Over the last few months, the allure of cannabis stocks has gained momentum. Since mid-2023, many top-tier cannabis companies have experienced rejuvenation in pricing and demand. Consequently, savvy investors should spot a golden opportunity with these companies, trading at mere fractions of market highs. Moreover, as U.S. states rally for cannabis legalization and ongoing research continues to unveil multifaceted health benefits, the horizon looks incredibly promising. This shift in sentiment is palpable, especially with the possibility of marijuana transitioning from a Schedule I to a Schedule III controlled substance.
Cresco Labs (CRLBF)
In the vibrant realm of U.S. cannabis, Cresco Labs (OTCMKTS:CRLBF) shines as a beacon of promise. Operating 68 dispensaries across 10 states, the company’s vertical integration keeps its operational grip tight, making it significantly leaner than many of its peers.
Diving into the numbers, its second quarter paints a mixed picture. Though the company surpassed expectations with $198 million in sales, marking a 2% bump sequentially, it noted a 9% drop year-over-year. Yet, the silver lining lay in the adjusted EBITDA, which blew up by 38%, reaching $40 million, comfortably exceeding projections. Moreover, annualized EPS estimates for the year is at a negative 26 cents and a negative 11 cents for 2024. Clearly, while challenges remain, Cresco’s potential and operational prowess can’t be ignored. The future holds remarkable promise.
Tilray Brands (TLRY)
Tilray Brands (NASDAQ:TLRY) is a powerhouse in the cannabis realm, with a leadership position in the Canadian marijuana space. Moreover, its aggressive mergers and acquisitions activity, which included Aphria, Hexo, Truss Beverages, and recently, eight beverage brands from Anheuser-Busch (NYSE:BUD), catapulted it to become the fifth-largest craft beer behemoth in the U.S. Not to mention its commitment to sustainability is evident with its Good Supply brand’s shift to eco-friendly materials.
Delving into the numbers, the first quarter showed a stellar $177 million in net revenue, reflecting a 15% year-over-year rise. Additionally, while both the cannabis and distribution divisions flaunted impressive growth, the beverage segment’s net revenue jumped by roughly 17% year-over-year. Also, it narrowed its net loss by 15% year-over-year, whiles its adjusted EBITDA, too, slid down by 16% year-over-year. Yet, Tilray remains optimistic, reaffirming its adjusted EBITDA outlook for fiscal year 2024 and predicting a positive adjusted free cash flow trajectory.
Green Thumb Industries (GTBIF)
In the crowded cannabis space, Green Thumb Industries (OTCMKTS:GTBIF) continues to turn heads, and the credit goes to its CEO, Ben Kovler. Steering the ship with Buffett-esque wisdom, Kovler champions sustainable, fiscally responsible growth. Its recent second-quarter figures are a testament to his approach, with a profit of $13.4 million on revenues of $252.4 million, outperforming estimates.
Even as headwinds, including inflation and the delay in federal cannabis legalization, loom, Green Thumb’s fiscal resilience shines remarkably bright. The company wrapped up the second quarter with a comforting $149 million in its coffer. The star player, however, was the cash flow, with the second quarter seeing $18 million, especially after a hefty tax payment. The first half’s cash flow, touching $93 million, marked a robust leap from the previous year. With Kovler’s emphasis on financial prowess, Green Thumb is navigating unrestrained waters with notable finesse, as it trades at just 2.1 times forward sales.
AdvisorShares Pure US Cannabis ETF (MSOS)
Exchange-traded funds have steadily carved a niche in the investment realm, and for good reason. They offer a buffet of diversification opportunities, enabling investors to spread their bets across a myriad of tocks, all while being light on the pocket. Enter the AdvisorShares Pure U.S. Cannabis ETF (NYSEARCA:MSOS), which dips its toes into the vibrant U.S. stock market, making strategic plays in companies sprinkled across the marijuana and hemp sectors.
The fund employs derivatives like swaps to weave its investment tapestry. Additionally, with assets under management of a whopping $495.79 million, it towers over its peers, being 129.02% above the sector’s median. And with stakes in 86 cannabis-centric firms, it spreads its risks effectively.
Constellation Brands (STZ)
Constellation Brands (NYSE:STZ) is a beer giant that offers a low-risk secondary play in the U.S. cannabis space. It operates a Fortune 500 business, boasting almost $10 billion in global sales, with the U.S. being its primary playground. However, its strategic alignment with cannabis firm Canopy Growth (NASDAQ:CGC) is what makes it an interesting spillover play.
While Constellation remains seemingly aloof over its whopping $4 billion stake in CGC, insiders speculate it’s a waiting game for the perfect legal climate. Owning a sizeable 35% of CGC, Constellation’s cards are effectively poised for a lucrative reshuffle once the cannabis sphere sees friendlier legislation. On its end, CGC is effectively fine-tuning its financials, prepping for an impending legalization surge. While the cannabis legalization journey remains shrouded in uncertainty, Constellation emerges as a safe bet for investors. With a strong market position and a stellar stock, it offers a less volatile gateway to the riches of the cannabis world.
Valley National Bancorp (VLY)
Amidst the federal apprehensions surrounding marijuana, traditional banks have kept their distance. However, Valley National Bancorp (NASDAQ:VLY) is a trailblazer in the niche, diving headfirst into cannabis banking. With an entire division named cannabis-related business banking, Valley National stands as a guardian angel for entities, including dispensaries and cultivators, ensuring they avoid the risky terrains of cash-only businesses. This move not only shields businesses from potential theft but deters unwanted attention from the IRS.
As the cannabis horizon expands, Valley National’s position appears cemented as a frontrunner in the banking space. Even if conventional banks hop on the bandwagon, existing cannabis giants should stay loyal to Valley National, recognizing its pioneering role. In addition, the bank serves as a safe harbor for investors with an enticing 5.65% dividend yield, which surpasses its sector median by 35.6%. Additionally, its valuation, at 4.4 times its trailing-twelve-month cash flows, is 28% below sector averages, emerging as a promising choice in today’s tumultuous banking environment.
Curaleaf Holdings (CURLF)
Curaleaf Holdings (OTCMKTS:CURLF) is another top player in the cannabis sector, charging forward with research-driven expansion. Last year alone, the company unveiled over 150 new products, catering to both medicinal and recreational cannabis enthusiasts. Such dedication to product innovation positions Curaleaf for not just stellar top-line growth but improved EBITDA margins.
The company’s ambitions, though, aren’t confined to domestic shores as it casts its net wide into European waters, having anchored its presence with import and distribution channels in countries including the U.K., Germany, and Italy, to name a few. Given Europe’s vast market potential, this move can be seen as a masterstroke for future expansion.
A quick dive into their financials from the first half of 2023 is revealing. Net revenues surged to $675.1 million, marking an 8% year-over-year bump, while its gross profit stood firm at $307.3 million, with a commendable 46% margin. Also, its adjusted EBITDA, at $143.2 million, accounted for 21% of the revenue. While every investment carries its risks, Curaleaf, with its strategic moves and vision, appears primed for a resurgence in a more conducive environment.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines