It's been a rough start to the year for cannabis stocks, as demonstrated by the ETFMG Alternative Harvest ETF and the AdvisorShares Pure U.S. Cannabis ETF dropping more than 31% and 43%, respectively, so far this year.
Those falling prices may obscure the fact that some cannabis companies are seeing considerable growth, companies that are able to take advantage of the current downturn and increase market share. The falling prices also present an opportunity for investors to get in on stocks with increasingly strong financials while their share prices are low.
Agrify (AGFY -19.62%), Village Farms International (VFF 3.31%), and Jushi Holdings (JUSHF -2.68%) had double-digit revenue growth in the fourth quarter and year-over-year in addition to annual triple-digit revenue gains in cannabis-related sales. On top of that, they all have relatively low debt-to-equity ratios (from 0.005 to 0.119), putting them in a position to ride out any short-term uncertainties in the cannabis market. On the other hand, they certainly haven't been immune to the downslide of cannabis stocks, with all three stocks' shares down 30% or more this year. However, that also means they are priced more attractively and make sound long-term plays, given their financial strength.
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1. Agrify helps other cannabis companies while it helps itself
Agrify doesn't sell cannabis -- it sells the tools to help cannabis companies grow their business with software and hardware solutions for indoor cultivation and extraction. The beauty of that is the company isn't as reliant on the rising or falling price of cannabis. Instead, the company partners with cannabis companies to improve their cannabis and hemp yields.
Agrify reported revenue of $25.3 million in the fourth quarter, up 481%, year over year and 60% sequentially. The company's yearly revenue for fiscal 2021 was $59.9 million, up 395% over 2020. It's a relatively new company, formed in 2016, and it went public with an initial public offering in February 2021. As it grows, its expenses will grow, so it isn't profitable yet. However, it seems to be keeping costs in line.
Agrify generated a net loss of $13.3 million in the fourth quarter, or $0.60 in earnings per share (EPS), compared to a loss of $13.1 million, or negative $2.23 in EPS, in the year-ago period. The company's yearly net loss was $32.4 million or $1.69 in EPS, compared to a net loss of $21.6 million and $5.32 EPS in 2020. Last year, the company increased new bookings by 919% to $377 million.
Agrify expected 2022 revenue to range between $140 million and $142 million, representing a gain of at least 134% over last year. In the first quarter, which the company is scheduled to report on May 11, it expected revenue of $25.5 million, flat sequentially but representing a gain of 264% year over year.
The company hopes its recent $50 million acquisition of Precision Extraction Solutions and Cascade Sciences (also known as Sinclair Scientific) will continue to drive growth. The companies, which merged just last year, provide end-to-end service solutions for the extraction and processing of cannabis and hemp. They were expected to be immediately accretive and help Agrify double its customer base.
2. Village Farms International is putting its experience to good use
Village Farms International uses hydroponic technology to produce cannabis in Canada and hemp and CBD products in the United States. It is also one of the largest and oldest greenhouse growers of produce in North America. That expertise and balance give it an edge in the cannabis industry.
In the fourth quarter, the company reported adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $5.3 million. Its Canadian cannabis sales had a positive EBITDA of $6.1 million, its 13th consecutive quarter of positive adjusted EBITDA. Adjusted EBITDA was $14 million for the year, up from $7.4 million the prior year.
Its fourth-quarter cannabis sales increased 168% year over year and 10% sequentially to $34.4 million, representing 47% of all revenue. For the year, it had $268 million in total revenue, up 58% over 2020. The company lost $9.6 million of net income in 2021 with an EPS loss of $0.11, compared to a net income of $11.6 million and positive EPS of $0.20 in 2020, but that was primarily due to losses in its corporate and product segments, while its Canadian and cannabis revenue rose 166% over the prior year.
It concentrates on wholesale cannabis sales, and its Pure Sunfarms brand was the top seller in dried cannabis flower sales in Ontario, Alberta, and British Columbia. That number should grow after the company bought its way into a 70% ownership stake in ROSE Lifescience last year and Village Farms, in its fourth-quarter earnings call, said it expects Quebec to be its second-largest flower sales market thanks to its stake in ROSE Lifescience.
3. Jushi Holdings is relatively small but growing
Jushi is a Florida-based multistate cannabis operator with 39 retail dispensaries across seven states, focusing on the limited-license states of Pennsylvania, Illinois, California, Virginia, and Nevada. Its largest presence is in Pennsylvania, where it has 18 dispensaries. It recently completed two acquisitions that give it four dispensaries in Nevada. A key area for the company will be in Northern Virginia, where it has two dispensaries and permits for four additional retail stores. It is the sole licensee allowed to operate in the Health Service Area 2, home to approximately 2.5 million people.
Last year, Jushi increased its annual revenue by 159% to $209.3 million. In the fourth quarter, its reported revenue was $65.9 million, up 22% sequentially, and 104% year over year. It also recorded adjusted EBITDA of $1.5 million in the quarter, its sixth consecutive quarter of positive adjusted EBITDA. Jushi reported a net income last year of $25.3 million, or a loss of $0.40 EPS, compared to a loss of $211.9 million last year and an EPS loss of $2.11 in 2020.
Data by YCharts.
Concentrating on profitability
Low debt levels and dynamic revenue gains make for a nice combination, which is why I like all three of these cannabis stocks, particularly at their current prices.
I'm most impressed by Jushi Holdings and Village Farms International because of their abilities to grow while maintaining positive adjusted EBITDA. However, if Agrify can meet its 2022 guidance, it should also generate enough revenue to become profitable, particularly if it continues to add customers at its current rate. These are stocks for which you'll have to be patient for share growth, but with strong management and the expected outlook for the industry in general, they appear to be solid long-term choices.
