The Horizons Marijuana Life Sciences ETF has been down more than 60% over the past year, and many pot stocks took a drubbing during that time. Although their businesses are generally unprofitable, they possess lots of potential in the long run, especially as more states legalize marijuana. Many of the stocks have been performing well, but a lack of progress on marijuana reform (at the federal level) and oversupply issues in the industry have weighed down otherwise promising cannabis stocks.
But the good news for long-term investors is that this has resulted in some great deals along the way. Three stocks that are cheap buys and can set you up for some great returns down the road are Cresco Labs (CRLBF +5.70%), Jushi Holdings (JUSHF +5.39%), and Ayr Wellness (AYRW.F 10.78%)
OTC: CRLBF
Key Data Points
1. Cresco Labs
Marijuana multi-state operator (MSO) Cresco Labs will be among the largest cannabis companies in the world when its acquisition of Columbia Care goes through. Together, the companies will have a footprint that spans 130-plus retail stores in 18 markets and annual revenue of more than $1.4 billion. Cresco anticipates the transaction will close by the end of the year.
Cresco Labs is already technically one of the largest pot producers in the country, reporting $218 million in sales last quarter for the period ending June 30. The company also reported adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $51 million, which was 23% of revenue.
Today, Cresco Labs looks like a bargain, trading at just 1.4 times sales. By comparison, rival Curaleaf Holdings trades at a multiple of 3.5. With decent financials and a large acquisition pending, Cresco Labs is a top cannabis business that investors can snag at a discount.
OTC: JUSHF
Key Data Points
2. Jushi Holdings
Jushi Holdings is another MSO that investors should target, even though it's noticeably smaller than Cresco. It reported its second quarter (ending June 30) numbers in August, and revenue of $72.8 million showed a 52% increase from the prior-year period. It also posted an adjusted EBITDA profit of $0.5 million, but that was barely positive.
What's exciting about this pot stock is that it's still growing at a fast pace. By the end of this year, the company projects its annual revenue could be at a run rate of up to $350 million -- 67% higher than the $209 million in sales it posted in 2021 and more than four times the $81 million it recorded in 2020. By the end of the year, the company projects it will have 37 pot shops open across seven states. And by the end of 2023, it should be up to 50 stores.
The fast-growing cannabis company has staked out a particularly strong position in Pennsylvania, a market where pot isn't legal for recreational use just yet. There, Jushi has 18 medical-marijuana dispensaries -- its largest footprint. Should Pennsylvania legalize adult-use marijuana in the future, Jushi could be a much hotter buy than it is now. Today, it trades at just 1.5 times trailing sales.
OTC: AYRW.F
Key Data Points
3. Ayr Wellness
Another bargain in the industry that cannabis investors shouldn't overlook is Ayr Wellness. At less than 0.7 times the company's sales, the stock trades at the lowest multiple of revenue on this list.
Its quarterly revenue for the period ending June 30 was $110.1 million and rose 21% year over year. Adjusted EBITDA of $19.6 million was a strong 18% of revenue.
Ayr's footprint is a bit larger than Jushi's, as it's in eight states and expects to have at least 84 dispensaries by the end of this year. And the markets it's focusing on are some of the top cannabis markets in the country, including New Jersey, which began adult-use sales earlier this year. Ayr's largest presence is in Florida, where it expects to finish the year with 50 dispensaries, followed by Pennsylvania, where it has nine locations.
The company is in a great position to expand its presence because, in many markets, it has fewer than five locations. That gives Ayr plenty of room to grow and get even bigger in the years ahead. Considering Ayr's fairly cheap valuation, this could be an underrated stock to buy right now.
