In some ways it’s been a year to forget in US cannabis as stocks have been beaten up across the board. At the same time, business is booming as more and more states open up to legal weed and companies spread out their stable of pot shops from coast to coast. With that kind of backdrop, a potential opportunity awaits for investors. Here, Cantech Letter gives you three names with recent positive reviews in the space.
1. Cresco Labs (Cresco Labs Stock Quote, Charts, News, Analysts, Financials CSE:CL)
Market cap: $2.7 billion
2020 revenue: $476 million
Year-to-date performance: -20 per cent
Cresco Labs is a Chicago-based company that’s vertically integrated with cultivation, manufacturing and retail facilities across the United States. Like the other names on our list, Cresco is a multi-state operator, with business in ten states, with 44 cannabis dispensaries and counting. The company has been expanding its empire throughout states like Florida where it has 12 stores, Pennsylvania where it recently acquired three high-performing outlets and in Illinois where it recently relocated its flagship Sunnyside dispensary next door to Wrigley Field. In 2020, Cresco made a major acquisition in California-focused grower and brand company Origin House.
All that expansion has been felt on the company’s top and bottom lines, with Cresco posting quarterly revenue of $215.5 million in its latest report in mid-November, up 41 per cent year-over-year. On adjusted EBITDA, Cresco’s Q3 was $56.4 million compared to $40.2 million a year earlier. (All figures in US dollars except where noted otherwise.)
Because the US still has marijuana as a Schedule One drug at the federal level, the multi-state moniker for companies like Cresco means that cultivation and production capacity in different states becomes more important. And on that front, Cresco has a leg up on the competition in its home state of Illinois, according to Beacon Securities analyst Russell Stanley, who commented recently on Cresco and a legal dispute in Illinois over cannabis retail licensing. Stanley said the eventual resolution of the issue will likely result in the issuing of 185 more adult-use retail licenses to go with the current 110 available, a potential boon for Cresco.
“This will significantly expand the addressable wholesale market. Cresco is unique for having three of the state’s 22 licensed cultivation/manufacturing facilities (only one other company has more than one), so it is particularly well positioned to benefit from the development of these licenses,” Stanley wrote in a December 10 report to clients.
2. Curaleaf Holdings (Curaleaf Holdings Stock Quote, Charts, News, Analysts, Financials CSE:CURA)
Market cap: $8.3 billion
2020 revenue: $626.6 million
Year-to-date performance: -23 per cent
Another major player in US cannabis is Curaleaf, which is operating currently in 23 states nationwide with 22 cultivation sites, over 30 processing sites and 113 dispensaries. Wakefield, Massachusetts-based Curaleaf just opened its 38th retail outlet in the hot cannabis market of Florida, while on the acquisition front the company recently acquired Arizona-based Tryke, a privately-held multi-state operator with business in Arizona, Nevada and Utah and a wide array of brands covering flower, concentrates, edibles, CBD products and more. The Tryke deal, completed in early November, was for $286 million.
As for many stocks in the sector, Curaleaf was on a roll for much of 2020 where it finished the year with a return of 86 per cent. CURA kept climbing over the initial month and a half of 2021 before starting a long downward slope from which it has yet to recover. From its peak at around C$22 in February, CURA is now down by about half to C$11.
But that kind of retreat should spark interest in investors, according to portfolio manager Brian Madden of Goodreid Investment Counsel, who says movement on the federal level in the US is coming and when it does names like Curaleaf will benefit big time.
“This is an emerging growth industry and we think it’s going to be a very big industry in time,” Madden said in a BNN Bloomberg segment in early December. “And we think that Curaleaf is going to be one of the dominant players in this industry over time, so we continue to buy it, we like the pull back, the valuation has come back to a less demanding level and, really, if we peel back the layers and try to understand why is it a check back, the whole sector has [pulled back].”
3. Columbia Care (Columbia Care Stock Quote, Charts, News, Analysts, Financials CSE:CCHW)
Market cap: $1.4 billion
2020 revenue: $179.5 million
Year-to-date performance: -51 per cent
Last up is New York-based Columbia Care, whose business is currently across 18 US jurisdictions including 99 dispensaries and 32 cultivation and manufacturing facilities. Columbia care has seen strong revenue growth recently across a number of states including Florida, Illinois, Maryland, New Jersey and New York. On the M&A front, last month Columbia Care acquired Colorado-based Medicine Man, which boosts CCHW’s presence in what is billed as the world’s second-largest cannabis market in the world after California.
On Columbia Care’s growth prospects, Paradigm Capital analyst Corey Hammill has said the company is looking strong with its expansion in key markets such as New York, New Jersey and Virginia, all of which have legalized recreational cannabis only within the past year, making for lots of runway up ahead.
“With its production build-outs and major acquisitions soon to be in the rear-view mirror, CCHW will enter 2022 as a uniquely positioned operator in the U.S. market, given its exposure to a breadth of high-value jurisdictions,” said Hammil in a November 15 research report. “The forthcoming integration of recently acquired assets and the company’s competitive advantage in adult-use products and services, paired with the lucrative market opportunity, provide CCHW a path to potentially generating a half-billion in annual revenue within the next five years.”