2 marijuana stocks to buy and 1 to avoid like the plague
You might not realize it, given the lackluster performance of cannabis industry stocks over the past 18 months, but legal marijuana remains one of the fastest growing trends in the world. .
In March, cannabis-focused research firm BDSA released a report (“Essential Cannabis Insights”) that predicted global sales would grow from around $35 billion in 2022 to $61 billion by 2026. those of you keeping the score at home, it’s a compound annual growth rate of over 16%; and this follows an annual sales growth of 22% over 2021.
Although federal legalization efforts have been thwarted in the highly lucrative US market, there are plenty of opportunities for multistate operators (MSOs) to thrive. Right now, there are two marijuana stocks that patient investors can buy with confidence, as well as a superficially cheap pot stock that should be avoided at all costs.
#1 Marijuana Stock To Buy By Hand: Cresco Labs
The first pot stock that can help long-term investors see green is none other than the US MSO Cresco Laboratories (CRLBF 2.81%).
To address the elephant in the room, Congress has repeatedly failed to pass cannabis banking reform and/or legalization reform. While this results in continued layoffs for cannabis stocks—for example, the establishment of cultivation and processing facilities in multiple states since interstate transportation of weed is illegal—the legalization of pot at the state level State in about three-quarters of all states offers plenty of growth opportunities for MSOs like Cresco.
By the end of March, Cresco was a modestly sized MSO, with 50 operating outlets and a presence in 10 states. Although Cresco has a footprint in a number of high dollar markets, it has really focused its attention on limited license markets, such as Illinois and Pennsylvania. States where retail licensing is intentionally limited ensure that smaller players like Cresco have a fair chance to grow their brands and build audience loyalty.
But it is unlikely that Cresco Labs will remain a modest player for much longer. At the end of March, Cresco announced its intention to buy MSO Care British Columbia (CCHFF 1.97%) in an all-stock deal. All signs indicate that this agreement will be concluded during the fourth quarter. If this deal goes through, Cresco’s operating retail outlets would swell north of 130, expanding its footprint to 18 states. Columbia Care has grown primarily by acquisition, and Cresco’s acquisition of Columbia Care would be a quick way to more than double its reach in the world’s most lucrative weed market.
In addition to growing its retail presence by leaps and bounds, Cresco Labs has the industry‘s leading wholesale cannabis segment. Although Wall Street largely downplays wholesale marijuana because of its lower margins, compared to the retail side of the equation, Cresco has the volume to more than make up for the lower margins. That’s because he holds a coveted cannabis distribution license in California, the nation’s top weed market by annual sales. This license allows Cresco to place its exclusive potted products in more than 575 stores across the Golden State.
Cresco is poised to get much bigger and should have no trouble achieving recurring profitability by 2023. This makes it one of the most intriguing pot stocks in North America.
Marijuana Stock #2 To Buy By Hand: Planet 13 Holdings
The second marijuana stock to buy with double-digit annual weed growth is the US small-cap MSO Planet 13 farms (PLNH.F 6.79%).
Without a doubt, one could say that Planet 13 took the road less travelled. While most MSOs have opted to establish a retail, cultivation, and/or processing presence in as many high-dollar legalized pot markets as possible, Planet 13 only has a presence in four states, with only three dispensaries in operation. But it’s this unique operational approach that gives Planet 13 a lasting advantage.
To date, the company has opened two SuperStores. The Las Vegas SuperStore, just west of the Strip in Nevada, spans 112,000 square feet and includes an events center, customer-facing processing center, and cafe. Meanwhile, the Orange County SuperStore in Santa Ana, Calif., is about 15 minutes from Disneyland and covers 55,000 square feet. About 30% of this space is devoted to sales.
Planet 13’s SuperStores are huge and offer an unrivaled selection of dried cannabis flower and higher margin merchandise. These stores have also incorporated the ideal combination of technology and personalization. Consumers can use self-paid kiosks to speed up the purchase process, and also have access to personalized budtenders who can show them around.
Although there are only a handful of retail stores in operation, Planet 13’s reach is growing rapidly. Its exclusive brands are present in more than 100 points of sale. Additionally, the company plans to bring its SuperStore concept to Chicago, Illinois, while opening its neighborhood retail concept in Florida. These neighborhood stores will offer a boutique-style layout and span approximately 4,750 square feet. Florida legal for medical marijuana has only awarded 22 retail operator licenses, but licensees like Planet 13 can open as many stores as they want. This is great news for one of the most profitable cannabis markets in the United States.
Similar to Cresco Labs, Planet 13 is likely on its way to recurring profitability and should be here no later than 2023. With an operating model that just hasn’t been duplicated, Planet 13 looks like a buy obvious in the long term. investors.
Cannabis stock to avoid like the plague: Aurora Cannabis
But there is another side to this story. If there is any consistency in growth trends the next big thing is that not all companies will be winners. Although the global cannabis industry offers meteoric growth through 2026, the Canadian licensed marijuana producer Aurora Cannabis (PBR 1.42%) is a pot stock market investors should avoid like the plague.
Three years ago, there was perhaps no more widespread or popular marijuana stock on the planet than Aurora Cannabis. This acquisition-happy company had amassed a portfolio of 15 production sites and could, in theory, have produced north of 600,000 kilos of cannabis per year if its cultivation sites were fully operational. Aurora was expected to control a significant portion of the legalized Canadian market and become an export powerhouse.
Sadly, none of that materialized for Aurora, and the company has been trying to pull itself out of a very deep hole for years. Even after closing some of its smaller production facilities, halting construction on a number of major projects, and cutting expenses (including stock-based compensation), it has not approached profitability and continued to burn cash.
To be fair, some of that blame lies with Canadian regulators, who have caused pot stocks to fail. The Canadian federal government has been slow to approve cultivation licenses, while Ontario, the country’s largest province, has not approved retail licenses in a timely manner.
But most of the blame lies with Aurora. The company grossly overestimated production demand and grossly overpaid for a dozen acquisitions. Aurora Cannabis ultimately wrote billions of dollars of goodwill related to these buyouts.
The continued stock-based dilution of the company is also detrimental to its shareholders. Because no amount of cost cutting was able to tip Aurora into the black, the company had to issue stock on more occasions than I count to raise capital. Since mid-2014, Aurora’s split-adjusted share count has grown from just over 1.3 million shares to over 224 million shares, as of March 31, 2022. shares will likely continue to grow with net losses expected for the foreseeable future. .
Aurora Cannabis may look like a superficial bargain at just $1.41 per share last weekend, but it continues to be one of the worst investments possible in the cannabis space.