There are a number of high-growth industries that could make investors rich over the remainder of the decade, such as cloud-computing, cybersecurity, and artificial intelligence. But the industry that could literally and figuratively show investors the most green might well be cannabis.
Although sales estimates remain fluid, New Frontier Data is looking for U.S. weed revenue to grow by 21% annually through mid-decade. This would place U.S. pot sales at $41.5 billion by 2025. Meanwhile, cannabis analytics company BDSA forecasts Canadian marijuana sales of $6.4 billion by 2026, which would more than double the $2.6 billion in legalized weed revenue recognized in 2020.
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The U.S. cannabis industry is where you'll find blazing-hot growth
However, the North American pot industry has become bifurcated over time. Even though Canada has fully legalized recreational marijuana, regulatory issues have hampered industry growth since sales commenced in October 2018. Federal and provincial regulators have caused supply chain bottlenecks by delaying or slowing the retail and cultivation licensing process. Canadian pot stocks also haven't helped their cause by overextending on the capacity front and grossly overpaying for acquisitions. In other words, the Canadian pot scene has been a disaster, and it isn't clear when things will get better.
On the other hand, the U.S. cannabis industry has been firing on all cylinders, even without any federal reforms. That's because 36 states have legalized medical marijuana, 18 of which have also passed legislation allowing for the consumption and/or retail sale of pot. As long as the federal government allows states to regulate their own cannabis industries, federal reform isn't mandatory for the industry to thrive.
To sum things up succinctly, the U.S. cannabis market, and U.S. marijuana stocks, are where investors will want to put their money to work for the foreseeable future.
This past week, I took the plunge and purchased my first U.S. pot stock, which I believe is the biggest bargain in the entire industry.
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Sometimes, great stocks come in small packages
After proclaiming it one of the best marijuana stocks for 2021, I finally opened a position in small-cap multistate operator (MSO) Jushi Holdings (JUSHF 3.34%) on Tuesday, Aug. 3.
Why didn't I buy earlier? The best answer I can offer is The Motley Fool's transparent disclosure policy. I simply couldn't go long enough without heaping praise on Jushi Holdings in my weekly articles to add it to my own portfolio. But after sitting on my hands for roughly two weeks -- a task easier said than done -- I was able to finally take the plunge.
For the time being, Jushi is a relative small fry in the MSO space. It recently opened its 20th dispensary, 13 of which are located in Pennsylvania. Based on the company's pre-announced second-quarter operating results and management commentary, the expectation is it'll open seven additional Hello/Beyond retail locations in 2021, as well as gain two more dispensaries via acquisition.
For some context here, Green Thumb Industries (GTBIF 1.28%), Columbia Care (CCHWF +16.40%), Trulieve Cannabis (TCNNF 1.41%), and Curaleaf (CURLF 4.67%) respectively have 60, 95, 96, and 108 operating dispensaries nationwide. Note, the Columbia Care figure is based on pro forma data (i.e., assuming all pending acquisitions close).
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What makes Jushi so special is the trio of states that'll likely comprise over 80% of its revenue this year: Pennsylvania, Illinois, and Virginia. What these states share in common is their limited license issuance, with regard to cultivation and retail licenses. Pennsylvania and Illinois both cap the number of allowable dispensaries, as well as the number of stores a single business can operate. Meanwhile, Virginia assigns dispensary licenses based on jurisdiction. The point is that these states are purposely reining in competition. Though that might sound bad on the surface, it's actually great news for Jushi. By limiting competition, it should be able to effectively build up its brand awareness and garner a loyal following without being steamrolled by a larger MSO.
Despite is diminutive stature (a market cap of just $816 million), Jushi hasn't been afraid to make acquisitions. For instance, in early May, Jushi closed on a deal to boost its medical marijuana production capacity in Virginia, and also acquired two dispensaries in California. The Golden State is the largest cannabis market in the world, by annual sales. Having ended June with almost $127 million in cash and short-term investments, Jushi remains well-capitalized.
I also believe it's worth pointing out that of the first $250 million in capital raised by Jushi since its inception, approximately $45 million was contributed by executives and insiders. Generally speaking, when executives and insiders have skin in the game, and the interests of management align with their shareholders, good things tend to happen.
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Jushi's discount relative to its peers doesn't make sense
Comparably speaking, Jushi is a mammoth value relative to its peers, in terms of sales potential and profitability. Here's a quick rundown of Wall Street's consensus sales and earnings-per-share (EPS) projections for some of the most popular MSOs by 2024.
- Curaleaf: $3.13 billion in sales / $0.51 in EPS
- Green Thumb Industries: $2 billion in sales / $1.88 in EPS
- Trulieve Cannabis: $1.53 billion in sales / $2.89 in EPS
- Cresco Labs (CRLBF 4.15%): $1.77 billion in sales / $0.67 in EPS
- Columbia Care: $1.39 billion in sales / $0.30 in EPS
Take note that I'm not in any way degrading these five MSOs. In fact, I've been pounding the table on all but Curaleaf as attractive long-term buys. But to put this data into some context, Curaleaf, Green Thumb, Trulieve, Cresco, and Columbia Care are respectively valued at price-to-sales ratios for 2024 of 2.6, 3.3, 3.8, 1.5, and 1. In terms of price-to-earnings ratios for 2024, we're looking at 23.4, 16.5, 11.3, 16.4, and 16, respectively.
Now, take a closer look at what Wall Street envisions Jushi bringing to the table by 2024:
- Jushi Holdings: $972 million in sales / $1.42 in EPS
Based on its current share price and market cap, we're looking at a price-to-sales ratio of 0.8 in 2024 and a P/E ratio in 2024 of just 3.4! That's how much cheaper Jushi is relative to its peers, and its relative discount doesn't make any sense.
I've taken the plunge and plan to hold for years to come. Now, it's time to be patient and trust management to continue making the right moves.
