Marijuana is seen as one of the biggest growth markets around, even if many of its leading stocks have fallen far short of expectations.
That just means the field is still wide open and anyone can gain an advantage to come out ahead. Once the cannabis industry finally does take off we may see all boats lifted by the rising tide, but Planet 13 Holdings (PLNH.F -1.24%), Trulieve Cannabis (TCNNF -1.10%), and the AdvisorShares Pure US Cannabis ETF (MSOS -0.21%) may have already tripled in value by then.
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Planet 13 has a clear (and short) path to multiplying in value
Alex Carchidi (Planet 13 Holdings): If you've ever visited the Las Vegas Strip, you've probably seen or even experienced Planet 13's flagship cannabis superstore, where more than a million tourists flocked to buy marijuana in 2019. Right now, Planet 13's shares go around $5.19, but at the rate the company is growing, it could be worth as much as $20 in the next few years.
In terms of its valuation, Planet 13's price-to-sales ratio is nearly 11, and its locations in Nevada brought in around $70.49 million in 2020. The legal cannabis industry's average P/S ratio is 24.4, so Planet 13 looks quite cheap in comparison.
By 2023, management estimates it will make $130 million in annual revenue from its stores in Nevada alone. If the stock traded at the industry's average P/S ratio at that point in time, its shares would be worth around $16.22, which is more than triple its current price.
And that's before taking into account the new income from its recently opened superstore in California, which will report its inflows for the first time in the next earnings report, which is scheduled for late August. Nor does it consider the company's plans to open eight or more retail locations, which are expected to be in operation by 2025.
So, while there's no guarantee that these new stores will bring in as much cash as its high-traffic location in Las Vegas, investors can still expect significant revenue growth as the company penetrates its new markets. And that additional income could easily lead to the stock tripling in the next couple of years when combined with what's already expected from its existing stores.
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Slow and steady wins the race
Rich Duprey (Trulieve Cannabis): Multi-state operators like Trulieve Cannabis have an extra burden to carry that other marijuana companies do not. Because cannabis remains a Schedule 1 drug under the Controlled Substances Act, MSOs operating in states where marijuana is legal are unable to deduct normal business expenses like employee salaries, marketing, and health insurance premiums. That's made it difficult for many to operate profitably, but Trulieve has still managed to generate adjusted profits for four consecutive quarters.
Federal legalization would eliminate such quirks of the law, including opening up financing and allowing MSOs to establish relationships with banks instead of having to operate in cash. They would also be able to list their stocks on a major exchange.
Trulieve is narrowly focused in Florida where it is the state's largest licensed medical marijuana provider with the most locations and the greatest volume. However, it is working on replicating its successful strategy elsewhere. It has licenses to operate in six other states, and was just granted a license to operate in a seventh, Georgia.
Revenue is rapidly rising, up 11% sequentially in the second quarter and 78% year over year, while adjusted EBITDA is 69% higher over the first six months of 2021. While it is steadily growing organically, it is not above making strategic acquisitions, such as its recent $2.1 billion purchase of Harvest Health & Recreation.
Despite this healthy expansion, shares of Trulieve are down 13.5% year to date, offering investors an opportunity to buy the stock before the full potential for its massively increased cultivation capacity and branded cannabis products is realized.
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Pick up this pure play, pronto
Eric Volkman (AdvisorShares Pure US Cannabis ETF): With legalization looming on the horizon -- either through federal legislation or on a continued state-by-state basis -- the U.S. will be home to the hottest marijuana market on the planet before long. One fine way to play this trend is by investing in a basket full of American weedies, and one of the best means of doing this is by grabbing shares of a specialty exchange-traded fund. I'm looking directly at you, AdvisorShares Pure US Cannabis ETF.
There is a clutch of marijuana ETFs on the market; what sets Pure US Cannabis apart is its laser-sharp focus on the Stars and Stripes. Most rivals have the usual Canadian suspects in their portfolio -- Canopy Growth is a popular title, as is the recently bulked-up Tilray.
But since our northern neighbor legalized recreational marijuana in 2018, it's a rapidly maturing market. What's more, it's got a host of challenges (federal/provincial bureaucracies, black market competition, oversupply, etc.). It's also small compared to the U.S., with a total population of just under 38 million next to our tally of almost 335 million souls. Finally, as long as weed remains a Schedule 1 drug on the federal level within our borders, Canadian cannabis product makers cannot directly sell their wares here.
So as the legalization momentum builds in this country, it's the top U.S. companies that are far better positioned to benefit, particularly if they are strong in the consumer-facing retail segment. Happily, Pure US Cannabis' four top holdings -- Green Thumb Industries, Curaleaf, Cresco Labs, and Trulieve -- fall into this category. Collectively, they form 46% of the ETF's portfolio.
Pure US Cannabis' holdings show some encouraging variety within that America-only box. Top marijuana real estate investment trust (REIT) Innovative Industrial Properties is in there, with an allocation of just over 6%, as is acquisitive hydroponics retailer GrowGeneration.
Canadian-inclusive weed ETFs got a nice boost earlier this year with the pop experienced by Tilray after the company fused with Aphria. As a result, Pure US Cannabis ETF has generally underperformed its rivals, and is currently well down in price at under $34 per share. But this makes it better poised for a serious rebound once our vastly higher-potential market really starts to blossom.
