Cannabis stock investors have been on a wild ride since 2018 when Canada first announced that recreational cannabis would be legalized. Attention has since turned to the US where cannabis has been legalized in a growing number of states, and where legalization at the federal level appears to be drawing closer.
The legal status of cannabis in the US has created a unique situation. Cannabis use for medical reasons is allowed in 37 states, while cannabis can be used recreationally in 21 states. However, cannabis use is still prohibited at the federal level.
This legal framework has created the absurd situation where US cannabis companies can be publicly listed in Canada, but not in the US, while Canadian cannabis companies are allowed to be listed on US exchanges. Most US based companies are listed on the OTC market, but until cannabis is legal at the federal level you won’t see them on the NYSE or Nasdaq.
Another consequence of the legal situation is that most institutional funds (retirement funds and insurance companies) are not allowed to invest in cannabis stocks. This could provide a catalyst if or when cannabis is legalized federally.
As of 2023, Canadian producers are suffering from oversupply and growth is slow. US sales have grown quickly, but some states are also battling oversupply. Nevertheless, more states are expected to legalize cannabis use, and eventually it is expected to be legalized at the federal level too - so there are reasons to expect further growth, though it might not be linear growth. We have therefore focussed on US producers for this list.
9 companies
Cresco Labs Inc., together with its subsidiaries, cultivates, manufactures, and sells retail and medical cannabis products in the United States.
Growing market share with noteworthy acquisitions.
Earnings are forecast to grow 97.19% per year
Shareholders have been diluted in the past year
Volatile share price over the past 3 months
Trulieve Cannabis Corp., together with its subsidiaries, operates as a cannabis retailer.
Florida’s medicinal cannabis market leader
Trading at 42% below our estimate of its fair value
Earnings are forecast to grow 124.3% per year
Volatile share price over the past 3 months
Tilray Brands, Inc. engages in the research, cultivation, processing, and distribution of medical cannabis products in Canada, the United States, Europe, Australia, New Zealand, Latin America, and internationally.
Canada’s cannabis leader with an eye on other lifestyle products.
Trading at 44.7% below our estimate of its fair value
Earnings are forecast to grow 86.91% per year
Highly volatile share price over the past 3 months
Shareholders have been diluted in the past year
Village Farms International, Inc., together with its subsidiaries, produces, markets, and sells greenhouse-grown tomatoes, bell peppers, and cucumbers in North America.
Diversified revenue provides stability.
Trading at 70.8% below our estimate of its fair value
Revenue is forecast to grow 12.14% per year
Volatile share price over the past 3 months
Currently unprofitable and not forecast to become profitable over the next 3 years
A US cannabis giant with positive cash flows.
Trading at 74.4% below our estimate of its fair value
Earnings are forecast to grow 58.77% per year
Shareholders have been diluted in the past year
Volatile share price over the past 3 months
TerrAscend Corp. cultivates, processes, and sells medical and adult use cannabis in Canada and the United States.
Quality over quantity leads to industry beating margins.
Trading at 79% below our estimate of its fair value
Earnings are forecast to grow 117.64% per year
Shareholders have been diluted in the past year
Innovative Industrial Properties, Inc. is a self-advised Maryland corporation focused on the acquisition, ownership and management of specialized properties leased to experienced, state-licensed operators for their regulated cannabis facilities.
The cannabis industry’s landlord with properties in 19 US states.
Trading at 52.1% below our estimate of its fair value
Earnings are forecast to grow 3.77% per year
Earnings have grown 38.8% per year over the past 5 years
No risks detected for IIPR from our risks checks.
The Scotts Miracle-Gro Company, together with its subsidiaries, manufactures, markets, and sells products for lawn, garden care, and indoor and hydroponic gardening in the United States and internationally.
The ultimate ‘picks and shovels’ play in the US cannabis industry.
Earnings are forecast to grow 46.84% per year
Interest payments are not well covered by earnings
GrowGeneration Corp., through its subsidiaries, owns and operates retail hydroponic and organic gardening stores in the United States.
Capitalizing on the home growers market.
Volatile share price over the past 3 months
Currently unprofitable and not forecast to become profitable over the next 3 years
Simply Wall St analyst Richard Bowman and Simply Wall St have no position in any of the companies mentioned.