$97 million in Q3 2020.
Canopy Growth has been very innovative with its derivatives products (edibles, vapes, and other items that Canada legalized as part of "Cannabis 2.0" in October 2019), especially with cannabis beverages. Despite the pandemic, it has launched a wide array of derivatives, and its beverages in particular have been popular in Canada. Meanwhile, it adopted a different strategy for the U.S. market, launching low-calorie, low-THC (tetrahydrocannabinol, the psychoactive compound found in cannabis) beverages with its partner Acreage Holdings. (Canopy agreed to purchase U.S.-based hemp company Acreage in April 2019, but that deal will only close if the U.S. federally legalizes marijuana.)
These are the three pot stocks you shouldn't ignore
Across the U.S., ever-increasing demand for cannabis is driving state-by-state legalization. After the November 2020 elections, a few more states got added to the legal list, and just over the past couple of weeks, even more -- including Virginia and New York -- have also been working on their own cannabis legislation.
Strong cannabis companies like these three will now have a chance to expand their footing in the U.S. markets. 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.
This presents enormous potential not only for U.S. cannabis companies but also for their Canadian counterparts, once federal legalization happens. If you believe in the sector's potential and can buy and hold for 10 years, these are some of the best marijuana picks for you.