Given the pullback in shares for cannabis companies this year, it's not easy to find stocks in the sector with apparent explosive growth ahead, but NewLake Capital Partners (NLCP 3.65%), Cronos Group (CRON 0.96%) and Trulieve Cannabis (TCNNF 1.17%) continue to show annual double-digit revenue growth.
The stocks are all in different levels of cannabis involvement. NewLake Capital is an emerging real estate investment trust (REIT) that specializes in leasebacks with cannabis companies short on capital; Trulieve is the biggest player right now in vertical integrated cannabis sellers; and Cronos is a smaller cannabis seller that is rapidly developing its cannabis brands.
NewLake Capital Partners concentrating on growth
NewLake is still small but has big plans. The company just spent $50 million on three properties, using the money raised from its initial public offering (IPO). It bought a 38,000 square-foot cultivation facility in Pennsylvania for $14.5 million and a 56,000 square-foot cultivation facility in Nevada for $13.6 million. It also agreed to spend $21 million to expand an existing cultivation facility it owns. That leaves NewLake with 31 properties, up from only five leased properties at this time in 2020.
In the first quarter, NewLake reported $7.7 million in funds from operations (FFO), up 16.2% sequentially and 206% year over year. It also said it had $8.1 million in adjusted FFO (AFFO), up 15.7% sequentially and an increase of 138% over the same period last year. Net income was $5 million, up from $4.3 in the prior quarter and $1.5 million in the first quarter of 2021. The company also reported $10.2 million in revenue in the quarter, up 13% sequentially and 104.9% over the first quarter of 2022.
The company's guidance puts full-year revenue between $42 million and $44, compared to the $28.2 million it had in 2021.
Besides its growth, the company makes itself attractive to investors with its quarterly dividend, which it recently raised by 6% to $0.35 per share, the fifth consecutive quarter the company has increased its dividend. That works out to a yield, as of Friday's share price, of 7.71%. The AFFO payout ratio of 92% is a bit high, but considering the company's growth and that, as of March 31, its properties were 100% leased and had an average lease term of 14.3 years, that payout ratio is a lot safer than it looks.
Cronos Group focusing on its brands
Cronos Group is a nontraditional Canadian cannabis company in that it focuses on the sales of cannabis brands and on developing rare cannabidiols (CBDs) for scientific purposes, using fermentation. In May, the company reported first-quarter revenue of $25 million, up 99% year over year.The company sells in Canada, Australia, Germany, and Israel and is seeing particularly strong growth in Israel, with revenue of $9.1 million there, up 263% over the same period last year. The company is still losing money but is closer to making a profit. In Q1, it lost $32.6 million, down from $161.6 million in the same period last year.
Cronos has a diverse group of CBD and cannabis brands, including Spinach, PEACE Naturals, Lord Jones, Happy Dance, and PEACE+, and said it is prepared to bring those brands south of the border to the United States if and when federal legalization happens. Last year, it bought a 10.5% share of Chicago-based PharmaCann and entered into an agreement that, once federal legalization happens in the U.S., Cronos will be able to sell its products in PharmaCann's 50 dispensaries, which are in Pennsylvania, Colorado, New York, Illinois, Ohio, Maryland, Michigan, and Massachusetts.
Trulieve looks to dominate the market
Trulieve is the biggest pure-play cannabis stock by revenue, with a record $318.3 reported in Q1, up 64% year over year and 4% sequentially. The company is also the biggest pure cannabis stock with $28.7 million in adjusted operating income. It has 165 dispensaries, more than any other cannabis company thanks to its purchase last year of Harvest Health and Recreation. It also had $105.5 million in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), up 16% year over year and 4% sequentially, and the company's 17th consecutive quarter of profitable adjusted EBITDA.
The company's guidance said it expected yearly revenue between $1.3 billion and $1.4 billion, up from $938.4 million last year and adjusted EBITDA between $450 million to $500 million, an increase compared to $384.6 million last year.
Looking for the best buy
Phenomenal revenue growth wasn't enough to prop up the three cannabis stocks' shares so far this year. That's not surprising with the AdvisorShares Pure Cannabis ETF down more than 56% so far this year. Cronos Group is down more than 18%, NewLake Capital Partners has dropped more than 36%, while Trulieve's shares have fallen more than 54% so far this year.
However, the three companies' businesses appear solid, so at current share prices, they are good deals. Trulieve has the best long-term prospects because of its size and ability to make a profit. NewLake is positioned for another year of solid growth, thanks to its acquisitions, and in the meantime, investors are rewarded with a nice dividend. Investors in Cronos Group may have to wait until federal legalization of cannabis happens in the United States, but it will be well positioned to take advantage when that does happen.