Investing in a volatile industry, such as cannabis, is not for the fainthearted. However, this industry does have high growth prospects over the next decade, and there are some excellent, well-run, and growing companies in this space.
While marijuana is still illegal federally, these companies have performed tremendously well even in a limited legal market. With yet another state -- New Jersey, this time -- getting ready to launch its recreational market, domestic cannabis growers are gearing up to take advantage of another lucrative market.
Operating under such circumstances, there are three cannabis companies that stand out to me. Illinois-based Green Thumb Industries (GTBIF -5.60%) and Florida-based Trulieve Cannabis (TCNNF -6.26%) are growers who took good advantage of their home state markets. Meanwhile, Massachusetts-based Curaleaf Holdings (CURLF -5.94%), even though not profitable, is getting ready to heat up the competition with its timely acquisition and expansion strategies.
Let's take a look at why these three pot stocks are ready for a bull run.
Image source: Getty Images.
1. Green Thumb Industries
This Illinois-based multi-state operator (MSO) saw its net income from operations (before accounting for non-controlling interests) quadruple in 2021. Increased traffic from its 73 dispensaries helped the company achieve GAAP profits for six quarters in a row. It is quite impressive for a cannabis company, considering how its Canadian counterparts are struggling to achieve profitability.
Green Thumb's clocked a net income of $75.4 million, versus $15 million in 2020, driven by a solid 60% growth in revenue that came in at $893 million. The company opened 10 new stores and acquired 12 additional stores last year.
This year, Green Thumb has already opened three new stores in Virginia, bringing up its open retail locations to 76 .
Since cannabis remains illegal at the federal level, obtaining state-level licenses to open retail locations is a big deal for marijuana companies. State operators are restrictive of the licenses they issue. Though Green Thumb hasn't disclosed when and how to use them, once it does, it will have a competitive edge over its peers. Its Q4 also marked its eighth consecutive quarter of positive cash flow from operations, which will help in expansion this year.
The company also benefited from Illinois's new recreational cannabis market. The state legalized it in January 2020. Adult-use sales have skyrocketed in the state since then, crossing $1 billion last year.
2. Trulieve Cannabis
Trulieve started as a medical cannabis company in Florida, but now runs 161 dispensaries nationwide. I applaud Trulieve's strategy of focusing and strengthening its roots in its home state. It dominates its home-state market with 112 stores.
The company has expanded to key cannabis markets, such as California, Connecticut, Massachusetts, and West Virginia. Plus, its acquisition of Harvest Health (completed last year) gave it access to the Arizona, Pennsylvania, and Maryland cannabis markets.
Its consistent stellar performance quarter after quarter is proof of how big the company has become. Its fiscal third-quarter marked its 15th consecutive quarter of profitability from an operational standpoint. Net income grew 7% year-over-year, to $19 million, driven by a 64% surge in revenue.
The company is set to report its Q4 results on March 30. Recreational cannabis is still illegal in Florida, but developments are ongoing. Holding a dominant position in the state will play out in Trulieve's favor when legalization happens.
3. Curaleaf Holdings
This multi-state player has been growing revenue at a spectacular rate. In the fourth quarter, Curaleaf's total revenue jumped a solid 39% year over year to $320 million, while full-year revenue for 2021 grew a stellar 93%, to $1.2 billion.
Curaleaf's numerous acquisitions of various cannabis products, manufacturers, and dispensaries over the last two years worked in its favor. These include Select, Curaleaf NJ, Arrow, MEOT, Remedy, Blue Kudu, Alternative Therapies Group, Grassroots, and more. Curaleaf also saw its adjusted EBITDA for the year jump 107% year over year to $298 million.
In January, it also completed the acquisition of Bloom Dispensaries, giving it access to the Arizona market. Three months into the year, Curaleaf has opened more dispensaries and brought up its total store count from 117 at the end of 2021, to 126 now. The company is also expanding to the European market as well with the acquisition of EMMAC Life Sciences Group.
Curaleaf might not be profitable now, but at the rate at which it's growing, it won't be long before it's bottom line turns green.
A bright future lies ahead
Green Thumb and Trulieve took advantage of their home state cannabis markets. Industry experts expect to see huge growth in the New Jersey market, which is set to launch "in weeks" according to Gov. Phil Murphy. The state could generate more than $2 billion in recreational sales annually by 2026, according to estimates by MJBizDaily.
Green Thumb and Curaleaf operate three stores each in New Jersey, while Trulieve has no stores in the state yet.
Many more states could legalize either form of marijuana this year, boosting potential revenue opportunities for these MSOs. These three cannabis growers have shown that federal decriminalization is not really essential to thrive and expand.
That said, federal decriminalization (if and when that happens) should transform these three businesses into cannabis powerhouses. Right now the market doesn't seem confident of regulations being eased at the federal level which makes these stocks pretty cheap right now. As the chart below shows, all three are trading quite cheaply, with a price-to-sales ratio hovering between 3 to 5.
Data by YCharts.
Wall Street also believes marijuana stocks are outstanding investments for the long term. Analysts see upsides of 147%, 93%, and 219% for Curaleaf, Green Thumb, and Trulieve's stock over the next 12 months.
The stocks are also trading more than 50% below their 52-week high now, making it the right time to buy the dip. But note that marijuana is a risky sector, so it is always advisable to have a diversified portfolio with a basket of stocks from various sectors.
