Legalization And Plant-Based Wellness Will Unlock Expansive Cannabis Markets

Key Takeaways

• Early state investments and operational efficiencies position Verano for significant outperformance if legalization and demand accelerate in key high-potential markets.
  
• Premium product innovation, omnichannel reach, and international readiness give Verano long-term advantages for sustained margin improvement and multi-market revenue growth.
  
• Reliance on key state markets, intensifying competition, high expenses, and federal restrictions threaten long-term growth, margins, and financial flexibility.

Catalysts

Operates as a vertically integrated multi-state cannabis operator in the United States.

• While analyst consensus sees Verano's footprint optimization and focus on growth markets as a positive, this actually understates the structural leverage Verano holds in states like Florida and Virginia where its early investments, vertically integrated operations, and facility scalability could lead to revenue and EBITDA growth that far outpaces peers if or when adult-use legalization rapidly accelerates access and demand.
  
• Analysts broadly agree automation and SKU rationalization will help margins, but Verano's demonstrated production efficiencies and record transaction growth per headcount signal potential for sustained gross margins above historical levels; this could set a new industry benchmark, translating to long-term outsized earnings gains versus consensus expectations.
  
• The company's international exploration, evidenced by deploying its former president to scout ex-North America opportunities, uniquely positions Verano to capitalize early if Europe or Latin America opens for business, unlocking a massive additional total addressable market and providing a longer runway for accelerating multi-year revenue growth.
  
• A rising focus on plant-based wellness and premium product innovation, coupled with robust product launches in high-growth categories like vapes and topicals, positions Verano to benefit disproportionately from shifting consumer demand toward health and lifestyle cannabis products, potentially lifting average selling prices and driving both top-line growth and higher gross margins for years.
  
• Verano's extensive physical retail footprint and openness to digital adoption (curbside, e-commerce pilots) enables seamless omnichannel reach, positioning it to seize share as online and direct-to-consumer sales accelerate in cannabis-this platform moves could expand margins and drive durable market share wins as the market's digital ecosystem matures.

Verano Holdings Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Verano Holdings compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Verano Holdings's revenue will grow by 1.5% annually over the next 3 years.
• Even the bullish analysts are not forecasting that Verano Holdings will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Verano Holdings's profit margin will increase from -40.8% to the average CA Pharmaceuticals industry of 2.9% in 3 years.
• If Verano Holdings's profit margin were to converge on the industry average, you could expect earnings to reach $25.7 million (and earnings per share of $0.06) by about August 2028, up from $-345.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 85.5x on those 2028 earnings, up from -1.0x today. This future PE is greater than the current PE for the CA Pharmaceuticals industry at 27.2x.
• Analysts expect the number of shares outstanding to grow by 4.43% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.93%, as per the Simply Wall St company report.

Verano Holdings Future Earnings Per Share Growth

Risks

• Ongoing price compression and increasing competition in key markets such as Illinois and New Jersey, driven by the entry of dozens of new third-party dispensaries, continue to pressure revenues and gross margins and could worsen as commoditization accelerates with future federal legalization.
  
• The company faces persistent high SG&A expenses due to retail footprint expansion, acquisitions, and operational complexity, which, despite current cost management, may limit further operational efficiency gains and pressure net margins over the long term.
  
• Verano remains heavily reliant on a few key state markets such as Florida, Ohio, Maryland, Virginia, Illinois, and New Jersey, creating significant concentration risk; underperformance or increased competition in any of these primary states could materially reduce overall revenues and earnings.
  
• The wholesale cannabis business segment has shown sharp year-over-year declines, primarily due to increased competition, credit risk among third-party retailers, and industry-wide accounts receivable issues-this creates structural challenges to revenue growth and exposes the company to working capital and credit losses, which could depress future net income.
  
• The cannabis sector's ongoing federal illegality continues to restrict banking and capital access, resulting in higher borrowing costs and constrained investment for growth initiatives, which may impact Verano's ability to refinance its debt and hinder both revenue and earnings expansion in the long run.

Valuation

• The assumed bullish price target for Verano Holdings is CA$6.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Verano Holdings's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$6.0, and the most bearish reporting a price target of just CA$1.47.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $884.5 million, earnings will come to $25.7 million, and it would be trading on a PE ratio of 85.5x, assuming you use a discount rate of 6.9%.
  
• Given the current share price of CA$1.3, the bullish analyst price target of CA$6.0 is 78.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.