The cannabis industry performed horribly in 2021. The Horizons Marijuana Life Sciences ETF, an industry benchmark, has dropped by a little more than 50% over the past 12 months, and many of the top players in the sector didn't do much better.
Still, the pot market in North America will expand at a compound annual growth rate of 16.6% through 2028, according to some estimates. In other words, this high-growth industry presents attractive long-term opportunities, and two of the best companies to cash in on it are Trulieve Cannabis (TCNNF 0.41%) and Jazz Pharmaceuticals (JAZZ 0.77%).
1. Trulieve Cannabis
Cannabis dispensary operators with an already strong presence across many U.S. states seem better positioned to profit from the long-term tailwind the industry will experience. One pot grower with solid footprints across the country is Trulieve Cannabis, which produces and sells various cannabis products.
Although it is best known for its leadership presence in the state of Florida, it recently expanded its reach thanks to the acquisition of Harvest Health and Recreation in an all-stock transaction valued at $2.1 billion; the deal closed in October.
Harvest Health and Recreation, based in Arizona, does business primarily in the West and Northeast of the country. The combined entity has a presence in 11 states in the U.S., with 155 dispensaries as of the end of the third quarter, which made Trulieve Cannabis the leader among pot companies in this category at the time.
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Here's one more thing to appreciate about Trulieve Cannabis: The company's recurrent profits. In the third quarter, its revenue jumped by 64% to $224.1 million, while its net income came in at $18.6 million, 7% higher than the year-ago period. Many pot companies in North America struggle to show green on the bottom line at all, but Trulieve Cannabis has now done it for 15 consecutive reporting periods.
Furthermore, after its poor showing on the stock market over the past 12 months, Trulieve Cannabis' shares have gotten a lot cheaper. The company currently offers a forward price-to-earnings (P/E) of 14.95, compared to a forward P/E of 16.6 for the sector. Trulieve Cannabis is the leader in Pennsylvania, Arizona, and Florida, and it holds a 50% share of the market in the Sunshine State.
The company's acquisition of Harvest Health and Recreation, which expanded its network, will help it make headway in the pot market in the U.S. as this industry continues to grow. On top of that, Trulieve Cannabis is consistently profitable and trades at reasonable levels. The case for investing in this top marijuana stock and holding onto it looks strong for those willing to hold onto its shares for a while, despite its recent woes on the market.
2. Jazz Pharmaceuticals
Jazz Pharma is a biotech that was founded in 2003. Last year, it dove headfirst into the cannabis industry with its May 2021 acquisition of GW Pharmaceuticals, in a cash and stock transaction valued at $7.2 billion. GW Pharma focuses on developing cannabidiol (CBD)-derived medicines.
The combined entity owns a couple of exciting products in this niche. First, there is Epidiolex, which treats seizures associated with Lennox-Gastaut Syndrome and Dravet Syndrome -- both of which are rare forms of epilepsy that are usually diagnosed at a very young age.
In 2018, Epidiolex became the first CBD-based drug to be approved by the U.S. Food and Drug Administration. Jazz Pharma also now owns nabiximols, another CBD-based medicine that isn't approved in the U.S. yet but is undergoing a trio of late-stage clinical trials as a potential treatment for spasticity (muscle stiffness) related to multiple sclerosis.
The company plans to release data from one of these studies during the first half of the year.
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In November, management said the company could potentially file a regulatory submission for nabiximols within 18 to 24 months, if all goes according to plan. Jazz Pharma has high hopes for both Epidiolex and nabiximols. In the third quarter, the former generated sales of $160.4 million, 21% higher than the year-ago period.
The company thinks Epidiolex, which is also approved in Europe, has blockbuster potential. Nabiximols could also contribute meaningfully to the company's top line in the future if it earns approval in the U.S. But the great thing about Jazz Pharma's business is that it isn't solely a cannabis play.
The company boasts other exciting medicines as well. These include relatively new approvals such as Sunosi, a treatment for excessive daytime sleepiness in patients with narcolepsy, as well as a trio of oncology products: Rylaze, Xywav, and Zepzelca.
That's not to mention the company's longtime best-selling drug: Xyrem, a medicine for narcolepsy. Jazz Pharma plans to grow its annual revenue to $5 billion by 2025. For context, it expects revenue between $3 billion and $3.1 billion for the fiscal year 2021, compared to the $2.4 billion in revenue it reported in 2020.
Jazz Pharma also expects to record a net loss between $420 million and $320 million for 2021, compared to the net income of $238.6 million it recorded in 2020. The biotech is absorbing various costs -- some of which were one-time expenses -- related to the acquisition of GW Pharma. Jazz Pharma should be able to start recording net profits again this year.
And with a forward P/E of 7.9, the company looks attractive since the average forward P/E of the biotech industry currently stands at 11. Thanks to its new portfolio of medicine that can drive top-line increases for a long time without worrying about losing patent protection, Jazz Pharma looks well-positioned to grow into its valuation in the years to come.
