In the still-nascent cannabis industry, a lack of cash flow for a company can often lead to a lot of frustration for investors. Cash-strapped businesses often issue shares just to help finance their operations, leaving existing shares worth less, and the stock price ends up falling. Sales growth and positive adjusted EBITDA can help a company attract attention, but if it's not generating positive cash flow from its operations, it may not be a great investment.
However, four cannabis producers are having no trouble producing cash flow: Curaleaf (CURLF 0.00%), Green Thumb Industries (GTBIF 0.18%), Trulieve Cannabis (TCNNF -1.76%), and Village Farms International (VFF -5.07%). Each has posted some great results over the past year, and they're among the safest pot stocks you can invest in today.
Investors undoubtedly love Curaleaf for the incredible growth numbers the company has been generating. In 2020, sales of $627 million were nearly triple the $221 million it reported in the previous year. Acquisitions and organic growth have been fueling the business, along with new opportunities opening up as a result of more states legalizing marijuana.
But what is also impressive is that Curaleaf is achieving this growth while also posting an adjusted EBITDA profit of $144 million and positive operating cash flow of $12 million. That isn't a boatload of cash, and the company may still need to issue shares to fund its aggressive growth strategy, but it will be a whole lot less than if it were bleeding money from its day-to-day operations. The strong numbers all around help explain how Curaleaf's stock has produced gains of 252% over the past year, which is well above the Horizons Marijuana Life Sciences ETF's returns of 84%.
2. Green Thumb
Green Thumb is focused more on consumer packaged goods, and that strategy has been working just fine for its business. Last year, sales of $557 million more than doubled the prior-year tally of $216 million. And although its 157% growth rate wasn't as impressive as Curaleaf's 184%, the company's operating cash flow of $96 million was much stronger. It even generated free cash flow of $36 million.
With such strong cash flow, Green Thumb is in a solid position to take on acquisitions and more expansion in the coming year without needing to dilute its shareholders. It has been busy expanding into multiple states, including New Jersey, which recently legalized recreational marijuana. Over the past 12 months, the stock has risen by 380%.
Trulieve has brought in even more cash from its day-to-day operations than Green Thumb, generating $100 million in cash last year. With investments in plants, property, and equipment totaling $141 million, its free cash remains negative. But the company has been putting that money to good use in expanding its operations. Its 75 stores as of the end of 2020 is a 70% increase from the 44 it had at the end of 2019.
Its sales of $522 million in 2020 doubled last year's total of $253 million. Its growth rate was the lowest (106%) of the three multistate operators on this list, but that could change in the coming years. The company has a footprint in six states (previously it was focused on just the Florida market) and has been eyeing a northeast market that now also includes New York, where pot will soon be available for recreational use. While Trulieve isn't in that state just yet, it may only be a matter of time before it makes the jump. Over the past year, Trulieve's stock is up around 340%.
4. Village Farms
While the previous three companies are all based in the U.S., Village Farms is that rare Canadian cannabis producer that generates positive cash flow. Given the competition in the fully legalized pot market, there is lots of pressure to keep prices down, which erodes profitability. However, the advantage Village Farms possesses over its peers is that it owns low-cost greenhouse Pure Sunfarms.
Although Village Farms' sales of $170 million increased by only 18% in 2020, its profits of nearly $12 million were more than five times the previous year's total. Its cash flow from operations totaled $6 million, which was a significant improvement from the $14 million it burned through in the previous year. (It was only in November 2020 that Village Farms acquired 100% ownership of Pure Sunfarms. Previously, Emerald Health also had a stake in the operations.)
As the company scales up its operations and benefits from having full ownership of Pure Sunfarms, look for this pot stock to continue to be one of the better-performing ones in Canada. In 12 months, its shares have climbed 235%.
Should you load up on all of these stocks?
While all these stocks have been posting impressive results of late, some are better buys than others. Here is how they compare with respect to future revenue estimates:
Village Farms provides the best bang for your buck of the stocks listed here, but unless you are particularly keen on the Canadian pot market, you're probably better off going with a U.S.-based marijuana company -- the growth opportunities are much more attractive in this market, which is still nowhere near reaching its full potential. And while all of the multistate operators here will continue to generate great growth numbers as more states legalize marijuana, Trulieve is the cheapest stock on the list and the one I'd go with today.