Take the guesswork out of investing in a cannabis company by sinking your cash into stocks that are already ahead of the pack. Trulieve Cannabis (TCNNF -1.54%), Verano Holdings (VRNO.F -0.89%), and Green Thumb Industries (GTBIF -0.33%) are multistate operators that are already profitable, and just becoming more so. All three had quarterly sales of $120 million or more and quarterly earnings of $45.5 million or more.
The first three months of the year haven't been kind to cannabis stocks, and shares of Trulieve and Verano are down so far this year. That might discourage some investors, but if you're looking for likely growth with companies capable of outlasting others, these three are good bets.
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1. Trulieve is making a major move
Trulieve was already the biggest cannabis company in Florida, and with one quick move last week, it became the largest cannabis company in the United States by revenue. The megadeal was its $2.1 billion purchase of Phoenix-based Harvest Health and Recreation (CNSX:HARV) (HRVSF), which leads in Arizona with 15 dispensaries.
Trulieve has been profitable for 13 consecutive quarters. In the first quarter, it reported record revenue of $193.8 million, up 15% over the fourth quarter of 2020 and up 102% year over year. It had net income of $30.1 million, adjusted EBITDA of $90.8 million, and an awesome gross margin of 70%.
The deal with Harvest Health makes Trulieve a national player. Of the company's 83 dispensaries, all but five are in Florida. The addition of Harvest Health gives Trulieve an estimated annual revenue of $1.2 billion and exposure to a budding marijuana market; recreational sales began in Arizona in February. In the first quarter, Harvest reported $88.8 million in revenue with adjusted EBITDA of $26.9 million. The combined company will have 126 dispensaries in 11 states and will be the market leader in Arizona and Florida.
2. Verano Holdings has seen explosive growth
Verano Holdings only went public on the Canadian Securities Exchange (CSE) in February, but the company is already becoming a big multistate operator. It has licenses in 14 states and active operations in 11, with 77 retail outlets and 85 total planned by the end of the year.
The company is coming off a strong first quarter in which it reported revenue of $143 million, up 117% year over year, with a gross profit margin of 62% and net income of $126 million. The company is in a good cash position with $112 million, nearly four times the amount of the company's debt of $34 million.
While Trulieve is clearly the dominant cannabis company in Florida, Chicago-based Verano also has a strong footprint there, with 32 medical-use dispensaries and eight more planned by the end of 2021. It's also making a big push in Pennsylvania, with 10 medical-use dispensaries and eight more planned, and in Illinois, where it has five dispensaries that are used for medical and adult-use marijuana and an additional five adult-use dispensaries. The company also has multiple dispensaries in Arizona, Ohio, Maryland, Massachusetts, Nevada, and New Jersey.
It's funny how much things can change. In March of 2019, Verano was a takeover target of Arizona-based Harvest Health, but the $850 million deal fell through last March. Instead, Harvest Health itself was bought out by Trulieve, while Verano Holdings has grown with its own recent acquisitions. It bought Arizona cannabis companies Territory, Emerald, and Local Joint, making it the third-largest cannabis company in the state. It also just added six dispensaries in Pennsylvania, thanks to its purchase of TerraVida, with three dispensaries in the Philadelphia area, and The Healing Center, with three dispensaries in Pittsburgh.
3. Green Thumb Industries branches out
Green Thumb, based in Chicago, operates in 12 markets and is drawing impressive revenue from all of them. The company's stock is up more than 17% this year and more than 206% over the past 12 months. The company just had its third consecutive profitable quarter, with $10.4 million in net income. Revenue was a reported $194.4 million, up 9.7% over the prior quarter and 89.5% year over year. More impressively, the company saw gross profit of $110.9 million or 57% of revenue, compared to $53.0 million or 51.6% of revenue for the same period in 2020.
Green Thumb, like the two prior companies, has focused on growth. It has 13 manufacturing facilities and licenses for 97 retail locations, though only 56 are operational at this point, up from 42 last year.
The company is poised to do well in the lucrative Northeast market. It has two dispensaries in New Jersey. In New York, it has three stores and a fourth on the way, and it is one of only 10 companies with licenses as that state opens to adult-use sales. Its strongest presence outside of Illinois is in Pennsylvania, where it has eight locations.
Just before the end of the quarter, the company bought its way into its 13th market, Virginia, by purchasing Dharma Pharmaceuticals. This gives it one of five vertical licenses in the state, including a production facility and one retail store, with the option to open up five more stores in Virginia. The state currently allows only medical-use marijuana, but has approved adult-use sales starting in 2024.
The numbers make the choice simpler
In marijuana investing, bigger isn't always better, but I believe Trulieve has set itself up for growth that it can handle. It already dominates Florida, and now it is poised to do the same in Arizona. On top of that, Trulieve's gross margin of 70% shows how profitable the company is becoming, and adding Harvest gives it that much more scale.
In the same vein, I like Green Thumb because of its own gross profit margin of 55% and its emphasis on the Northeast, where I think there's a lot of potential growth in the next few years as states there, like New York and New Jersey, open up to adult-use marijuana.
Verano also has a nice gross profit margin at 62%. It may be the best bet of the three for long-term growth and it certainly is an up-and-coming multistate operator, but the relative newness of the company as a public stock makes me more comfortable with the other two picks for the time being.
