The cannabis industry is a tricky one to invest in. While marijuana sales are projected to keep growing, the sector continues to face regulatory challenges in the U.S. and elsewhere. But even in this environment, there are excellent companies to consider. Let's look at two marijuana players that look like great options to buy and hold for a long time: Jazz Pharmaceuticals (JAZZ -0.37%) and Trulieve Cannabis (TCNNF -3.13%).
1. Jazz Pharmaceuticals
Jazz Pharma is a biotech company that dipped its toes into the marijuana industry when it acquired cannabidiol (CBD)-derived medicines specialist GW Pharmaceuticals. The May 2021 transaction cost Jazz Pharma $7.2 billion in a mix of cash and stock. Now, the biotech boasts a couple of exciting CBD-based medicines in its lineup, in addition to its pre-acquisition product portfolio.
The two key assets Jazz Pharma got its hands on are Epidiolex and Nabiximols. The former is medicine for seizures associated with two rare forms of epilepsy called Lennox-Gastaut Syndrome and Dravet Syndrome.
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Nabiximols isn't approved in the U.S. yet, but it is undergoing clinical trials as a potential treatment for spasticity (muscle stiffness) associated with multiple sclerosis (MS). The commercial opportunity for Nabiximols seems exciting. About one million people in the U.S. suffer from MS, and up to 84% of them experience spasticity. While therapy options exist, approximately one in three MS patients in the U.S. still lives with uncontrolled spasticity.
Top-line data from Nabiximols' phase 3 study should come in during the first half of the year. The rest of Jazz Pharma's pipeline looks strong. It includes cancer medicines Rylaze, Xywav, and Zepzelca, narcolepsy medicine Xyrem, and Sunosi, a treatment for excessive daytime sleepiness in patients with narcolepsy. All these products, except for Xyrem, first earned regulatory approval in 2019 or later.
In other words, they will contribute meaningfully to Jazz Pharma's top-line growth without the company having to worry about patent cliffs. Last year, Jazz Pharma generated total revenue of $3.1 billion, about 31% higher than the year-ago period.
The company expects to generate $5 billion in revenue in 2025. Jazz Pharma also intends to launch at least five new products by the end of the decade. Jazz Pharma's forward price-to-earnings ratio of 9.5 looks reasonable compared to the average of 11.1 for the biotech industry.
With an extensive (and expanding) portfolio of new drugs, Jazz Pharma will deliver excellent financial results consistently for many years to come. The biotech's shares should also perform well, especially given its mild valuation.
2. Trulieve Cannabis
Marijuana grower and retailer Trulieve Cannabis has an impressive presence across the U.S. As of March 1, the company had 161 dispensaries across 11 states. Trulieve Cannabis has also been able to deliver 15 consecutive quarters of profitability -- which practically makes it a unicorn among pure-play marijuana growers that operate in the U.S. Perhaps the secret to Trulieve Cannabis' success has been its prudent strategy.
Some of its peers focused on expanding their footprints throughout the U.S. but doing so spread their resources thin, increased their operating costs, and harmed their bottom line. Trulieve Cannabis started by focusing on the state of Florida. The company operates 112 medical dispensaries in the sunshine state and has held a roughly 50% market share for over five years.
Trulieve Cannabis' October acquisition of Harvest Health and Recreation helped diversify its operations. The deal cost Trulieve Cannabis $2.1 billion in stock. Following the transaction, Trulieve Cannabis targeted Arizona (where Harvest Health and Recreation was based) along with Florida and Pennsylvania as its cornerstone markets. Cannabis sales growth in the U.S. market will work wonders for Trulieve Cannabis, given its solid position in this market.
It's also worth noting that Trulieve Cannabis looks reasonably valued compared to two of its similarly sized peers: Cresco Labs and Curaleaf Holdings.
TCNNF PS Ratio (Forward) data by YCharts.
While Curaleaf Holdings' quarterly revenue is higher, Trulieve Cannabis has been consistently profitable. Excellent sales growth prospects coupled with a decent valuation and green on the bottom line spell an exciting future for this marijuana company.
