Making money should be easy if you "go green," according to Wall Street. But I'm not talking about renewable energy. Instead, I'm referring to one of the fastest-growing industries this decade: marijuana.
Although estimates vary, one fact that remains constant is cannabis growth is going to be rapid. Cannabis analytics firm New Frontier Data has predicted that legal weed sales in the U.S. will rise by an annualized 21% between 2019 and 2025, ultimately hitting $41.5 billion by mid-decade. Meanwhile, marijuana industry data source BDSA believes Canadian pot sales can more than double to north of $6 billion by 2026. All told, the North American cannabis scene could be generating over $50 billion a year by 2025. This is a figure that should rightly excite investors.
But among the dozens of marijuana stocks investors can choose to put their money to work in, five stand out to the professionals on Wall Street as having some of the most robust upside. If Wall Street's 12-month price targets prove accurate, these pot stocks offer upside ranging from 44% to as high as 70%.
Cresco Labs: Implied upside of 44%
U.S. multistate operator (MSO) Cresco Labs (CRLBF 4.20%) is arguably my favorite marijuana stock on the list. Based on Wall Street's consensus one-year price target, the company could offer as much as 44% upside.
What makes Cresco a unique cannabis play is that it's a dual threat. Like most MSOs, it has a burgeoning retail segment, with around two dozen operating locations at the moment. It also has two pending acquisitions that will move the needle of open locations to north of 30. Specifically, Cresco has maximized its number of retail locations in Illinois and Ohio, and will be entering Florida's lucrative medical marijuana market via the acquisition of Bluma Wellness.
The dual threat comes from Cresco's wholesale operations, which generated a slight majority of the company's revenue in 2020. Even though wholesale cannabis produces lower margins than retail cannabis, Cresco offers more than enough volume to make up for this margin difference. That's because it holds a highly lucrative cannabis distribution license in California, allowing it to place proprietary and third-party products into more than 575 dispensaries throughout the Golden State.
Trulieve Cannabis: Implied upside of 68%
If you want a pot stock with even more upside than Cresco Labs over the next 12 months, Wall Street would encourage you to take a closer look at U.S. MSO Trulieve Cannabis (TCNNF -0.21%). Analysts believe Trulieve could offer gains of up to 68% over the next year, based on its $41 closing price as of this past weekend.
The truly interesting thing about Trulieve's growth strategy is that it has focused most of its efforts on a single state: Florida. As of this past week, it has 84 dispensaries opened nationwide, 79 of which are in the Sunshine State. By saturating the Florida market, Trulieve has been able to effectively build up its brand and create a loyal following without breaking the bank on advertising and marketing. As a result, it's been profitable for three consecutive years.
According to the company, it controlled 53% of the state's dried cannabis flower market last year, along with 49% of its higher-margin cannabinoid oils.
Recently, Trulieve has begun dipping its toes into new or existing markets via acquisition (e.g., Pennsylvania, West Virginia, and Massachusetts). If its Florida blueprint can be implemented in additional states, the sky's the limit for this company.
Jushi Holdings: Implied upside of 48%
A small-cap marijuana stock that should have investors excited is U.S. MSO Jushi Holdings (JUSHF 4.93%). Wall Street professionals believe Jushi could get near $10 a share over the next 12 months, placing its upside at a cool 48%.
Jushi's claim to fame is the company's growth strategy, which has centered around three states: Pennsylvania, Illinois, and Virginia. This year, these three states are expected to account for 80% or more of the company's $205 million to $255 million in projected sales. Pennsylvania and Illinois are both limited license states, which means they limit the number of retail licenses they'll issue. As for Virginia, it assigns retail licenses by jurisdiction. Put another way, Jushi is focusing on states where competition will be reduced or nonexistent, which is a smart strategy for building up its brand and creating a loyal following.
Potentially the best thing about Jushi is the vested interest that management and insiders have in the company. Approximately $45 million of the first $250 million in capital raised by the company since inception came from executives and insiders. Generally, when insiders have a vested interest in the success of a company, shareholders tend to do well.
Harvest Health & Recreation: Implied upside of 70%
The marijuana stock sporting the most potential upside at the moment is U.S. MSO Harvest Health & Recreation (HRVSF). With a consensus price target above $5, Wall Street is looking for Harvest Health to gain as much as 70% over the next year.
Similar to its Canadian counterparts, Harvest Health got a bit too overzealous with its expansion plans and has had to scale back its spending to align its growth strategy with its pocketbook. Last year, the company divested retail assets in California, as well as retail and cultivation assets in Arkansas. It also announced a sale-leaseback agreement with Innovative Industrial Properties in January 2021 that netted $23.8 million up front. The point being that Harvest Health is tightening its focus and has, through a number of channels, boosted its cash position.
The real excitement for Harvest Health has to do with Arizona residents voting to legalize recreational marijuana this past November. After ending 2020 with 38 operating retail locations, 15 of these dispensaries were located in Harvest Health's home state of Arizona. With the Grand Canyon State expected to generate over $1 billion in annual weed sales by mid-decade, Harvest Health is in prime position to take advantage of its leading share in Arizona.
Green Thumb Industries: Implied upside of 62%
Last but not least is U.S. MSO Green Thumb Industries (GTBIF -0.38%). For those of you keeping score at home, you'll note that all of the pot stocks Wall Street expects to launch higher are U.S. MSOs. In Green Thumb's case, Wall Street is estimating a move higher to $45, which equates to a 62% gain over the next 12 months.
The company has 56 operating dispensaries and holds an additional 41 retail licenses in its back pocket. The 97 total stores it can operate across a dozen states make it one of the nation's largest MSOs and put it on track to hit more than $1 billion in full-year revenue next year.
What's notable about Green Thumb is the company's focus on states with billion-dollar annual sales potential. It has bought its way into Illinois, is ready to take advantage of New Jersey legalizing adult-use weed, and has a healthy presence in tourist-reliant Nevada, which should lead the country in cannabis spending per capita by 2024.
But the secret sauce for Green Thumb is that close to two-thirds of its sales are derived from high-margin derivatives, such as edibles, beverages, and vapes. By focusing on alternative consumption options that aren't nearly as prone to pricing pressures and oversupply as dried flower, Green Thumb should be able to turn the corner to recurring profitability in 2021.