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3 Cannabis Stocks That Are Better Buys Than Dogecoin

By Rich Duprey, Eric Volkman, and Alex Carchidi - Oct 15, 2021 at 8:45AM

Key Points

  • More than half of Grow Generation's revenue comes from recurring sales of consumable products to cultivators.
  • Ayr Wellness is a small multi-state operator -- but it's growing fast.
  • Columbia Care's acquisition strategy has turned it into one of the country's larger MSO's, and its revenue growth outlook is stellar.

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The legal marijuana industry is still in its infancy, and offers massive growth opportunities for investors.

While cryptocurrencies have intrigued at least a portion of the public -- including people who don't typically invest in stocks -- it was tweets from Tesla CEO Elon Musk, billionaire entrepreneur Mark Cuban, and rap icon Snoop Dogg that cemented Dogecoin's reputation as the so-called "people's currency."

So the token that started as a joke has turned into a serious business. But considering that one of Dogecoin's co-creators still believes it's all smoke and mirrors, investors might want to put their money in something a little more grounded and tangible. Something, for example, like the legal cannabis industry, which is still just beginning to develop toward its full potential.

We asked three of our contributors to suggest marijuana stocks that would make better investments right now than Dogecoin. Their picks: GrowGeneration ( GRWG -2.88% ), Ayr Wellness ( AYRW.F -2.72% ), and Columbia Care ( CCHWF -7.79% )

A Shiba Inu dog

Image source: Getty Images.

It pays to sell what marijuana producers need

Alex Carchidi (Grow Generation): In my view, practically any company that makes products that people need is a better bet as an investment than Dogecoin. In the context of the cannabis industry, there's a big need for the hydroponics equipment and greenhouse supplies that cultivators use to grow their crops indoors. That's where Grow Generation comes into play. 

The company is narrowly profitable, and it has a large and expanding footprint of nearly 60 retail locations, most of them in high-intensity cannabis markets like California, Colorado, and Michigan. Thanks to its strategy of focusing on these markets, its revenues are shooting upward: Its top line rose by 189.7% year over year in the second quarter. 

In 2020, roughly 60% of its revenue came from recurring sources -- sales of consumables like plant nutrients that cannabis cultivators need steady supplies of. As the industry continues to become more established in the U.S., Grow Generation will be able to keep building its base of consistent revenue, which should be great for its shareholders.

On Oct. 7, the company signed a distribution agreement to sell a yield-enhancing root health solution made by Groundwork BioAg. Investors can expect Grow Generation to keep expanding its product line and constructing new stores in up-and-coming markets.

The company is growing its revenue rapidly and proving that it can generate more money than it spends, all while organizing its resources for growth using an intelligent strategy. Whereas Dogecoin is an unpredictable joke cryptocurrency, Grow Generation is a real and thriving business. Between these two investment options, there isn't even a contest.

A worker at a marijuana dispensary weighs out buds on a digital scale.

Image source: Getty Images.

An under-the-radar winner

Eric Volkman (Ayr Wellness): There are a host of multi-state operators in the marijuana industry -- and not all will survive. Those most likely to are the ones that have advantages of scale, cash, geography, or a combination of those factors. Relatively small Ayr Wellness lacks the first of those advantages, but the ambitious retailer certainly has cash and geography on its side.

Ayr is one of a host of publicly traded MSOs in the U.S. building out scale in order to profit from the rapid spread of cannabis legalization. At the moment, it has retail locations in six strategic marijuana states, and it will move into another shortly  with its pending acquisition of two-store operator Herbal Remedies Dispensaries in Illinois.

The current locations of Ayr dispensaries already form an appealing mix. Some are in Massachusetts and Arizona -- states that recently made recreational use legal and are seeing robust early growth. New Jersey very recently flipped the recreational switch and should see an explosion of pent-up demand. And Ayr is active in Nevada, a well-established and dependable market.

