The cannabis industry is booming with opportunistic stocks that can bring in higher returns with a little bit of patience. The U.S. cannabis space in particular is sizzling with excellent pot companies that are growing revenues drastically; some of them are even profitable. As state legalization continues to ramp up with the prospect of federal legalization rising, the future looks bright for cannabis players. But in an evolving industry, smaller companies with tremendous growth potential often get sidelined by bigger companies.
While all eyes are on established names like Trulieve Cannabis, Curaleaf Holdings, and Green Thumb Industries, the following three small-cap companies often get ignored. But these multistate operators (MSOs) are rising stars that can make investors rich over the long term -- their recent quarterly results are proof of that. Let's take a look at each.
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1. Jushi Holdings
This small-cap pure-play cannabis company with a market cap of just $785 million has tremendous potential to shine as the cannabis industry expands. Even with just 26 retail stores nationwide, Florida-based Jushi Holdings (JUSHF -5.64%) has been growing revenue drastically. In its third quarter of 2021, revenue jumped 117% year over year to $54 million. Its wise strategy of targeting limited license markets has worked in its favor.
Jushi has come a long way from just $110,000 in revenue in Q2 2018 to $54 million now. Since cannabis is illegal at the federal level, many states are restrictive of the number of licenses they issue. Having a market presence in limited license states (like Pennsylvania, Illinois, California, and Virginia) has led the company to a net profit of $38.2 million, compared to a net loss of $29.4 million in the year-ago period. Sequentially, net income also jumped from $4.8 million in Q2 2021.
Recently, Jushi opened its second store in Virginia and can take advantage of the new recreational market in the state once sales begin. Jushi has managed to keep its balance sheet stable while continuing with its expansion plans. At the end of Q3, it had $94 million in cash and short-term investments and $142 million in principal amount of total debt (excluding current leases and financing obligations related to plants and equipment).
2. Columbia Care
With a market cap of just $1.1 billion, the New York-based MSO Columbia Care (CCHWF -9.05%) is working wonders. It follows the same strategy as Jushi of targeting limited license markets, which helps it garner a loyal customer base. This strategy brought in a whopping 144% year-over-year increase in total revenue to $132 million in the third quarter of 2021. The company also saw an outstanding jump of 634% in adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) to $31 million from Q3 2020. Columbia Care gives credit to the key cannabis markets of California, Colorado, Massachusetts, Ohio, Pennsylvania, Illinois, Maryland, and Virginia for this performance.
Due to regulatory challenges with opening dispensaries in a few states and the delayed implementation of recreational markets in some states, management revised the company's 2021 guidance. It now expects revenue to be in the range of $470 million to $485 million, adjusted EBITDA to be in the range of $85 million to $95 million, and adjusted gross profit margin to be around 46% for the year.
Despite all the external headwinds, the company has managed to grow its gross profit margin from 39% in the year-ago period to 49% in Q3. Columbia Care is not profitable yet but at the rate its top line and EBITDA are rising with lower costs, it won't be long before the company starts seeing profits.
3. GrowGeneration
The Colorado-based hydroponics supplier GrowGeneration (GRWG) is a pick-and-shovel cannabis company. It sells supplies and equipment required by cannabis growers. As the cannabis industry expands, growers will need more supplies, bringing in more opportunities for GrowGeneration. With a market cap of $1.2 billion, the company has an extensive network of 62 stores nationwide.
In its recently reported third quarter 2021, the company grew revenue 111% year over year to $116 million. The company also recorded an adjusted EBITDA profit of $11 million, versus $6.6 million in the year-ago period. Net profit of $4 million was also better than $3.3 million in Q3 2020.
The company also recently acquired Hoagtech Hydroponics which is a hydroponic equipment and indoor gardening store in Washington. They expect this acquisition to contribute $15 million in revenue annually.
On the earnings call, GrowGeneration discussed how cultivators are struggling with rules and regulations in new cannabis markets (states that recently legalized cannabis ). Management believes these headwinds should be sorted out by the second half of 2022. Hence GrowGeneration updated its full-year 2021 revenue guidance to a range of $435 million to $440 million, and adjusted EBITDA guidance to a range of $41 million to $43 million.
The company expects to open 15 to 20 more stores next year. If it achieves the upper end of the guidance, it will represent a 128% increase from 2020 revenue -- impressive growth for a small company.
All three pot companies are in good shape to expand rapidly as legalization ramps up in the U.S. Investors might hesitate to invest in Jushi with it being a penny stock, but its growth potential shouldn't be ignored. Analysts expect upside of 50%, 175%, and 63% from Jushi Holdings, Columbia Care, and GrowGeneration, respectively, over the next 12 months. Strong financials, surging revenue, a clear path to profitability, and stable balance sheets make a strong case for these exciting cannabis stocks.
