Patient investors tend to do better in the stock market as the S&P 500 has risen almost 270% over the past decade and is setting new records.
That long-term outlook will serve marijuana investors well considering the Horizons Marijuana Life Sciences ETF is down 21% since it was created in 2017 compared to a 94% gain by the broad market index.
That doesn't mean all cannabis stocks will need decades before generating a return for investors, but a buy-and-hold philosophy will ensure your portfolio's gains will be maximized. That's why the following pair of marijuana stocks should be on every pot stock investor's radar because they offer the best chance for providing near-term rewards as well as substantial returns for years to come.
One of the largest vertically integrated multi-state operators (MSO) in the country, Cresco Labs (CRLBF 0.81%) is taking a two-pronged approach to growth. On the one hand it has its retail operations that feature some 37 dispensaries and 20 production facilities, and on the other it operates an extensive and industry-leading wholesale business. The combination gives it a unique one-two punch.
Based on the total number of licenses it holds, Cresco could have as many as 50 retail locations to its credit. And when its acquisition of Cure Pennsylvania closes in the fourth quarter, it will be adding three more.
Its retail business also tends to concentrate on limited license markets, such as Illinois, Ohio, and Pennsylvania, where regulators limit just how many dispensaries can open or how many stores a single company can operate. While that can put a ceiling on its own growth potential, it also limits the number of rivals it has to face in the marketplace.
Yet it also has a presence in California, the world's largest marijuana market, following its acquisition of Origin House in 2020, allowing it to embed its own branded cannabis products into more than 575 dispensaries throughout the state.
While the wholesale cannabis business typically produces lower margins than retail, it will be able to make up in volume what it might otherwise lose in profit.
Wall Street expects that's likely to happen as analysts forecast revenue will nearly quadruple between 2020 and 2024, growing from $476 million to $1.57 billion. It's also anticipated Cresco will hit the ground running on profitability beginning next year, and won't look back after that.
With its stock down 21% year to date, Cresco Labs looks like a marijuana stock investors can hold onto for decades.
Green Thumb Industries
Another MSO, Green Thumb Industries (GTBIF 3.52%), has one of the largest physical footprints in the U.S. among marijuana stocks with 65 operating dispensaries, 16 manufacturing facilities, and licenses for 114 dispensaries. Moreover, it has enough retail licenses to open another four dozen retail locations.
Like Cresco, many of Green Thumb's retail stores are located in limited license states while also focusing on high-dollar states. It believes the approach will let it build up its brands as the ones sought out by customers, enabling it to develop a loyal following. Its leading dispensary chain, Rise, has stores in nine states.
To Green Thumb's benefit, it offers a broad mix of cannabis products and derives a majority of its revenue from higher-margin derivative products such as vapes, edibles, oils, and infused beverages. And because derivatives are less prone to oversupply issues compared to dried cannabis flower, they allow for recurring profitability.
One of the things separating Green Thumb from Cresco is that it's been profitable on a recurring basis for a year, though that was at least partially a result of taking fair value adjustments on equity investments. But analysts foresee profits expanding exponentially over the next few years.
Where Green Thumb had earnings according to generally accepted accounting principles (GAAP) of $15 million in 2020, it's forecast to produce some $322 million in 2024, a 21-time increase. Revenue is expected to increase a more modest four times, to over $2.1 billion. This is one cannabis company that can also be held onto long-term.