The current market environment might scare folks into staying away from it. But history says a tumbling market creates opportunities for long-term investors. Some industries like marijuana, which is still at a nascent stage, might be underappreciated at the moment. But this industry is predicted to double in value to $72 billion by 2030.
The cannabis industry is not for the faint-hearted. It will require patience and a long-term investment horizon. These stocks can bring in huge returns when the market reaches its full potential. Most of them are trading cheaply at the moment. The two I believe are good bargain buys now are Massachusetts-based cannabis multi-state operator (MSO) Curaleaf Holdings (CURLF 0.72%) and hydroponics supplier GrowGeneration (GRWG 0.76%). Let's dig into why these two are worth investing $1,000 in.
Image source: Getty Images.
1. GrowGeneration
Colorado-based GrowGeneration is not a pure-play cannabis company. It is a hydroponics specialist that supplies cannabis growers with the equipment they need for indoor cultivation. The company operates 63 stores across 13 states nationally, selling hydroponics products and other equipment.
GrowGeneration brought in revenue of $422 million in 2021, representing a dramatic jump of 119% year over year. Total net income came in at $12.8 million, compared to 2020's net income of $5.3 million. 2022 thus far, however, has been slow. It reported a first-quarter revenue dip of 9% to $82 million, with a net loss of $5.2 million versus a profit of $6.1 million in the prior-year period.
Softer industry demand led to a weaker quarter, according to the management. Expecting to face similar pressure in the remainder of the year, GrowGeneration updated its full-year guidance. The company now expects 2022 revenue to fall in the range of $340 million to $400 million, down from the previous guidance of $415 million to $445 million, with adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) between $0 and $10 million. However, it ended the quarter with a strong balance sheet holding cash and short-term securities of $66.3 million, which could fund further expansion.
GrowGeneration plans to open 10 to 15 new stores in 2022. Recently, it also completed the acquisition of Horticultural Rep Group, the largest chain of specialty hydroponic and organic garden centers in the U.S.
Despite the short-term headwinds, management is confident in the long-term opportunities within hydroponics. Plus, the cannabis industry's rising potential will increase demand for GrowGeneration's products, boosting revenue.
NASDAQ: GRWG
Key Data Points
2. Curaleaf Holdings
The U.S. cannabis industry is filled with excellent companies boasting strong financials and massive long-term prospects. Amid a sea of impressive companies, it is laudable how Curaleaf has maintained its top position in terms of revenue. It has earned $1.2 billion in revenue over the trailing 12 months.
Its timely and strategically planned acquisitions in the last two years, new store openings, and new product launches have fueled this extraordinary growth. Curaleaf's Q1 revenue increased 20% year over year to $313 million. Adjusted EBITDA keeps rising every quarter, coming in at $72 million in Q1 and representing a jump of 16% over the prior-year period.
The company opened 11 new stores just in the first quarter, bringing its total to 128 stores nationwide. It also completed the acquisition of Bloom Dispensaries, which brings its total to 13 stores in Arizona, a new recreational cannabis market.
In Q1, Curaleaf also commenced recreational sales in New Jersey, which legalized it last year. This state market could be a strong one for Curaleaf. It is estimated to add $2 billion to total U.S. legal cannabis sales by 2026, according to BDSA. Curaleaf has also spread its reach to the European market with the acquisition of Europe-based EMMAC Life Sciences Group, which will give it access to cannabis markets in the U.K., Germany, Italy, Spain, and Portugal.
We will know more about the company's growth strategies when it releases its second-quarter results on Aug. 8.
NASDAQ: GRWG
Key Data Points
Don't wait too long
Investors have been hard on marijuana stocks for the past year. There is a vast mismatch between cannabis operators' financials and their share prices. The lack of positive movement toward marijuana reforms might be pulling down these stocks now, but when the cannabis market bounces back, these stocks will likely rebound sharply.
GRWG PS Ratio data by YCharts.
Both companies are well funded for future expansions at a time when other small operators are struggling to obtain capital. Street analysts, on average, are bullish on both stocks. GrowGeneration and Curaleaf are fairly cheap now, trading at price-to-sales ratios between 0 and 3, making it the right time to buy and hold them for the long haul.
