The marijuana sector is a topsy-turvy one, no question about it. When there's talk of legalization, everything is skyrocketing and headed for the moon. And then, when nothing has happened and growth investors get bored and look elsewhere, cannabis stocks seem to plummet in a hurry. That's what's happening right now, with the Horizons Marijuana Life Sciences ETF falling more than 15% in just three months. It's a bizarre situation, especially given the industry's long-term growth potential.
But investors shouldn't be discouraged, as the recent downward spiral in stock prices simply means there are some attractive cannabis investments out there today. Three of the most promising to take a look at are Jushi Holdings (JUSHF 0.89%), Village Farms International (VFF -3.65%), and MariMed (MRMD 0.90%).
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1. Jushi Holdings
What I like about Jushi Holdings is that the company operates in some of the most attractive cannabis markets in the country. Among these markets are Illinois, Massachusetts, Nevada, and California, where Jushi has dispensaries up and running and where pot is legal for recreational use. However, most of its dispensaries (16) are in Pennsylvania, which hasn't legalized recreational pot yet.
In addition, Jushi has a cannabidiol store in New York -- a state which recently legalized adult-use marijuana and could be one of the hottest new markets of 2022.
Jushi isn't overly aggressive in its growth and carefully picks its store locations. In October, it opened just its 26th store nationwide. By comparison, multi-state operator Trulieve has more than 100 locations just in the state of Florida.
And Jushi's strategy has been paying off for the business. For the period ending June 30, sales of $47.7 million were up 15% from the previous period and the company reported a profit of $4.8 million -- more than 10% of its top line. Marijuana producers typically struggle with profitability, and for Jushi to already be there is impressive.
Jushi's stock is down more than 24% in the past three months, but I think the bearishness is unwarranted. Given the growth potential it has in some strong markets, it may only be a matter of time before Jushi takes off.
2. Village Farms
Normally, I wouldn't put a cannabis company that is operating in Canada on a list like this. And that's because the market is so saturated -- there are more than 700 licensed producers in Canada, making it little wonder why marijuana companies like Aurora Cannabis and Canopy Growth struggle with profitability and in generating consistent revenue growth.
But what makes Village Farms special is its low-cost cannabis greenhouse that it operates through its subsidiary, Pure Sunfarms. For 11 straight quarters, Pure Sunfarms has posted positive earnings before interest, taxes, depreciation, and amortization (EBITDA). And it has been the top-selling dried flower brand in multiple provinces (according to data as of the end of June). Focusing on dried flower is key to the company's strategy, as that encompasses more than two-thirds of retail pot sales in Canada.
If you're a little uneasy about investing in Canadian pot stocks, Village Farms may be the safest route to take right now as it's still primarily a North American produce business, with operations in Canada, the U.S., and Mexico. Through the first six months of 2021, Village Farms reported more than $42 million in revenue from its cannabis operations (Pure Sunfarms), but the bulk of its top line came from produce revenue, which totaled $80 million.
Village Farms stock is down 18% in three months, and its shares haven't traded this low since November 2020.
3. MariMed
Another multi-state operator to put on your watchlist is MariMed. Like Jushi, MariMed doesn't run a terribly large operation right now. It only has seven dispensaries that are up and running, four of which are in Illinois, one in Massachusetts, and two in Delaware.
The company last reported earnings on Aug. 16, when its sales for the period ending June 30 totaled $32.6 million and grew by a whopping 239% year over year. Increased production in Massachusetts helped drive the improved results, as did growth in its retail locations. What's impressive is that MariMed reported net income of $7.6 million on that revenue -- a profit margin of more than 23%.
During the quarter, the company also generated positive cash flow from its operations totaling $10.8 million. Not only is MariMed turning a profit, but it is accumulating cash that can facilitate more growth opportunities in the future.
Shares of MariMed are down about 3% in the past three months, the mildest of the losses on this list. The company is in a strong financial position, and with MariMed still in the early stages of its growth, now is as good a time as any to add it to your portfolio.
