Year to date, the S&P 500 is down 14%. But savvy investors are aware that now is the ideal time to purchase solid growth stocks at a discount. One group that could offer particular opportunity is the cannabis industry. Since the second quarter of 2021, when they peaked, cannabis-related shares have been slipping. While not of their own doing, cannabis stocks are suffering at least in part from the lack of progress toward U.S. federal legalization.
But when the market is dumping popular growth stocks, that could be a good time to take a second look. The two below stand out because of their unique business models. Both companies have outstanding long-term prospects as the cannabis market evolves to reach its full potential.
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1. Planet 13 Holdings
Nevada-based Planet 13 Holdings (PLNH.F -3.08%) might be a small company by market cap ($302 million), but its unique superstore strategy has put it in the limelight. It owns enormous cannabis outlets in key markets that provide customers with a distinctive shopping experience.
Its popular Las Vegas store is the world's largest cannabis space. It sells a wide range of branded products, including edibles, vapes, and cannabis extracts. Despite the scale of the store, it is not generating high revenue yet, since it only operates in California and Nevada.
But Planet 13 is gradually expanding to other key state markets. It intends to open a second superstore in Chicago, where it has won a dispensary license. In addition, the business has signed leases for three dispensaries in Florida and expects to open a total of six stores in the state.
California's cannabis industry is massive, and several well-known marijuana companies have solidified their presence there. Illinois is another robust cannabis market where home players Green Thumb Industries and Cresco Labs are already playing big. Meanwhile, with 122 outlets, Trulieve Cannabis leads the Florida cannabis industry. Curaleaf Holdings is another significant player in that state, with roughly 52 outlets. Planet 13 could have a tough time establishing itself there.
Though California, Florida, and Illinois are difficult markets to penetrate, Planet 13 is more than just a cannabis store. Customers are drawn to its size and in-store experience. The company has even begun drafting an application to add a cannabis consumption lounge in its Las Vegas store to enhance customer experience.
Its revenue dipped 14% in Q2 to $28 million due to inflation fear and a pullback in consumer spending. But with a net loss of $2 million as opposed to a loss of $5.6 million in the same quarter last year, its bottom line marginally improved.
Over the past five years, annual revenue has grown 464%. Planet 13 is not profitable yet, but with its business developing at this rate and sales increasing, it may see green in its bottom line sooner rather than later.
Analysts, on average, anticipate sales of $243.6 million in 2022, a 104% increase year over year. Management believes that in a year from now, the company will have doubled its retail and store footprint. Management also stated in the earnings call that the company has been maintaining its 8% to 12% market share in Nevada. It also expects its Florida business to fuel growth in 2023.
If its superstores in the upcoming states are as popular as the one in Las Vegas, revenue for this small-cap cannabis firm might skyrocket soon.
2. GrowGeneration
Though Colorado-based GrowGeneration (GRWG 5.91%) is not a pure-play cannabis company, it has benefited from the sector's expansion. It is a hydroponics expert that supplies cannabis growers with the equipment needed for indoor production.
In 2021, the firm saw exceptional growth, with total revenue of $422 million, marking a year-over-year increase of 119%. Total net income came in at $12.8 million, compared to $5.3 million in 2020. However, 2022 has been a poorer year so far. Softer demand and inflationary pressures led to a 43% drop in second-quarter revenue to $71 million, with a net loss of $5.2 million compared to a profit of $6.1 million in the prior-year period, according to management.
Despite the short-term hurdles, its management is confident about hydroponics' long-term possibilities. The company intends to shut down three to five underperforming outlets soon. Before the year ends, it also plans to open three to four additional stores in places where it presently does not operate. It now has 62 sites spread throughout 14 states.
Various macroeconomic factors have weakened this year's demand, but the company's retail locations cater to a wide range of plant growers besides cannabis. The cannabis market has huge potential in the U.S. Most multi-state operators are expanding aggressively as well. According to estimates, the U.S. cannabis industry might expand at a compound rate of 15% between 2022 and 2030, reaching a value of $40 billion.
When the cannabis industry recovers, GrowGeneration will have a lot of opportunities to boost revenue.
