2 Cannabis Stocks You Can Buy and Hold for the Next Decade

The doldrums that cannabis stocks have drifted through over the last year have driven some investors out of the market. 

It's hard to take losses of more than 70%, which were experienced last year by the AdvisorShares Pure U.S. Cannabis ETF. Curaleaf, the largest multi-state operator (MSO) by revenue, has seen its shares drop more than 48% over the past year, while other MSOs fared even worse. Price compression of cannabis, particularly in the more mature markets, made it hard for cannabis retailers to be profitable.

Despite the short-term woes of some cannabis companies, the future of the industry has nowhere to go but up. 

Medical marijuana is legal in 37 states plus the District of Columbia, while recreational marijuana is legal in 21 of those states. There are seven states that allow sales of CBD oil only, and there are only six states where marijuana sales are illegal in all forms.

BDSA, a Colorado-based cannabinoid market research firm, projected U.S. cannabis sales would reach $27 billion in 2022 and then balloon to $42 billion by 2026. That booming future, however, will belong to the survivors, which to me include Trulieve Cannabis (TCNNF -1.30%) and Green Thumb Industries (GTBIF -2.91%).

Trulieve is built for the long haul

Trulieve is a cannabis retailer in nine states and is the industry market leader in Arizona, Florida, West Virginia, and Pennsylvania. It just opened its 125th dispensary in Florida, giving it 182 dispensaries nationwide. It has had 19 consecutive quarters of positive adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), making it one of the more profitable MSOs.

That profitability hasn't insulated its investors from market woes. Over the past year, its shares have dropped more than 68%.

Trulieve has been crucial in a push to allow recreational-use sales in Florida, which would be a boon to the company considering its dominance in medical-use sales in the state. As of Dec. 31, Trulieve was responsible for all but $125 of the roughly $20 million raised by the Smart & Safe Florida political committee, which is attempting to put recreational cannabis sales on the ballot in 2024. 

Trulieve said it expects 2022 revenue to be between $1.25 billion and $1.3 billion, up from $938.4 million in 2021, with adjusted EBITDA to be between $415 million and $450 million, up from $384.6 million in 2021.

The company reported revenue of $938 million through nine months, up 48% year over year, with adjusted EBITDA of $315 million, up 11% over the same period in 2021. However, it also reported a loss in net income of $169 million, compared to a positive net income of $90 million in the same period a year ago. The company could soon get back to reporting positive net income, though, as it said it expects to have significantly fewer supply chain projects this year.

Green Thumb Industries growing under control

Green Thumb has 77 dispensaries across 15 states. It has had 10 consecutive profitable quarters and says it is on track to slightly more than $1 billion in revenue in 2022. Over the past year, its stock has fallen more than 52%.

Interestingly, Green Thumb and Trulieve could both benefit if the state goes to adult-use sales. Green Thumb has only seven dispensaries now in the Sunshine State, but its test program to put 10 "Rise Express" dispensaries next to Circle K convenience stores in Florida could boom into something larger.

What stands out for Green Thumb is its commitment to maintaining a strong balance sheet. Like most MSOs, it's looking to grow, but not at a pace that will sacrifice the company's bottom line. In the third quarter, it reported $318.6 million in cash, with only $255.5 million in debt. If you compare the company to the other four top U.S. MSOs in terms of revenue, its debt-to-EBITDA ratio over the trailing 12 months is the lowest at 0.64, while the highest is Cresco Labs, whose ratio is 3.19.

Green Thumb's revenue mix includes a variety of retail cannabis products, including Rhythm, a leading cannabis brand. Through the first nine months of 2022, the company reported revenue of $758 million, up 17% over 2021, and net income of $63.2 million, up 20% year over year.