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It's Time To Get Serious About U.S. Marijuana Stocks

 Investor's Business Daily - With state legalization expanding and financial troubles receding, Wall Street says it's time to pay attention to U.S. marijuana stocks.

Their path to profitability is firmer than their better-hyped Canadian counterparts, analysts say. The playing field is bigger, even though cannabis isn't federally legal yet. Sales growth for the biggest producers is stronger. And the growth is helping reshape the U.S. cannabis industry as big companies buy up smaller ones.

"Profitability between Canadian and American operators is night and day," said Eric Des Lauriers, a marijuana stocks analyst at Craig-Hallum.

Top U.S. pot producers like like Green Thumb Industries (GTBIF), Curaleaf (CURLF), Trulieve (TCNNF) and Cresco Labs (CRLBF) have operations stretching across multiple legal states. Analysts point to those companies as the best equipped for continued growth in an industry whose sales could surpass $28 billion next year.

Caveats remain. Efforts to legalize marijuana at the federal level face reluctant lawmakers. "Profitability" in the marijuana stocks universe sometimes comes with a few asterisks. Acquisitions are accelerating, but could get complicated. Worries endure about the prospect of an industry dominated by a handful of companies, burying the nation under indistinguishable, low-quality weed that drives away consumers.

"This industry is rife with examples of companies that have become generic corporations that treat this like seltzer water or a generic consumer good," said Sam Ghods, CEO of Connected, a California-based cannabis producer.

But despite those concerns about product quality, most people following the industry see the legal world expanding, with ample room for gains.

U.S. States Lift Marijuana Stocks

The U.S. pot industry is emerging after marijuana stocks in Canada, where recreational cannabis went legal in 2018, initially grabbed investors' attention. Canadian marijuana stocks were the first to arrive on major U.S. exchanges. And they landed big investments from tobacco and alcoholic beverage companies Altria Group (MO) and Constellation Brands (STZ).

In the U.S., 58% of adults now want full legalization, according to the latest IBD/TIPP poll. U.S. lawmakers have tried to advance measures to federally decriminalize cannabis and open up access to basic banking services to the industry. But progress has been faster at the state level.

Recreational cannabis is now legal in 18 states and the District of Columbia. Medical marijuana use is legal in 37. Legal U.S. cannabis industry sales are forecast to jump 23% to around $22.8 billion this year, according to cannabis industry market researcher Headset.

Next year, those sales are expected to accelerate, growing 24% to $28.3 billion. Those are far bigger sales figures than in less populous Canada. There, legal cannabis sales are expected to hit $4.06 billion this year and $5.35 billion next year. That's a bigger percentage gain, but in a market where the largest producers are still grappling with losses and escalating competition.

So What Are The Top U.S. Marijuana Stocks?

Based on revenue, Curaleaf is the biggest U.S. pot stock. It had $627 million in sales last year, a 184% rise from 2019.

That's more than the 37% gain, to $436 million, put up last fiscal year by Canadian weed giant Canopy Growth (CGC). And it's close to the $685 million that Tilray (TLRY) and Aphria, two Canadian producers that merged in May, said they would have made together over a year. And Aphria's pharma distribution business, which it separated from cannabis sales, did the heavy lifting on the top line when Aphria was on its own.

Curaleaf runs more than 100 dispensaries across more than 20 states. The company believes it is the market-share leader in New York, and controls a big chunk of the market in New Jersey, Cowen analysts say.

No. 2 is Green Thumb Industries, with $557 million in sales last year. The company has most of its retail locations in Pennsylvania and Illinois, according to Cowen. Marijuana stocks analysts at Cowen have called the stock their top pick for this year.

Trulieve, the third largest with $522 million in 2020 sales, has focused on the medical markets in Florida. But it has expanded its way north. Cresco Labs, the fourth with $476.3 million in 2020 sales, draws a lot of revenue from its wholesale business.

Based on market cap, Curaleaf is also the biggest among U.S. marijuana stocks, with a valuation of around $8.2 billion. Green Thumb's valuation stands at $6 billion, according to MarketSmith. Trulieve, with adjusted EBITDA of $251 million last year, is worth $4.1 billion.

Other stocks offer ways to indirectly play the U.S. industry. GrowGeneration (GRWG), a hydroponics retailer, has been on an acquisition spree this year. Innovative Industrial Properties (IIPR), a real estate investment trust that buys properties like growing facilities and dispensaries and leases them back, maintains high ratings from IBD.

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