After a rollercoaster ride over the last few years, the marijuana industry no longer seems enticing to investors. The lack of progress toward U.S. federal legalization, and lower retail and wholesale prices for the raw marijuana flower leading to lower corporate profitability, have pushed cannabis stock prices even lower. However, savvy investors recognize that every growing industry goes through hiccups and eventually settles down, with the strongest businesses going to eventual profitability.

Not surprisingly, investing in cannabis stocks requires patience and a strong appetite for risk. Investors with longer investment horizons and higher risk appetites are usually unconcerned with short-term fluctuations. Instead, in periods of market volatility, they usually end up buying stocks in sound businesses cheaply. Trulieve Cannabis (TCNNF -4.97%), a Florida-based cannabis multi-state operator, is one such business that has shown promise with its latest results, despite its stock being down 88% over the last two years. Let's look at three reasons Trulieve has a good investment case now.

1. Trulieve grew revenue in a challenging market 

Rising inflation, increased competition, and supply/demand imbalances all had an effect on revenue for most domestic cannabis growers last year. The good news is that marijuana demand remains high, and Trulieve's latest annual results demonstrate this.

Total revenue increased 32% year over year to $1.2 billion. Management attributed this top-line growth to "contribution from the Harvest acquisition, new market expansion, and new store openings in existing markets." Adjusted EBITDA for the year jumped 4% to $400 million versus 2021. 

Initially, it concerned me that Trulieve's reliance on its home market in Florida, and only on medical cannabis, would limit its growth while its peers were expanding aggressively. But I believe it was a wise decision by management to strengthen its roots before expanding to new markets. It has also diversified its products to include recreational cannabis. Both strategies most likely assisted Trulieve in establishing a brand name and a loyal customer base. These, in turn, allowed it to enter markets in other key states without burning a hole in its balance sheet.

2. Trulieve's dominance in the domestic market may provide a competitive advantage

With the lack of progress toward legalization, many investors believe that cannabis is not a good investment now.

However, that doesn't seem to hinder Trulieve's progress. The company opened 25 new dispensaries in 2022, bringing its total to 181 by the end of the year. Trulieve has a monopoly in the Florida market (125 stores), making it difficult for its rivals to establish themselves.

Its monopoly in Florida gives the company a competitive advantage if recreational cannabis gets legalized in the state. Behind the scenes, Trulieve is financially supporting the Smart and Safe Florida campaign to legalize adult-use marijuana in the Sunshine State.

The company has already opened three more stores in 2023, bringing its total to 184. While there is a perception in the market that federal legalization might be necessary for cannabis businesses to become profitable and, hence, successful, MSOs like Green Thumb Industries have earned profits even from this limited legal market. Yes, legalization will solve many problems, such as obtaining capital. However, even state markets could suffice for these businesses to be profitable, as Green Thumb proved.

Currently, 21 states and the District of Columbia have legalized recreational cannabis, while 37 states have made it legal for medical use. In addition, industry experts predict cannabis could be fully legalized in Pennsylvania, Florida, Maryland, Ohio, and Minnesota this year.

Besides Florida, Trulieve already has stores in a few key markets now. With most states allowing both medical and recreational marijuana now, Trulieve has a chance to expand to new markets.

3. Trulieve is financially stable

Cannabis companies have found it difficult to raise capital in the absence of U.S. federal legalization. With such a backdrop, Trulieve's balance sheet is impressive. It had $219 million in cash and equivalents at the end of 2022.

And unlike peers, Trulieve has been prudent in not burdening its balance sheet with excessive debt, or by putting shareholders' capital at risk.

Its debt-to-equity ratio (total debt divided by total shareholders' equity) stands at a decent 0.34, a sign of a healthy balance sheet. A lower debt-to-equity ratio indicates that a company is not aggressively using debt to survive or grow. In addition, Trulieve generated $21 million in free cash flow in the fourth quarter, indicating a healthy underlying business

The stock is currently trading at a price-to-sales ratio of 0.9. Given its long-term growth prospects, it does appear cheap. But that needs to be taken with perspective. If your risk appetite is high, Trulieve could help juice your returns. However, given the inherent risks present in the cannabis industry, I would advise new investors to be cautious and to diversify their portfolios by investing in more stable companies.