Please ensure Javascript is enabled for purposes of website accessibility

2 Under-the-Radar Cannabis Stocks You Don't Want to Miss Out On

By David Jagielski – Aug 10, 2021 at 7:32AM

Key Points

  • These companies are coming off some impressive quarters where sales more than doubled from the previous year.
  • Ascend Wellness has the potential to be a top multi-state operator while Agrify could help growers become more efficient.
  • Both companies could become a whole lot bigger as they are still in their early growth stages.

Motley Fool Issues Rare “All In” Buy Alert

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

They both started trading earlier this year.

Are you looking for what could be the next big pot stock to invest in? As the industry grows in size and more markets open up, there are always new companies going public. For investors, it creates an opportunity to get in early on some potentially hot investments.

There are a couple of noteworthy cannabis companies whose stocks have begun trading this year that you should be careful not to overlook. Both Ascend Wellness (AAWH -4.52%) and Agrify (AGFY 5.56%) have some great potential over the long term. Their sales numbers aren't terribly big right now, but that could change in the future.

A couple working inside of a greenhouse.

Image source: Getty Images.

1. Ascend Wellness

At a nearly $2 billion market cap, Ascend isn't a small company, but there is potential for it to get much bigger. Investors can buy the stock over the counter and also on the Canadian Securities Exchange -- where it first began trading on May 4. The company operates 16 stores and has the capacity to produce 38,000 pounds of cannabis annually.

What I like about the company is that its focus is on markets with significant opportunities where there isn't much saturation. On its homepage, Ascend Wellness states that it "focuses on limited license states east of the Rockies, with flagship locations in desirable retail corridors serving key medical and adult-use markets." I'm a big believer in keeping things simple and not trying to be overly aggressive in expansion, as that can drive costs up significantly and make profitability a long shot.

Today, the business operates in five states: Illinois, Michigan, Ohio, Massachusetts, and New Jersey. Of that list, Ohio is the only state that hasn't legalized marijuana for recreational use yet. And in May, the company announced that it opened a second location in New Jersey, in an area that it estimates sees 100,000 vehicles each day. With just 13 medical dispensaries in the Garden State, Ascend Wellness is already making early moves to secure what could end up being some valuable real estate for the cannabis industry.

The growth from the New Jersey market will help make its already impressive numbers look even better. For the period ending March 31, Ascend Wellness reported sales of $66.1 million, which grew by a staggering 193% from the prior-year period. The company credits the growth to more store openings and increasing its production and cultivation. But what's equally important is that on that revenue, it reported adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $15.8 million, for a margin of 24%. For the full year, the company estimates that its top line will come in between $320 million and $340 million -- more than double the $144 million it reported in 2020.

Ascend Wellness is a new cannabis operator to watch as it's already doing the right things and expanding in some of the hottest markets in the country. It could be one of the best pot stocks to buy right now.

2. Agrify

Agrify is a pick-and-shovel investment that has been trading on the Nasdaq since Jan. 28. The company could be integral in helping cannabis businesses grow their operations since it provides indoor growing solutions. The company's vertical farming units (VFUs) hold much of the promise; the company boasts that they are significantly more efficient than traditional cultivation and can deliver six times the yield. Plus, they can increase potency by approximately 29%. Agrify also has software that can help growers manage their crops and stay on top of planting schedules.

Not only can Agrify potentially help companies scale their businesses, but the added efficiency could also improve a cultivator's prospects at profitability. And some producers are taking notice. In July, the company announced a research and development deal with top multi-state operator Curaleaf Holdings that centers around the company's VFUs and software platform. Getting an endorsement from Curaleaf could be what sends Agrify's stock soaring.

Agrify is also doing some growing itself. In July, the State of Massachusetts issued the company a license to produce hemp. Agrify anticipates it will commence cultivation activities at its facility there as early as this month. However, the potential is in helping producers build their growing facilities. During the three-month period ending March 31, Agrify reported facility build-outs totaling $6.8 million -- the vast majority of its $7 million in revenue, which was seven times the $1 million in sales it posted a year ago. In the prior-year period, the company had no revenue related to build-outs and generated sales entirely from cultivation-related activities. 

These are still the early stages for the business, and the big test will be proving that the VFUs and Agrify's indoor growing solutions are as good as the company says they are. And the one way to do that is by growing its sales numbers related to build-outs. Right now, it's too early to tell how valuable those solutions will be to growers. But with a market cap of less than $500 million, this stock can easily double if the company proves to be the real deal and is able to build off its recent results.

David Jagielski has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Ascend Wellness Holdings, Inc. Stock Quote
Ascend Wellness Holdings, Inc.
AAWH
$2.00 (-4.52%) $0.10
Agrify Corporation Stock Quote
Agrify Corporation
AGFY
$1.14 (5.56%) $0.06

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
356%
 
S&P 500 Returns
118%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.