If you're considering investing in a cannabis company, there's a good chance that you're thinking about buying shares in a pure-play. If you aren't familiar, pure-plays have a simple business model in which they cultivate and then sell cannabis, typically directly to consumers. That means they're positioned to capture any rise in demand for marijuana products in the geographical markets where they compete.
On the other hand, pure-plays also tend to face the brunt of any downturns or changes in regulation that impact demand. And there are plenty of pure-play companies out there that'll burn your investment quite quickly. In fact, they tend to be so risky that I wouldn't invest in any pure-play cannabis business. Except for the three I'll be discussing here today, that is.
Image source: Getty Images.
1. Green Thumb Industries
There's a lot to like about Green Thumb Industries, (GTBIF 5.03%) starting with its friendly goal of addressing consumers' demand for cannabis with products that make them feel comfortable, healthy, and happy.
Green Thumb's products are distributed in 15 states at its 76 retail stores, which are concentrated mainly in the Northeast of the U.S. During a positively sizzling 2021, it brought in $893.7 million in net revenue, an increase of 60.5% year over year, while also opening or acquiring a total of 22 new stores.
With a profit margin of 8.4%, investors should also take note that this company's efficiency is rising precipitously. Over the last three years, its total expenses have fallen sharply as a percentage of annual revenue, led by improvements in its cost of goods sold (COGS) and selling, general, and administrative (SG&A) expenses.
OTC: GTBIF
Key Data Points
Right now, Green Thumb is focusing on building its collection of brands and expanding its newest high-margin product segments, like cannabis beverages and edibles. That'll build on its recent successes in transitioning from revenue growth to earnings growth, and it'll help to catalyze returns for new and existing investors in the process.
2. Planet 13 Holdings
Planet 13 Holdings (PLNH.F 2.58%) isn't a massive multi-state operator (MSO) like Green Thumb Industries. Instead, it's a much smaller company that's focused on total victory in one (highly lucrative) very narrow geographical segment: Las Vegas.
Its superstore near the tourist nexus on the Strip is its largest, and it's also how the business is able to hold a market share of 10% in the city. As a result, the location is responsible for a lion's share of its annual revenue of $119.5 million.
In 2019, more than a million people visited there, though visitor traffic has understandably taken a hit with the advent of the pandemic. Even so, 2021's net revenue was 70% more than 2020's. As the pandemic recedes, there's a solid chance that this company's base of revenue will continue to come roaring back bigger than ever.
OTC: PLNH.F
Key Data Points
Planet 13 is also expanding outside of its home in Las Vegas, with new stores recently opening in California and Illinois. Over the next five years, it plans to open more than eight new outlets across the U.S., massively expanding its footprint, and potentially making investors much richer in the process. If its operations in Nevada are any guide, it'll eventually start wholesaling to local cannabis businesses once the new locations are established.
While it's not consistently profitable yet, there's so much growth coming on the horizon that it shouldn't be too concerning, and its 2021 gross profits of $66 million is a 55.2% improvement over the prior year's sum of $35.1 million. And if management's plans come to fruition, it shouldn't be too hard to reach profitability, given its minimal retail footprint model.
3. Trulieve Cannabis
OTC: TCNNF
Key Data Points
If I could only buy one of the stocks I've discussed, it'd be Trulieve Cannabis (TCNNF 3.42%).
In short, Trulieve is an MSO that's more geographically concentrated than Green Thumb but less so than Planet 13. It's also one of the most profitable and rapidly growing mid-cap cannabis businesses in the U.S. Per its hot-off-the-press 2021 earnings report, its annual revenue jumped by 80% year over year, reaching a grand total of $938.4 million.
In terms of its retail presence, 112 of its 162 retail stores are located in its Southeastern hub centered around Florida, though Trulieve is also making inroads in building new hubs in the Northeast and the Southwest.
Last year, it more than doubled its number of retail holdings. Building out its hubs at such a fast pace will hold the door open for sales to keep skyrocketing -- and it claims to already be the medicinal market leader in Florida, Arizona, and Pennsylvania.
The best thing about this company is that it has a history of growing while staying profitable. Though its gross margin has contracted to reach 60.3% as a result of its ongoing market penetration efforts, it's still worlds ahead of many of the other businesses in the industry, and there's no indication of that changing anytime soon.
