The shares of most cannabis stocks, already reeling from a difficult 2022, have continued to plummet in 2023. That drop is reflected in the decline of two cannabis ETFs: The AdvisorShares Pure Cannabis ETF is down more than 18%, and the ETFMG Alternative Harvest ETF is down more than 17% to start the year. 

It's hard to find cannabis stocks whose shares are up for the year, including even profitable ancillary cannabis stocks, such as cannabis real estate investment trusts (REITs), whose shares have fallen along with the fortunes of their tenants.

Going against that tide, Scotts Miracle-Gro (SMG 0.85%) and TerrAscend (TRSSF -2.36%) are up by double digits. Scott's diversity and its plan to return to profitability has encouraged the market, while TerrAscend's tight focus on a few limited-license states is helping it responsibly increase revenue.

Here's what investors see in these two companies:

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Scotts Miracle-Gro is planting the seed for profitability

Scotts Miracle-Gro's shares are up more than 36% so far this year. The Marysville, Ohio-based company makes and sells consumer lawn, garden, and pest control products. Its exposure to cannabis is through its Hawthorne subsidiary, which sells hydroponics equipment and cultivation lights to growers.

Although Hawthorne is struggling, with many cannabis companies cutting back on growing and the need for its products, the rest of the company is doing well. Most of Scotts's sales come from its U.S. Consumer segment, where  first-quarter revenue rose 8% year over year.  However, Hawthorne's sales, down 30% year over year, dragged down the company's total revenue by 7%. 

Scotts also reported a net loss of $64.7 million in the quarter, and an earnings per share (EPS) loss of $1.17, compared to net loss of $50 million, or $0.90 EPS, in the same period a year ago.

The company said that while it expects Hawthorne revenue to decline as much as 20% to 30% this year, it has high hopes that its various cost-cutting measures, dubbed Project Springboard, will return the company to profitability by the end of the 2023 fiscal year. The company said it expects Project Springboard to save the company more than $185 million this year, with 48% of those savings coming from cuts to its Hawthorne segment, including paring its distribution network to more closely align with expected sales and improve Hawthorne's margins.

The cuts only mean the company is tightening the segment, not forgetting it, as it may be able to take advantage of the opening up of several states this year to cannabis sales. The company said it is continuing to spend on research and development, as it sees long-term growth for Hawthorne's products as the cannabis industry stabilizes.

Investors willing to be patient for a turnaround will be rewarded by Scotts' dividend of $0.66 per quarterly share, which has increased by 428% since 2005. Its current yield is about 4%.

TerrAscend's revenue keeps climbing

TerrAscend is a Mississauga, Ontario-based cannabis company that has 32 dispensaries across Pennsylvania, New Jersey, Maryland, Michigan, and California and also has licensed production in Canada. 

The company's focus on just a handful of limited-license states is by design, as it sees more potential profit without too much competition. California and Michigan have been open to adult-use sales for years, but soon all five states could be open to adult-use sales. New Jersey just opened to adult-use sales last year, Maryland is scheduled to open to adult-use sales this summer, and Pennsylvania Govenor Josh Shapiro is pushing for the legalization of recreational marijuana sales in his 2023-2024 budget, saying it could generate $188 million in tax revenue for the state by 2028.

TerrAscend also finds synergies through some of the businesses and brands it owns, including The Apothecarium, Gage Cannabis, Ilera Healthcare, Kind Tree, Prism, State Flower, Valhalla Confections, and Arise Bioscience.

The company's shares are up more than 31% this year. TerrAscend has piqued investors' interest in its stellar revenue growth, with it increasing in every quarter in 2022.

In the fourth quarter, TerrAscend reported revenue of $69 million, up 4.2% sequentially and 50.3% year over year. For the year, the company said it had $248 million in revenue, up 28%. The company had a net loss of $2 million in the quarter, compared to a $300.6 million loss in the prior quarter, which included a $331.2 noncash impairment charge for the downsizing of the company's Michigan business.

While it is traded over-the-counter, like many U.S. cannabis companies, TerrAscend has submitted an application to be listed on the Toronto Stock Exchange, which would provide another avenue of funding for the company.