The next decade could have investors seeing green -- and I'm not just talking about money.
Quietly, the North American cannabis industry is growing into a giant. According to a forecast from New Frontier Data, U.S. weed sales are expected to grow by 21% annually between 2019 and 2025. This growth rate works out to a doubling in total sales every 3.4 years, and should result in $41.5 billion in annual sales by mid-decade.
Meanwhile, the Canadian pot industry is finally maturing. After more than two years, supply chain issues are abating as key provinces open new dispensaries. Cannabis analytics company BDSA expects Canadian marijuana sales to jump from $2.6 billion in 2020 to $6.4 billion by 2026.
The industry is ripe for investment, but only a handful of cannabis stocks have the long-term potential to make investors marijuana millionaires. If you're looking to get rich from cannabis, here are the three pot stocks to buy.
The marijuana stock I'm most convinced will make long-term investors millionaires is U.S. multistate operator (MSO) Cresco Labs (CRLBF -5.31%). Cresco has a two-pronged growth strategy that I believe will be wildly successful.
To begin with, Cresco has its retail operations. It ended 2020 with 19 operating locations, but recently closed a deal where it acquired four Ohio dispensaries, and has two additional acquisitions pending. In short, Cresco's roughly two dozen open dispensaries today should soon be north of 30.
What's interesting about Cresco's retail focus is that it's chosen a number of markets where retail license issuance is limited (e.g., Illinois and Ohio). By maximizing its retail presence in Illinois and Ohio, Cresco is marginalizing some of its competition, but still staying focused on states that offer billion-dollar annual sales potential.
The even bigger star for Cresco Labs is its industry-leading wholesale segment. Even though wholesale cannabis produces lower operating margins than retail, the company has more than enough wholesale volume for lower margins to be easily overlooked. That's because it holds a highly coveted cannabis distribution license in the most lucrative marijuana market in the world: California. Being able to place proprietary and third-party pot products into more than 575 dispensaries throughout the Golden State should allow Cresco to sustain one of the highest growth rates within the pot industry over the next five years.
This is a company that should turn to the corner to recurring profitability this year, yet is valued at less than three times Wall Street's projected sales. That's far too inexpensive for the premier wholesale cannabis company.
While I feel most confident in Cresco, the cannabis stock that offers the highest potential ceiling is small-cap MSO Jushi Holdings (JUSHF -1.82%). If things go very right, it could be a 10-bagger this decade.
What stands out about Jushi is the way it approaches its expansion. Despite having a presence in around a half dozen states, three of those states are expected to account for 80% or more of the company's 2021 sales: Pennsylvania (where it has 11 of its 17 open locations), Illinois, and Virginia. The former two states are limited license issuers, with Virginia doling out licenses based on jurisdiction. In other words, Jushi has really minimized or completely eliminated its competition in a handful of markets that offer billion-dollar annual sales potential. This will allow the company to effectively build up its brand awareness and create a loyal following of consumers.
Despite its small size, Jushi hasn't been shy about leaning on acquisitions to expand its reach. Since the year began, the company completed its purchase of medical marijuana dispensary permit holder Agape Total Health Care in Pennsylvania, along with a dispensary in Palm Springs, California. After multiple rounds of capital raises, Jushi is flush with cash and shouldn't have any issue expanding in its core states.
Also noteworthy is that Jushi's executives and insiders have regularly taken part in these capital raises. Approximately $45 million of the first $250 million raised came from insiders. When the interests of executives and insiders align with common shareholders, good things historically happen.
Investors can currently scoop up Jushi for about 3.5 times this year's forecasted sales. But if Wall Street's estimates prove accurate, Jushi's revenue could grow by more than 150% between 2021 and 2023. That would make it a screaming buy.
Green Thumb Industries
The third marijuana stock that can make patient investors millionaires is U.S. MSO Green Thumb Industries (GTBIF -5.18%). If you're catching the theme here, it's that U.S. MSOs are going to run circles around all other potential cannabis plays.
Similar to Cresco and Jushi, investors are going to appreciate Green Thumb's selectivity when it comes to the states it chooses to operate in. However, it's not focusing just on limited licenses states. Instead, it's all about the Benjamins. Of the dozen states Green Thumb has a presence in, the vast majority should be generating more than $1 billion in annual weed revenue by 2024. This company is chasing the green, and it has more than enough capital to do so.
This brings me to the next point: Green Thumb loves to buy its way into lucrative markets. Acquisitions opened the door for Green Thumb to enter Illinois and Nevada. The adult-use legal Silver State is a particularly interesting case. Because Nevada's cannabis industry is so tourist-reliant, it should lead the nation in per-capita cannabis spending by mid-decade.
But what should make Green Thumb an ongoing winner is its product mix. Approximately two-thirds of the company's revenue comes from derivatives (e.g., edibles, vapes, concentrates, oils, topicals, and infused beverages). Derivatives generate much better margins than dried flower, they tend to speak to a younger generation of users, and they're less likely to be affected by oversupply.
With Green Thumb expected to hit $1 billion in annual sales in 2022, it projects as one of the nation's largest retail operators.