This pot stock is the biggest deal in the business – and I just bought it
There are a number of high-growth industries that could make investors rich over the rest of the decade, such as cloud computing, cybersecurity, and artificial intelligence. But the industry that could literally and figuratively show investors the greener could just be cannabis.
While sales estimates remain fluid, New Frontier Data expects US weed revenue to grow 21% per year through the middle of the decade. That would put cannabis sales in the United States at $ 41.5 billion by 2025. Meanwhile, cannabis analysis firm BDSA predicts Canadian marijuana sales of $ 6.4 billion. by 2026, which would more than double the $ 2.6 billion in legalized cannabis revenue recognized in 2020.
The U.S. cannabis industry is where you’ll find tremendous growth
However, the North American kettle industry has become divided over time. Even though Canada has fully legalized recreational marijuana, regulatory issues have hampered the industry’s growth since sales began in October 2018. Federal and provincial regulators have caused bottlenecks in the chain procurement by delaying or slowing the retail and cultivation authorization process. Canadian pot inventories have also not helped their cause by stretching excessively on the capacity front and grossly overpaying for acquisitions. In other words, the Canadian pot scene has been a disaster, and it’s unclear when things will improve.
On the other hand, the American cannabis industry has been in full swing, even without any federal reform. That’s because 36 states have legalized medical marijuana, 18 of which have also passed legislation allowing pot consumption and / or retailing. As long as the federal government allows states to regulate their own cannabis industries, federal reform is not required for the industry to thrive.
To sum it up succinctly, the U.S. cannabis market and U.S. marijuana stocks are where investors will want to put their money to work for the foreseeable future.
Last week I took the plunge and bought my first American pot stock, which I believe is the biggest deal in the entire industry.
Sometimes large stocks come in small packages
After proclaiming it one of the best marijuana stocks for 2021, I finally opened a position in the multi-state small-cap (MSO) operator. Jushi Holdings (OTC: JUSHF) Tuesday August 3.
Why didn’t I buy earlier? The best answer I can offer is The Motley Fool’s transparent disclosure policy. I just couldn’t go long enough without praising Jushi Holdings in my weekly articles to add it to my own portfolio. But after sitting on my hands for about two weeks – easier said than done – I was finally able to take the plunge.
For now, Jushi is a relatively small fry in the MSO space. It recently opened its 20th dispensary, of which 13 are located in Pennsylvania. Based on the company’s pre-announced second quarter operating results and management feedback, it is expected to open seven additional Hello / Beyond outlets in 2021, as well as two more dispensaries through an acquisition. .
For a little background here, Green thumb industries (OTC: GTBIF), Colombia treatments (OTC: CCHWF), Trulieve Cannabis (OTC: TCNNF), and Curaleaf (OTC: CURLF) have 60, 95, 96 and 108 dispensaries operating across the country, respectively. Note that Columbia Care’s figure is based on pro forma data (i.e., assuming all pending acquisitions close).
What makes Jushi so special is the trio of states that will likely account for over 80% of his income this year: Pennsylvania, Illinois, and Virginia. What these states have in common is their limited licensing, with respect to cultivation and retail licenses. Pennsylvania and Illinois both cap the number of licensed dispensaries, as well as the number of stores that a single business can operate. Meanwhile, Virginia is assigning dispensary licenses based on jurisdiction. The point is that these states voluntarily limit competition. While it might sound bad at first glance, it’s actually great news for Jushi. By limiting competition, he should be able to effectively build brand awareness and retain subscribers without being overwhelmed by a larger MSO.
Despite his small size (a market cap of just $ 816 million), Jushi was not afraid to make acquisitions. For example, in early May, Jushi struck a deal to increase its medical marijuana production capacity in Virginia and also acquired two dispensaries in California. The Golden State is the largest cannabis market in the world, in terms of annual sales. Having ended June with nearly $ 127 million in cash and short-term investments, Jushi remains well capitalized.
I also think it’s worth pointing out that of the first $ 250 million in capital raised by Jushi since its inception, around $ 45 million has been contributed by executives and insiders. Generally speaking, when executives and insiders have their skin in the game and the interests of management align with those of their shareholders, good things tend to happen.
Jushi’s discount from his peers doesn’t make sense
Comparatively speaking, Jushi is a gigantic value compared to its peers, in terms of sales potential and profitability. Here’s a quick look at Wall Street’s consensus sales and earnings per share (EPS) forecast for some of the most popular MSOs by 2024.
- Curefeuille: $ 3.13 billion in sales / $ 0.51 in EPS
- Green thumb industries: $ 2 billion in sales / $ 1.88 in EPS
- Trulieve Cannabis: $ 1.53 billion in sales / $ 2.89 in EPS
- Cresco Laboratories (OTC: CRLBF): $ 1.77 billion in sales / $ 0.67 in EPS
- Columbia treatments: $ 1.39 billion in sales / $ 0.30 in EPS
Please note that I am not degrading these five MSOs in any way. In fact, I’ve hammered the table on everything but Curaleaf as attractive long-term buys. But to put this data in some context, Curaleaf, Green Thumb, Trulieve, Cresco, and Columbia Care are valued at 2024 price-to-sales ratios of 2.6, 3.3, 3.8, 1.5, and 1, respectively. In terms of price-earnings / earnings ratios for 2024, we look at 23.4, 16.5, 11.3, 16.4 and 16, respectively.
Now take a closer look at what Wall Street plans to bring to Jushi by 2024:
- Jushi Holdings: $ 972 million in sales / $ 1.42 in EPS
Based on its current share price and market cap, we are looking at a price-to-sell ratio of 0.8 in 2024 and a P / E ratio in 2024 of just 3.4! This is how much cheaper Jushi is compared to its peers, and its relative discount makes no sense.
I took the plunge and plan to take the years to come. Now, it’s time to be patient and trust management to keep making the right choices.
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! Questioning 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.