Point ... counterpoint.
One week ago, I made the case for why Canadian cannabis stock Aurora Cannabis (ACB -0.15%) could be "a screaming buy" right now. And I have to say, the case seems strong.
Aurora Cannabis is just coming off a quarter in which it reported 30% year-over-year sales growth, a quarter in which it reported its highest level of gross profitability since mid-2020, and two straight quarters of historic levels of ... well, not profits exactly, but historically low losses on its business. Furthermore, with a plan to cut costs by a further $40 million per year, Aurora Cannabis might be able to push the company over the threshold to honest-to-goodness positive GAAP profits in 2025 or even 2024.
What's more, even if Aurora Cannabis fails to achieve profitability this year, or even next year, the company's management has already promised something arguably even more significant: To generate positive free cash flow in 2024, such that the company would become internally self-funding, and no longer need to take out loans, or sell stock, in order to keep itself solvent.
Long story short, there are many reasons to believe that Aurora Cannabis is on the cusp of becoming a great marijuana investment story.
But if you'll forgive me for pointing this out, there's one marijuana stock that I think is even better.
Introducing Green Thumb Industries
Along with its fellow Canadian cannabis company Canopy Growth (CGC 2.41%), which bears the inspired Toronto Stock Exchange ticker "WEED," Aurora Cannabis is probably one of the two best-known marijuana stocks on the market. With only $37 million in negative free cash flow so far this year, it's also burning a whole lot less cash than Canopy Growth (which has burned through $170 million).
And with its promise to turn free cash flow-positive in 2024, Aurora Cannabis appears well positioned to outperform its peer in coming years.
Yet even so, neither well-known Aurora Cannabis nor Canopy Growth strike me as the absolute best cannabis stock to own right now. Instead of either of these Nasdaq-listed Canadian stocks, I see a whole lot more potential in a lesser-known marijuana company that is listed in Canada, but headquartered in the United States -- Chicago-owned and operated Green Thumb Industries (GTBIF 3.56%).
Compare the companies and you'll quickly see why. Whereas both Aurora Cannabis and Canopy Growth are still struggling to achieve positive earnings and positive free cash flow, Green Thumb has already achieved both these goals. For three straight years, from 2020 to 2022, it reported positive GAAP profits. (The company was also profitable last quarter, and analyst forecasts see positive earnings again through the end of this year.) In 2020, its free cash flow was also positive, and it came close in both 2021 and 2022.
Green Thumb is looking even closer today, with trailing 12-month results showing it just $20 million away from FCF-breakeven. And if analysts are right in their guesses, Green Thumb will succeed in regaining positive free cash flow status by next year at the latest. Forecasts compiled by S&P Global Market Intelligence, for example, show the company generating positive cash profits of $114 million in 2024 -- then more than doubling that number to pass $248 million in 2027.
Valuing Green Thumb Industries
At a valuation of $2.8 billion, Green Thumb currently trades for just 11 times 2027 free cash flow -- and barely 9 times 2027 free cash flow.
Admittedly, the stock looks a bit pricey at 64 times this year's forecast earnings. But when it comes to having "far better prospects" than Aurora Cannabis, which hasn't yet definitively proven it can turn a profit, I'd say that Green Thumb -- which has proven this -- probably fits that bill.
The wild card: Legalization
Final point: For investors who aren't yet entirely convinced that the U.S. government will never get around to officially legalizing marijuana at the federal level, I think it almost goes without saying that a U.S. company like Green Thumb is better positioned to capitalize upon such a development than foreign-based companies like Aurora Cannabis or Canopy Growth.
For one thing, there's the geographic proximity. For another, Green Thumb boasts a superior market capitalization of $2.7 billion -- making it three times bigger than Aurora Cannabis and Canopy Growth combined. For a third, Green Thumb already boasts annual sales in excess of $1 billion (versus about $600 million total between Aurora and Canopy). That's a pretty impressive achievement for a company selling marijuana in a country where it's "illegal," compared to two other companies selling it in places where it's "legal."
If it's prospects you want, just imagine how much more marijuana Green Thumb Industries will be able to sell, once it finally becomes legal to sell it on the U.S. national level.
