Investing in cannabis stocks isn’t everyone’s cup of tea, but with the legalization of the green-leafed plant in 23 states plus Washington, D.C., it’s a sector that’s beginning to catch the eye of keen investors.
Despite facing a myriad of legal, regulatory, and banking hurdles, the cannabis market is poised for substantial growth, with projections indicating a surge from $57.2 billion in 2023 to a staggering $444.3 billion by 2030. That’s a compound annual growth rate of 34%, and it’s hard to ignore such potential.
One way to keep a finger on the pulse of the cannabis sector is by tracking the ETFMG Alternative Harvest ETF (NYSE: $MJ). It offers a diversified portfolio of prominent publicly listed cannabis stocks.
Now, let’s dive into some of the leading cannabis stocks based on various criteria as of late August 2023. Whether you’re looking for the best value, the fastest growth potential, or the strongest 12-month stock performance, we’ve got you covered.
Top 5 Cannabis Stocks Now
The list below showcases cannabis stocks with the most favorable 12-month trailing price-to-sales (P/S) ratios. This ratio, as its name suggests, compares a company’s stock price to its revenue, offering insights into how investors value each dollar of its sales.
Given that many cannabis companies are still in their early growth stages, the P/S ratio can serve as a valuable metric for investors in identifying which firms within the industry hold the greatest potential for future profitability.
1. Cresco Labs Inc.: This company is involved in the cultivation, manufacturing, and sale of retail and medical cannabis products across the United States. Cresco’s product range includes vape pens, pre-rolls, sublingual oils, and cannabis flowers. Notably, the company reported a substantial 11% year-over-year (YOY) increase in retail transactions, totaling 1.3 million in its latest quarter.
2. SNDL Inc.: SNDL is engaged in the production, distribution, and sale of cannabis products in Canada. The company operates across four key business segments: Liquor Retail, Cannabis Retail, Cannabis Operations, and Investments.
Shareholders approved a strategic partnership with Canadian cannabis retailer Nova Cannabis Inc. (OTC: $NVACF) in December 2022, granting SNDL access to Nova’s intellectual property rights and store network in exchange for a percentage fee of profits from each store.
3. Trulieve Cannabis Corp.: Operating as a medical cannabis company, Trulieve cultivates and produces cannabis products in-house, distributing them through Trulieve-branded dispensaries in Florida and via home delivery. Notably, the company experienced a significant 200% increase in dispensary traffic at its Maryland location in July, following the launch of adult-use sales in the state.
4. Verano Holdings Corp.: Verano is involved in the cultivation, processing, and distribution of cannabis products in the United States. The company primarily offers artisanal cannabis products under brands like Encore, Avexia, MUV, Savvy, BITS, and Verano, catering to both medical and adult-use markets. Earlier this year, Verano announced the opening of Zen Leaf Norwich, its first social equity joint venture in Connecticut and the third cannabis dispensary in the state.
5. Tilray Brands Inc.: Tilray is actively engaged in researching, cultivating, processing, and distributing medical cannabis products across Canada, the U.S., Europe, Australia, New Zealand, and Latin America.
The company operates across four divisions: Cannabis Business, Distribution Business, Beverage Alcohol Business, and Wellness. In August, Tilray successfully completed the full acquisition of Truss Beverage Co. from Molson Coors Canada (TAP), positioning itself as a key player in the adult-use cannabis beverages market in Canada.
Advantages of Investing in Cannabis Stocks
1. Unleashing Growth Potential in the Cannabis Sector:
While it’s true that cannabis stocks have lagged behind the broader stock market in the past year, this sector remains an enticing arena for investors who are willing to embrace a certain level of risk.
According to the esteemed industry publication MJBizDaily, the U.S. cannabis market is on the brink of significant expansion. Sales are projected to surge to over $33 billion in 2023, with even more impressive growth expected as it approaches nearly $57 billion by 2028.
Globally, cannabis sales are poised for a remarkable Compound Annual Growth Rate (CAGR) of 34% between 2023 and 2030.
2. Widening Acceptance on the Horizon:
As of August 2023, a noteworthy 47 states along with Washington, D.C. have adopted either partial or complete legalization of cannabis and related products. This notable trend indicates a shifting landscape of acceptance among American consumers.
Evolving perceptions of cannabis may pave the way for more favorable industry regulations and enhanced banking provisions, further accelerating the sector’s expansion. For investors, this evolving environment holds the promise of fresh opportunities in the cannabis realm.
Limitations of Investing in Cannabis Stocks
1. Limited Access to Financial Services:
The complex regulatory environment surrounding cannabis has led many companies in the industry to grapple with restricted access to conventional financial services, including banking and advisory support.
The federal Controlled Substances Act’s (CSA) classification of cannabis as illegal has deterred financial institutions from collaborating with cannabis-related businesses.
This limitation can hinder smaller cannabis firms’ ability to secure capital and expand operations, potentially stifling their growth potential and competitiveness against established industry giants.
2. Competition and Oversupply:
Intense competition prevails in the cannabis industry, with numerous companies vying for their share of the market. This competitive landscape has occasionally resulted in oversupply and declining prices, which can adversely impact the profitability of cannabis enterprises.
An example of this challenge can be seen in the significant 27% drop in Cannabis Benchmarks’ volume-weighted U.S. spot index for wholesale cannabis flower in 2022, attributed to a glut in supply.
Conclusion
As the cannabis market continues to evolve and adapt to changing legal landscapes, it’s crucial for investors to stay informed and make well-informed decisions.
Keep in mind that the cannabis sector is still relatively nascent, and while it holds significant potential, it also carries inherent uncertainties.
Nevertheless, for those willing to do their due diligence and navigate the challenges, the world of cannabis stocks offers a fascinating and potentially lucrative investment frontier.
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