After a tumultuous 2022, marijuana stocks probably aren't high up on many investors' "must-own" lists heading into the new year. The nascent industry has been going through a broad array of growing pains, which has cost early shareholders dearly.
For instance, the average net return on capital among the 10 largest publicly traded cannabis companies by market capitalization was negative 64% in 2022. The S&P 500, by contrast, yielded a far more modest loss of 18% for investors last year.
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A powerful theme is emerging in the marijuana stock space, however. As the global push for legalization slowly gains momentum, the industry is widely expected to continue its ongoing consolidation phase.
As a result, the legal marijuana industry seems destined to eventually be controlled by a small handful of globally active companies. These battle-hardened cannabis pioneers are likely to enjoy a parabolic growth trend once the U.S. ends federal prohibition on the plant and key international markets like Germany approve adult-use recreational marijuana.
Against this backdrop, I think the best cannabis stocks to own heading into 2023 are the top multi-state operators (MSOs) Curaleaf (CURLF 2.02%) and Green Thumb Industries (GTBIF 2.46%). Read on to find out more about these intriguing cannabis stocks.
Curaleaf: A top MSO with global aspirations
With commercial operations in 21 states and 145 retail locations nationwide, Curaleaf is easily one of the U.S.'s largest multi-state operators. The cannabis giant is also one of the few legal cannabis businesses in the world with a respectable gross margin (49% in the most recent quarter), a growing top line (7% year-over-year growth in the third quarter of 2022), and a relatively strong balance sheet ($198 million in cash at last count).
What's important to understand is that Curaleaf is putting these key operational advantages to work by rapidly expanding abroad. In recent times, the company has gained important footholds in several foreign markets such as the U.K., Germany, Italy, Portugal, and Switzerland.
Thanks to Curaleaf's impressive scale and exposure to multiple high-value European markets, Wall Street analysts think this top MSO stock could rise by a healthy 95% over the next 12 months. Last month, Cantor Fitzgerald analyst Pablo Zuanic even laid out a strong case for the stock to possibly rise by as much as 179%.
Now, I don't share Wall Street's resoundingly bullish take on Curaleaf's shares due to the unfavorable market conditions for growth stocks at the moment. But I do think the company's strong underlying business performance ought to translate into market-beating gains for shareholders in 2023. And longer-term, I think Curaleaf's ongoing international expansion will eventually pay off in a big way for early shareholders.
Green Thumb: A true growth machine
Green Thumb is a unicorn of sorts. In an industry where most companies are losing money at a dizzying pace, Green Thumb is actually turning a profit. In the most recent quarter, for example, the MSO posted its ninth consecutive profitable quarter under generally accepted accounting principles (GAAP).
In 2023, Wall Street analysts expect Green Thumb's business to continue to outperform most of its peers, with the company's annual revenue forecast to rise by a noteworthy 12% for the year. That kind of double-digit sales growth is exceedingly rare in the legal cannabis industry right now.
Green Thumb's stock also qualifies as a bona fide value play. At present, the cannabis company's shares are trading at under 2 times 2023 estimated sales, which is dirt cheap for a high-growth consumer packaged goods company.
What's the upside potential? Wall Street's most bullish take implies this cannabis stock could soar by a healthy 153% in 2023.
While I'm not fully on board with this rather rich price target, Green Thumb's shares do come across as deeply undervalued in light of the company's ability to turn a profit in an extremely harsh environment.
I think Green Thumb's top-notch financial performance -- under less-than-ideal circumstances -- bodes well for its chances of morphing into an overwhelmingly dominant figure in the U.S. cannabis scene by the middle of the decade.
