Marijuana stocks, despite being excellent growth stocks, aren't attracting a lot of attention right now. Much could be blamed on the lack of positive movement toward cannabis reforms in the U.S. But that doesn't change the fact that many of them are doing exceptionally well. Revenues are on the rise while driving operational profitability.
With more states legalizing marijuana this year, opportunities will expand for cannabis companies. While all eyes are on the bigger players like Trulieve Cannabis, Cresco Labs, and Curaleaf Holdings, small-cap cannabis stocks often get ignored. My eyes are on these rising stars -- Florida-based Jushi Holdings (JUSHF -1.27%), Nevada-based Planet 13 Holdings (PLNH.F 0.65%), and Colorado-based GrowGeneration (GRWG -0.44%). These cheap pot stocks might not look attractive at all right now. However, it doesn't take much time for a good company in a high-growth industry to skyrocket.
Image source: Getty Images.
1. Jushi Holdings
This $550-million-market-cap company has tremendous potential to shine as the cannabis industry expands. Even with just 29 retail stores nationwide, Jushi Holdings has been growing revenue at an exponential rate. In its fourth quarter, revenue surged 104% year over year to $66 million, while full-year revenue jumped 159% to $209 million.
Jushi has played it smart by targeting limited-license markets. Cannabis is illegal federally, which is why state operators are restrictive of the number of licenses they issue and to whom. The company has captured a market presence in limited-license key cannabis markets like Pennsylvania, Illinois, California, and Virginia, which helped the company draw in a net profit of $25 million, compared to a net loss of $211 million in 2020. The company also holds 11 additional licenses.
To expand its exposure in Nevada, Jushi acquired NuLeaf, which gave it access to three recreational and medical dispensaries in the state.
Jushi also ended the year strong in terms of liquidity, with $95 million in cash and short-term investments and $147 million in principal amount of total debt (excluding current leases and financing obligations related to plants and equipment).
A recent poll commissioned by Jushi revealed that 61.5% of respondents agreed that the cannabis industry is important to U.S. economic growth. Jim Cacioppo, Jushi's Chairman and CEO, mentioned how the poll disclosed consumers' confidence in cannabis. This shows the growth and opportunities that will arise as the industry matures.
2. Planet 13 Holdings
Planet 13 Holdings is a very small company with a market cap of just under $500 million, but it has managed to capture cannabis consumers' eyes with its enormous dispensaries. Unlike other cannabis companies, Planet 13 operates with a unique superstore strategy.
It owns massive dispensaries that give customers a unique retail experience. Its Las Vegas store is wildly popular as the world's largest cannabis space. These dispensaries sell a wide array of branded products, including edibles, vapes, and cannabis extracts. Despite having massive dispensaries, it is not a high revenue-generating company yet, mostly because it operates only in Nevada and California for now. But it is slowly spreading its roots to other states. It plans to open another superstore in Chicago, where it won a dispensary license.
But just with two states, the company has managed to bring in $119.5 million in revenue for the full-year 2021, a year-over-year growth of 70%. Even, adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) jumped from $7 million in 2020 to an impressive $17 million in 2021.
3. Grow Generation
This is not a pure-play cannabis company. It is a hydroponics specialist that makes money by supplying cannabis growers with the equipment they need for indoor cultivation. Through this business model, GrowGeneration operates 63 stores across 13 states nationally, selling hydroponics products and other equipment. The company is profitable. It saw its revenues jump 46% in Q4 to $91 million and 119% year over year to $422 million for 2021. Total net income for the year came in at $12.8 million, compared to 2020 net income of $5.3 million.
GrowGeneration plans to open 15 to 20 new garden centers in 2022 and expects another strong year. Recently, it also completed the acquisition of Horticultural Rep Group, the largest chain of specialty hydroponic and organic garden centers in the U.S. The company expects 2022 revenue to fall in the range of $415 million to $445 million, with adjusted EBITDA between $30 million to $35 million. It also ended the year with a strong balance sheet holding cash and short-term securities of $81.2 million, which will help it with further expansion. As the cannabis industry expands, demand for GrowGeneration's products will also increase, boosting revenue.
Not the ones to ignore!
The illegality might have tied the hands of cannabis growers in the U.S. to some extent. But these small companies have managed to grow revenue and profit even in a limited market. More opportunities will arise as the market evolves. Even Wall Street has high hopes for these cheap pot stocks. Analysts see huge upsides for Jushi, Planet 13, and GrowGeneration's stock of 119%, 294%, and 116%, respectively, in the next 12 months.
GRWG PS Ratio data by YCharts
When it comes to valuation, all three pot stocks are cheap, with a price-to-sales ratio hovering between one and four. The stocks are also trading more than 50% below their 52-week high, making it the right time to buy at the dip and hold for the long haul.
