The U.S. marijuana industry is expanding at a rapid rate. Domestic cannabis companies are striving to make their marks with aggressive expansion plans and strategic acquisitions. And in particular, a pair of multi-state operators (MSOs) -- Florida-based Trulieve Cannabis (TCNNF 1.08%) and Illinois-based Cresco Labs (CRLBF 1.28%) -- are the talk of the town now.
Trulieve and Cresco recently made smart acquisitions that could propel them into the top tier of contenders in the cannabis industry. Let's take a look at which marijuana stock is the better growth stock now.
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The case for Trulieve Cannabis
Trulieve started in Florida, where it now dominates the market with 113 dispensaries. Some investors, though, worry that its dependence on primarily one state and the medical cannabis segment could put it at risk. But the company is slowly sorting those issues out. Last year, it acquired Arizona-based Harvest Health, giving it traction in Arizona, Pennsylvania, and Maryland. The company now operates 162 dispensaries in 11 states. It has also started introducing recreational products and derivatives -- a category that includes vapes, edibles, and concentrates.
These moves allowed the company to generate close to $938 million in 2021, with revenue growth of 80% over the prior year. They also led to its 16th consecutive quarter of profitability from an operational standpoint in Q4. And adjusted net income grew 2% year over year, to $123 million. It ended the year with $234 million in cash and cash equivalents on the books.
Trulieve expects 2022 to be another robust year. Management expects revenue to show up in the range of $1.3 billion to $1.4 billion and adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) in the range of $450 million to $500 million. Estimates show that the cannabis industry could grow at a compounded annual growth rate (CAGR) of 14% to be worth more than $70 million by 2030.
Analysts see upsides of around 209% for Trulieve's stock in the next 12 months, considering the industry growth, I believe it is possible.
The case for Cresco Labs
Cresco has been consistently performing well for the last few quarters, with revenue and EBITDA growth in the double-digit percentages. It ended the year strong with a stellar 73% year-over-year growth in total revenue to $822 million. Adjusted EBITDA also jumped 219% to $194 million for the year. Its 50 stores nationwide did the magic.
The company is about to add another strong asset to its portfolio. Concurrent with its latest earnings report last month, it also announced its planned acquisition of New York-based Columbia Care (CCHWF -2.04%). The deal, valued at an enterprise value of $2 billion, is expected to close in the fourth quarter, assuming it gets the necessary regulatory approvals.
With Columbia's assets, Cresco will operate more than 130 dispensaries in 18 states. This acquisition could be advantageous to Cresco in reducing costs through synergies, according to the management. The company is not profitable yet, but with rising profits and EBITDA, it shouldn't take long. Cresco ended the year with $224 million of cash and cash equivalents that it can use for further expansion. Analysts project an upside of 150% for Cresco's stock in the next 12 months.
Which is the better choice?
Both are excellent growth companies with bright outlooks. Their trailing 12-month revenues are similar, with Trulieve at $938 million and Cresco at $821 million. Both have also been consistently profitable from an operational standpoint. But if you were going to choose just one to add to your portfolio now, Cresco looks like a better pick even though it is not profitable yet.
With Columbia Care in its portfolio now, it is definitely a bigger company than Trulieve which could add to its advantage when the merger starts showing its full potential. Moreover, Trulieve has been too dependent on its medical cannabis business while Cresco has expanded beyond that segment. Trulieve also delayed launching high-margin derivatives (additional recreational products like vapes, edibles, and topicals) that Canada legalized in October 2019. Cresco launched derivatives products in the first quarter of 2020, while Trulieve introduced a few of them -- including gels, chocolates, cookies, and brownies -- in its third quarter of 2020.
Even though Trulieve has more dispensaries, most of its stores are in Florida. Dominance in that state could benefit Trulieve if and when the state legalizes recreational cannabis, but it could be a while before that happens, so a growth strategy that depends so heavily on that single market may prove unwise.
Meanwhile, Cresco has a wider national presence -- and will soon be much more diversified, market-wise -- and is generating almost as much revenue as Trulieve. Cresco has also been working on reducing its operating expenses which were down to $94 million in Q4 versus $374 million in the prior-year quarter. Trulieve's operating expenses increased to $151 million in Q4 compared to $56 million in the year-ago quarter. It is important for investors to note how well a company handles its operating expenses.
CRLBF PS Ratio (Forward) data by YCharts
Cresco is also cheaply valued now trading at a price-to-sales ratio of 1.7, compared to Trulieve and other peers. And Cresco is now down by more than 50% from its 52-week high of $13.65, making this a smart time to buy this marijuana stock on the dip.
