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5 Cannabis Stocks That Are Better Picks Right Now Than Sundial Growers

By Keith Speights – Updated Aug 18, 2021 at 9:43AM

Key Points

  • These five cannabis stocks have better growth prospects than Sundial because they already operate in the lucrative U.S. cannabis market.
  • All five continue to deliver much stronger revenue growth than Sundial and are either profitable or closer to profitability than Sundial is.
  • Four of the five sport more attractive valuations than Sundial does.

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And it's not even close.

Seven pot stocks rank among the 100 most popular stocks on Robinhood's (HOOD 1.22%) trading platform. But only one of them is in the top 10 on the list -- Sundial Growers (SNDL 8.68%). Actually, Sundial claims the No. 4 spot, beating out quite a few larger and more successful companies. 

Sundial has definitely been a big winner this year. Although it has given up much of its gains from the first quarter, the stock is still up more than 50%. However, I don't think that it's anywhere close to being the best marijuana stock to buy for the future. Here are five cannabis stocks that are better picks right now than Sundial Growers.

Cannabis leaf on top of hundred dollar bill.

Image source: Getty Images.

Five easy picks

I'd put Innovative Industrial Properties (IIPR -1.09%) at the top of the list. The company is organized as a real estate investment trust (REIT) and focuses on the U.S. medical cannabis industry. IIP currently owns 73 properties in 18 states and will almost certainly add more soon. It also offers an attractive dividend yield of over 2.4%.

Several top U.S. multi-state operators (MSOs) also easily beat out Sundial, in my view. Cresco Labs (CRLBF 7.04%) is a leading cannabis wholesaler. It also operates 34 cannabis retail locations in 10 states, including six of the seven largest cannabis markets in the U.S.  

Green Thumb Industries (GTBIF 6.54%) stands out as another of the biggest MSOs in the U.S. The company had 58 cannabis retail stores across 11 states in the second quarter. Since the end of Q2, Green Thumb has closed an acquisition to enter Virginia's cannabis market and added more retail locations to bring its total to 62.

I also like a couple of up-and-coming MSOs. Ayr Wellness (AYRW.F 0.68%) already has operations in six states. An important seventh market, New Jersey, will be added to the list once the company's pending acquisition of Garden State Dispensary closes. 

Jushi Holdings (JUSHF -3.11%) currently has 20 retail cannabis stores, 13 of which are in Pennsylvania. The company is one of only a handful of license holders in Virginia with operations in the northern part of the state -- an especially lucrative potential market. 

What they have in common

Three of these five stocks were recently named strong buys by Jefferies Financial Group analyst Owen Bennett -- Ayr, Cresco, and Green Thumb. However, all of them share several other common denominators that I think make them better picks than Sundial Growers.

Most importantly, they're all based in the U.S. That gives them better growth prospects than Sundial, which can't enter the U.S. cannabis market and retain its listing on a major U.S. stock exchange while marijuana remains illegal at the federal level.

They also all continue to deliver stronger revenue growth than Sundial. Actually, Sundial's revenue declined year over year in its latest quarter. Meanwhile, Jushi's revenue more than tripled year over year in Q2. Innovative Industrial Properties and Cresco reported revenue that more than doubled year over year in their latest quarterly updates. Green Thumb's revenue soared 85%. Ayr came in last with its revenue jumping by "only" 74% year over year.

Sundial posted a net loss of 52.3 million in Canadian dollars in Q2. However, Innovative Industrial Properties, Cresco, and Green Thumb are profitable. Ayr and Jushi reported losses in their latest quarterly updates, but their bottom lines looked much better than Sundial's.

Then there's the matter of valuation. The four MSOs included in my picks (Ayr, Cresco, Green Thumb, and Jushi) trade at forward price-to-sales (P/S) multiples that are in the single digits. Only Innovative Industrial Properties claims a higher forward P/S ratio than Sundial. However, the company beats Sundial on virtually every other front.

Beyond popularity

You might wonder why Sundial ranks as the most popular pot stock among Robinhood investors when there are so many others that are demonstrably better choices. The biggest reason is that most over-the-counter stocks aren't available on Robinhood. That means that Robinhood investors can't buy Ayr, Cresco, Green Thumb, or Jushi on the trading platform.

Innovative Industrial Properties can be bought by Robinhood investors, though. Perhaps a REIT isn't as exciting as a Canadian cannabis operator is to many. But with better growth prospects, faster revenue growth, and its strong profitability, I think Innovative Industrial Properties -- like the four MSOs on my list -- is easily a better pick than Sundial.

Keith Speights owns shares of Innovative Industrial Properties. The Motley Fool owns shares of and recommends Ayr Wellness, Cresco Labs Inc., Green Thumb Industries, Innovative Industrial Properties, Jefferies Financial Group Inc., and Jushi Holdings. The Motley Fool has a disclosure policy.

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