With lower prices come bargain-hunting opportunities.
Investors had high hopes for the legal marijuana industry after the presidential election and the Democratic showing in Congress, leading to shares peaking in February. Since then, they have been disappointed with the pace of progress toward federal legalization, and shares have fallen sharply, potentially creating buying opportunities in the industry. The current state of prohibition means higher taxes, cost of capital and compliance costs. An end to prohibition would boost free cash flow, presumably leading to much higher valuations, says Matt Karnes, founder of GreenWave Advisors. "In general, we think the market cap of the sector can more than double from today's levels, once federal policy changes," he says. Leading marijuana companies have certainly been buying up other companies in the industry. Could it be time for you to consider buying cannabis shares? Here are six marijuana stocks to buy.
WM Technology Inc. (ticker: MAPS)
This company provides technology and software infrastructure to the cannabis industry. Consumers are probably most familiar with its Weedmaps platform, which gives consumers information about cannabis products, online ordering and local retailers. But it also offers cloud-based software-as-a-service and data solutions to cannabis businesses, including point of sale, logistics, wholesale and ordering solutions. In August, the company reaffirmed that it expects revenue to hit $205 million this year, and earnings before interest, taxes, depreciation and amortization (EBITDA) to reach $50 million. In September, the company announced that it acquired cloud-based customer relationship management and marketing platform Sprout, a buy that WM Technology said "reinforces the company's end-to-end operating system as one of the most comprehensive software solutions available in the cannabis market today."
Trulieve Cannabis Corp. (TCNNF)
Another one of the best marijuana stocks to buy now has also been seeking out acquisitions. Multistate operator Trulieve this month completed its acquisition of Harvest Health & Recreation, an Arizona-based multistate operator that reported second-quarter revenue of $102.5 million. The tie-up gives the combined company a retail network of 149 dispensaries across 11 states. It has leading market positions in Arizona, Florida and Pennsylvania, and as of the deal's closing was "the largest U.S. cannabis operator across a combined retail and cultivation footprint basis with depth in key markets," the company said. Its most recent quarter marked the 14th consecutive three-month period of profitability and saw the company bring in more than $215 million in sales.
Scotts Miracle-Gro Co. (SMG)
"There are many different types of business models in this industry, such as growers, grow suppliers, property management and more, with each having pros and cons," says Jake Wujastyk, chief market analyst with TrendSpider. Lawn and garden products company ScottsMiracle-Gro has been a solid ancillary play on the cannabis industry by providing lighting, nutrients and other products. In August, it announced it would expand into cannabis investing through a newly formed subsidiary that will make minority investments in areas not currently pursued by its Hawthorne Gardening Company subsidiary. In addition to that cannabis-focused business, the company also maintains a strong noncannabis portfolio, notes Jim Higdon, co-founder of Cornbread Hemp. "Scotts Miracle-Gro is a great company for cannabis investors to consider, especially for conservative investors worried about cannabis still being illegal under federal law," he says.
Ayr Wellness (AYRWF)
As the legal marijuana industry has matured, it has been able to attract higher-quality leaders. GreenWave Advisors' Karnes says this company has an "incredible management team" led by CEO Jonathan Sandelman, former president of Bank of America Securities. After being formed via a special-purpose acquisition company, Ayr "continues to execute on all cylinders," he says. The company has been acquisitive, recently closing deals for dispensaries in Pennsylvania and New Jersey. In August, Ayr announced a 5% share buyback, which Karnes says is a signal that the stock is undervalued. Based on 2022 estimates, Ayr is trading at a sharp discount to its peer group based on enterprise value to sales and enterprise value to EBITDA, Karnes says.
Verano Holdings Corp. (VRNOF)
Another one of the best marijuana stocks to buy, Karnes says, is Verano Holdings, which is trading at a sharp discount to its peer group. Based on 2022 enterprise value to revenue and enterprise value to adjusted EBITDA, he says the company offers a "compelling valuation." Karnes likes the company's management team. The vertically integrated multistate operator has active operations in 11 states, including eight production facilities encompassing more than 840,000 square feet of cultivation. In addition to growing weed, the company also designs, builds and operates dispensaries under its retail brands. In September, Verano opened its 86th dispensary in the United States. In the second quarter, the company reported revenue of nearly $200 million.
Curaleaf Holdings Inc. (CURLF)
With more than $300 million in sales during the second quarter, this company is the largest multistate operator by revenue, according to MJBizDaily. In the United States, the company operates 108 dispensaries in 23 states, 22 cultivation sites and more than 30 processing sites. Curaleaf's second-quarter revenue marked growth of 166% year on year. But the company ended up reporting a loss because of higher stock-based compensation and one-time charges related to the acquisition of Europe's largest vertically integrated cannabis company, as well as earnings dilution from the consolidation of that acquisition. Despite the company's strong position in the legal marijuana market, its shares were down 15% this year as of Monday's close.
The best marijuana stocks to buy:
-- WM Technology Inc. (MAPS)
-- Trulieve Cannabis Corp. (TCNNF)
-- Scotts Miracle-Gro Co. (SMG)
-- Ayr Wellness (AYRWF)
-- Verano Holdings Corp. (VRNOF)
-- Curaleaf Holdings Inc. (CURLF)