Finally, it has a presence in Pennsylvania and Florida -- two populous states where cannabis is legal only for medical use, but which are likely to sanction recreational weed before long. (The company also has cultivation and production assets -- but no dispensaries -- in Ohio.)

A common way to build scale in the weed world is through acquisitions, and Ayr's recent moves show it to be a smart and strategic buyer. Earlier this month, it closed its purchase of privately held PA Natural Medicine, adding three dispensaries to its count in Pennsylvania, and in September it took over GSD (which stands for "Garden State Dispensary"), one of only 12 vertical marijuana business license-holders in New Jersey.

It's also acquisitive on the product side -- it recently made a $20 million deal for THC-infused seltzer maker Cultivauna.

Ayr likes to buy stuff, but it's not profligate. At the end of its most recently reported quarter, it had $153 million in cash on hand, down from $246 million in the preceding quarter, but well above the modest levels of less than $30 million it tended to hold as recently as last year.

The company is getting something for its money. In Q2, its revenue soared by 222% year over year and 56% sequentially -- excellent numbers even among the high-growth tier of pot companies -- while non-GAAP (adjusted) EBITDA improved by 225% and 49%, respectively.

Ayr's net losses are admittedly still steep -- and getting steeper. In Q2, it lost $37 million, compared to its prior-year shortfall of $24 million. But in terms of revenue, it's headed in the right direction, and it has a decent-size cash cushion. It's one of the smaller players on the scene, but that makes it a bit of a sleeper stock -- and a far better investment than a shaky cryptocurrency.

A technician spreads their arms in an outdoor marijuana field.

Image source: Getty Images.

The market is mispricing this MSO

Rich Duprey (Columbia Care): While Dogecoin has a lot more buzz, investors might want to take a look instead at putting some money into Columbia Care, a small-cap MSO that ought to profit regardless of whether legalization at the federal level happens or not.

Columbia Care is trying to get to scale as quickly as possible in the event cannabis legalization occurs nationally, but also to take advantage of the opportunities that exist amid the current patchwork quilt of state regulations. It acquired vertically integrated medical marijuana dispenser Green Leaf Medical, the Ohio-focused four-dispensary operation CannAscend, and Project Cannabis, a California-based cultivator, wholesaler, and retailer.

Through its acquisition strategy, Columbia Care has turned itself into one of the largest MSOs around with 99 dispensaries and 31 cultivation and manufacturing facilities; it's licensed to operate in 18 of the 36 states where marijuana has been legalized to some extent.

Columbia Care also just entered Virginia's new medical marijuana market with some of the state's first whole-flower sales for patients under its under Seed & Strain and gLeaf brands. The Virginia news is important because it underscores how the MSO is looking at its growth opportunities.

According to Columbia Care, when states expand opportunities for marijuana use within their borders -- such as going from only allowing medical use to including recreational usage -- its revenues tend to triple or quadruple in those markets. Virginia has plans to start allowing recreational weed sales a few years from now.

The MSO is targeting markets where it expects it will be able to get the most bang for its buck: high-volume states like California and Colorado; densely populated ones such as New York and New Jersey; and limited-license markets such as Ohio, Pennsylvania, and Illinois.

Wall Street likes what it sees. Analysts forecast that Columbia Care's revenue will surge seven-fold over the next few years, growing from $180 million last year to as much as $1.45 billion in 2024. Yet Columbia Care's stock is down 40% year to date. That seems like a huge mismatch with its potential.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Columbia Care Inc. Stock Quote
Columbia Care Inc.
CCHWF
$2.96 (-7.79%) $0.25
Tesla, Inc. Stock Quote
Tesla, Inc.
TSLA
$1,014.97 (-6.42%) $-69.63
GrowGeneration Corp. Stock Quote
GrowGeneration Corp.
GRWG
$15.17 (-2.88%) $0.45
Ayr Wellness Inc. Stock Quote
Ayr Wellness Inc.
AYRW.F
$15.03 (-2.72%) $0.42
Dogecoin Stock Quote
Dogecoin
DOGE
$0.18 (-9.95%) $0.02

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

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