For many investors, the new year brings new opportunities to find attractive stocks in high-growth industries. Among all the industries to choose from, there may not be a better blend of growth and value at the moment than cannabis stocks, specifically those in the United States.
According to estimates from cannabis analytics company BDSA, worldwide weed sales are expected to double from $31 billion in 2021 to $62.1 billion by 2026. The bulk of this nominal growth will originate in the United States.
Although marijuana stocks were a buzzkill last year after federal cannabis-reform measures once again failed to gain traction in Congress, they're now about as inexpensive as they've ever been. With that being said, these are the five best marijuana stocks to buy in 2022.
The easiest way to see green in the cannabis space is to buy the most nominally profitable pot stock: Trulieve Cannabis (TCNNF -1.77%).
Trulieve, like many of the stocks on this list, is a vertically integrated multi-state operator (MSO) that controls most aspects of the seed-to-sale process. But its path to profitability was a lot different than that of most pot stocks.
Instead of setting up shop in as many legalized states as possible, Trulieve focused most of its attention on Florida's medical marijuana market. As of Dec. 30, Trulieve had 160 operating dispensaries nationwide, 112 of which were in the Sunshine State. Saturating Florida has allowed Trulieve to gobble up half of the state's dried cannabis flower and oils market, all while keeping its marketing budget relatively low. The result: three consecutive years of profitability in an industry where only a handful of companies are currently profitable.
The excitement for 2022 revolves around Trulieve's acquisition of MSO Harvest Health & Recreation, which was completed during the fourth quarter. Harvest Health's home market is Arizona, which voted to legalize recreational weed in November 2020, and began retailing adult-use cannabis in January 2021. Trulieve has 17 dispensaries in the state and a clear pathway to leading market share.
With sales growth expected to top 50% in 2022, Trulieve looks like a bargain at roughly 26 times estimated earnings per share.
Ancillary cannabis plays haven't fared nearly as well as I or other pundits would have expected. But one that looks ripe for the picking in 2022 is GrowGeneration (GRWG -0.84%).
GrowGen, as the company is better known, operates retail hydroponic and organic gardening centers in 13 states. Though the hydroponic (i.e., growing plants in a nutrient-rich water solvent), soil, nutrient, and lighting solutions offered by the company are helpful for consumers and enterprises of all industries, it's of particular use to increasing crop yields for cannabis growers. Thus GrowGen is often viewed as a marijuana stock.
The company's key to success has long been its aggressive acquisition strategy. Don't get me wrong: GrowGen's same-store sales have consistently risen by a double-digit percentage. However, the company's bread and butter is acquiring locations in new and existing markets to quickly grow its brand.
In addition to acquisitions, management is focused on building up the company's online presence, as well as promoting a number of proprietary and private-label brands that should provide a margin lift. The third quarter saw private-label and proprietary merchandise account for nearly 9% of total sales, which compares to more like 2% in the year-ago quarter.
After getting pummeled last year, shares of GrowGeneration can be scooped up for well under two times estimated sales for 2022.
Planet 13 Holdings
The best marijuana stocks to buy in 2022 are those that provide a competitive advantage and differentiation. Small-cap MSO Planet 13 Holdings (PLNH.F -3.29%) fits that description well.
What makes Planet 13 unique is that the company is focused just as much on providing a memorable experience for cannabis enthusiasts as it is on making sales. The key differentiator here is the sheer size and functionality of its dispensaries.
Planet 13 has two operating dispensaries at the moment. The Las Vegas SuperStore spans 112,000 square feet and features a cafe, consumer-facing processing center, and events center, to go along with the biggest selection of pot products you'll find in any U.S. dispensary. There's also the Orange County SuperStore in Santa Ana, California, which spans 55,000 square feet, including 16,500 square feet of selling space.
Having visited the Las Vegas SuperStore, I was impressed by the incorporation of technology (self-pay kiosks), a store layout that funnels customers to higher-margin derivative products, and the provision of individual budtenders to meet customer needs.
The next tourist-heavy locations for Planet 13 dispensaries will be Chicago; Orlando, Florida, and Miami.
With the company on the verge of recurring profitability and gobbling up a significant portion of Nevada's weed sales with just a single location, it has the look of a no-brainer buy.
Another small-cap pot stock with serious potential in 2022 is MSO Jushi Holdings (JUSHF -5.32%).
To keep with the theme here, Jushi has a unique two-pronged strategy for growth.
First, it's targeting a number of limited-license markets, like Pennsylvania, Illinois, Massachusetts, and Virginia. A limited-license state limits how many dispensary licenses are issued in total and/or to a single business. For big companies with deep pockets, limited-license markets can be a nuisance. But for Jushi, which has just 28 operating dispensaries nationwide, these limitations provide some degree of protection, allowing it to build up its brands and garner a loyal following.
Jushi's other key catalyst has been prudently deploying cash for acquisitions. For example, the company acquired two dispensaries in Southern California last year. Though California has plenty of pot stores, it's the leading market for marijuana sales in the world.
As a Jushi shareholder, I'll also add that execs and other insiders were responsible for contributing $45 million of the first $250 million in capital raised by the company. When the financial interest of insiders align with that of shareholders, good things happen more often than not.
The fifth and final best marijuana stock to buy in 2022 is MSO Cresco Labs (CRLBF -9.09%).
Similar to Jushi Holdings, Cresco Labs has a penchant for focusing most of its attention on limited-license states, at least with regard to its retail operations. The company has 45 operating dispensaries, with a presence in limited-license markets like Illinois, Ohio, and Massachusetts. Mixing in competitive high-dollar markets, such as Florida, with limited-license markets gives Cresco a path to sustainable double-digit retail growth.
But what really allows Cresco Labs to stand out is the company's industry-leading wholesale operations. Wall Street isn't a big fan of wholesale cannabis because the margins aren't anything to speak of next to retail cannabis. But Cresco Labs can make up what it loses in margin with insane volume. That's because it holds one of only a small handful of cannabis distribution licenses in California. This license allows it to place its proprietary pot products into more than 575 dispensaries throughout the Golden State.
Cresco Labs has all the tools and momentum necessary to reach recurring profitability in 2022. With the company now valued at well under two times estimated sales (per Wall Street) this year, it looks like a budding bargain.