The legalization of marijuana in the United States could trigger one of the biggest growth trends in history. Even though pot has only been legalized in about half of the states for medical or recreational purposes (or both), New Frontier Data estimates that the U.S. market for legal weed will grow 16% on an average annual basis. until 2025. This means that annual marijuana sales will increase. reaches $ 43 billion, more than double its current size.
Not all cannabis companies will be the winners, but the three-pot stocks below currently appear to be in the best position to capitalize on the opportunity.
Small cap fast growing Colombia treatments (OTC: CCHWF) is an example of a marijuana stock that has been unfairly beaten because it chooses to invest in large-scale growth quickly. The multi-state operator (MSO) has 99 dispensaries in 17 states, with 31 growing and manufacturing facilities operating alongside its wholesale distribution business in 13 markets. Columbia also added:
- Green Leaf Medical Vertically Integrated Medical Marijuana Business
- CannAscend, a four dispensary operation focused on Ohio
- Project Cannabis, a California-based grower, wholesaler and retailer
It’s also just entered the new medical marijuana market in Virginia with some of the state’s first whole flower sales for patients.
The MSO predicts the state will expand sales for personal and recreational use in the future, a move according to Columbia that will triple or quadruple its revenue when that happens. With twice as many states allowing medical use as recreational use, the MSO is uniquely positioned to capitalize when change occurs.
Columbia Care shares are down 33% year-to-date, but analysts at Cantor Fitzgerald predict its stock could rise more than 37% in the coming year and have set a target of price of $ 5.50 per share. Since Columbia Care is profitable on an adjusted basis, it is a pot stock to buy before the market corrects its myopia.
Another vertically integrated MSO with a presence in 10 states, Cresco Laboratories (OTC: CRLBF) is the leading wholesaler of branded marijuana products which are sold in 700 dispensaries nationwide. In addition, it has its own dispensaries, as well as 20 production facilities. This makes it one of the largest MSOs in the world, with its large footprint fueled by both acquisitions and organic growth.
Second-quarter revenue jumped 123% in the last quarter to $ 210 million, generating GAAP profit of $ 2.7 million and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of 45 , $ 5 million. Cresco expects to generate $ 1 billion this year, with gross profit margins exceeding 50% in the third and fourth quarters.
The key to Cresco’s success has been to focus on markets where operating licenses have been limited so that its competition has been minimized by state or local government. He has the opportunity to develop his brands into those sought after by users, which gives him the opportunity to develop a loyal following.
In keeping with this narrowness of focus, Cresco has one of the few cannabis distribution licenses in California, the world’s largest market for marijuana based on annual sales.
Its stock is also depressed, down 45% from highs reached in February after the market sold off most of the stocks in a jar. He’s another cannabis player with huge potential.
The third stock to consider is yet another MSO, Trulieve Cannabis (OTC: TCNNF). There’s a reason to focus on this particular space in the marijuana market, as the companies here are the ones that will benefit the most from the upcoming pot hike. Real investors will win because the market threw the proverbial baby with the bathwater on this one.
Beyond the wide remoteness of cannabis companies and the potential for a regulatory trap that could arise if and when legalization is achieved, Trulieve’s shares have been affected due to guilt by association. Her CEO’s husband was convicted of fraud in an independent company, and the market reacted.
This market reaction gives investors the opportunity to buy a blue chip stock at a discounted valuation. Its stock is also down 45% from its peak, but Trulieve is a profitable MSO and has been operating in the dark for over three years.
Trulieve achieved this accolade by also focusing on its target market, which until recently was primarily the state of Florida, although it is now trying to replicate its success in other states. It has achieved economies of scale that it can now apply to new markets and grow at a methodical pace.
There’s no question that Trulieve will have to prove herself more than most pot stocks because of her CEO’s husband’s legal issues, but if you’re willing to assume the taint stops at the front door of Trulieve, this could be a winning investment in the years to come.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.