The pandemic proved beneficial to marijuana companies, who saw an increase in demand. The ramping up of state legalization further boosted sales. However, the lack of positive movement toward federal legalization is making investors skeptical now. But most of the cannabis companies have grown their revenue to become profitable even in this limited market. It doesn't matter when legalization happens, but choosing and investing in the right growth stock in this evolving industry could lead to excellent profits in the future.

One such domestic pot grower is New York-based Columbia Care (CCHWF -0.71%)With a market cap of just $1 billion, this small company is getting ready to give a tough fight to the bigger, multistate players. This remarkable growth stock has tremendous potential as the industry matures and is an excellent buy now.

Cannabis store sign with logo.

Image source: Getty Images.

A wide national presence

Despite being a small-cap company, Columbia Care has adapted a smart strategy of targeting limited-license markets. State regulators in cannabis markets like Massachusetts, Ohio, Pennsylvania, and Illinois limit the number of licenses they issue to cannabis operators.

This strategy of targeting the limited-licenses market has allowed Columbia Care to establish a loyal customer base for its products. It doesn't come as a surprise that its top line grew 144% year over year to $132 million in the third quarter of 2021. The company also saw a drastic 634% jump in its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to $31 million from the year-ago period. It is not profitable yet.

The company said the state markets of California, Colorado, Massachusetts, Ohio, and Pennsylvania were the top contributors to revenue. Columbia Care also saw a 241% year-over-year jump in sales from the Florida market.

Note that Florida allows only medical cannabis. This kind of a strong customer base driving revenue will be helpful for the company when the state legalizes recreational marijuana. Developments are ongoing in the state.

Illinois is also another strong market for the company, generating a 159% year-over-year jump in sales. Illinois legalized recreational marijuana in January 2020, and sales have been soaring since then. The state generated around $1.3 billion in recreational sales last year.

The company is also spreading its roots to Colorado and the Mid-Atlantic through smart acquisitions. Recently, it completed the buyout of Green Leaf Medical and the acquisition of Colorado-based Medicine Man.

Columbia Care operates 131 facilities, 99 of which are retail stores. Meanwhile, Trulieve Cannabis operates 159 stores, Green Thumb Industries has in total 73 stores, and Curaleaf has 125 dispensaries nationwide.

Closer to profitability

Many new states legalized marijuana last year. However, setting up new regulated markets and opening up new stores takes time. Columbia Care's management expects such headwinds to affect full-year results. The company now expects revenue in the range of $470 million to $485 million, adjusted EBITDA in the range of $85 million to $95 million, and an adjusted gross profit margin of around 46% for the full year.

When these challenges are sorted out, the company will find it easier to set up operations and grow revenues in the new markets. Meanwhile, all its acquisitions will also start to show their full potential. Consistently growing revenues will also bring the company closer to generating profits.

We will know more about how the company expects 2022 to pan out when it releases its fourth-quarter results, estimated to be out by March 3.

Most U.S. cannabis stocks have been consistently performing well. But it is amazing to see this small company catching up to the bigger players. Though it could take a while for Columbia Care to reach where Trulieve and Curaleaf are (touching $1 billion in revenue for the year), the company is on the right track.

Analysts see an upside of 213% for Columbia's stock in the next 12 months. As more and more states legalize marijuana this year, Columbia Care will have more opportunities to expand.

Currently, the stock is trading below its 52-week high, making it the right time to buy it at the dip. That said, marijuana is an evolving industry and carries some risks, so starting with a small investment with a diversified portfolio would be a wise option for risk-averse investors.