By some measures, the cannabis industry looks terrible. The average stock in the sector is down 83% from the sector high of February 2021, asserts Timothy Lutts, editor of Cabot SX Cannabis Advisor.
At the same time, the number of cannabis stocks in the sector has shrunk from 167 stocks back in 2018 to fewer than 90 today, as acquisitions enlarge the industry leaders and delistings eliminate the failures.
In many ways, this process reminds me of the collapse of technology stocks after the dot-com bubble that peaked in March 2000. But tech stocks didn’t disappear after that bubble; the cream of the crop came back healthier than ever. And so will the best-run cannabis stocks after this downturn is over. Further, these stocks are now cheaper than ever.
Cresco Labs (CRLBF)
Chicago-based Cresco saw first-quarter revenues of $214 million, as YoY growth slowed to 20%. And the company, which has long prioritized the wholesale market, maintained its position as the #1 seller of branded cannabis products in the U.S. But retail revenue is growing, and was up 44% year-over-year, to $119 million.
The company opened four new stores in the quarter (three in Florida and one in Pennsylvania), and now has 50 stores in 10 states. And when the acquisition of Columbia Care (CCHWF) is complete — Columbia has 84 stores and had first-quarter revenues of $123 million — the company will have a stronger retail network, which should justify a higher valuation multiple.
But as it stands today, this stock remains the portfolio’s cheapest on a price to sales basis — just 0.79. There’s no word on when second-quarter results will be released, but the action of the stock is encouraging; it’s been climbing and has crossed above its 50-day moving average.
With 131 retail locations in 22 states, Massachusetts-based Curaleaf was the second-largest multistate operator by revenues in the first quarter (just $5 million behind Trulieve), and Cresco’s acquisition of Columbia, when completed, will make it a contender, too — so it’s a horse race between those three.
But Curaleaf is the clear leader on the perception front; its market cap of $3.6 billion tells us investors expect a lot from the company and its PSR of 2.8 is the second-highest of our U.S. operators. Some of that is due to its international operations; Curaleaf has operations in eight European countries as well as Israel.
Some may be due to the perception that the company’s R&D based on rigorous scientific research will pay dividends in the future as the industry goes more mainstream. And some may be due to the company’s strong balance sheet — $243 million in cash at the end of the first quarter. In any case, the future is bright.
As for the chart, it’s been the strongest of our group, having climbed well above its 50-day moving average. Second-quarter results will be released after the market close on August 8.
Green Thumb (GTBIF)
Where Green Thumb stands apart from our first two holdings is its record of posting quarterly profits — seven in a row so far. But that hasn’t helped the stock, which is down 78% from its high of 2021.
Headquartered in Chicago, the company currently has 77 operating retail locations in 15 states (California, Colorado, Connecticut, Florida, Illinois, Maryland, Massachusetts, Minnesota, Nevada, New Jersey, New York, Ohio, Pennsylvania and Virginia).
It’s building a national portfolio of brands that address the customers’ spectrum of well-being (from healthy to comfortable to happy). As for the stock, the main trend remains down, though the fact that the stock has found support at 9 over the past week is a thin ray of sunshine.
As for the stock, it managed to climb above its 50-day moving average last week, but has fallen back below it this week, which is probably a good buying opportunity. Second-quarter results will be released after the market close on August 3.
OrganiGram is the number three producer of cannabis in Canada, and number one in dried flower, with its flagship brand Edison. And with first-quarter revenues up 117% from the previous year, it’s the fastest-growing company in the portfolio — which is partly possible because it’s the smallest.
Plus, it turned EBITDA-positive in the first quarter as gross margins improved thanks to economies of scale and increased automation. The stock is the weakest in our portfolio by one measure; it’s the only one to fall below its 2020 low. But that’s mainly because Canadian cannabis stocks have fallen harder than the U.S. stocks.
On the bright side, OrganiGram recently received $6.3 million from British American Tobacco (BTI), which increased its equity position to 19.4% and could easily increase that in time. Technically, the stock looks fine, having climbed above its 50-day moving average last week before pulling back this week in a normal correction.
While it has long been the biggest seller of marijuana in Florida, where it has a 46% market share and does 70% of its business, Trulieve has been expanding across the country in the past year (it had seven acquisitions in 2021), with the October acquisition of Harvest Health & Recreation (the largest cannabis transaction to date) being the big one.
Trulieve’s early focus on Florida led to an impressive 17 consecutive quarters of profitability, but earnings fell into the red the past two quarters as the company expanded aggressively. Still, earnings should return soon, particularly since the company now has the industry’s leading footprint in Pennsylvania.
It’s notable that on May 24, CEO Kim Rivers acquired 14,000 shares of the company at a price of $14.45 a share for a total purchase value of about $202,300. She now owns just under 2.5 million shares.
First-quarter results saw revenues of $318 million, up 64% from the prior year (the fastest growth in the portfolio among the U.S. providers as well as the biggest in the industry) — so growth trends are good. There’s no word on when second-quarter results will be released.