Buying marijuana-related stocks is all the rage now, especially since a number of states have now approved cannabis for non-medical use. But investors are skittish about investing in unprofitable or speculative marijuana stocks. The five stocks discussed in this article have safer financial aspects, such as profitability or near-profitability, that are more appropriate for careful, conservative investors.
These five marijuana stocks will give investors various levels of exposure to the cannabis sector. These range from the more traditional, multi-state operator (MSO) companies to CBD companies. In any case, they are more suitable for conservative investors who still want exposure to marijuana stocks and the cannabis industry.
Let’s take a look:
- Trulieve Cannabis (OTMKTS:TCNNF)
- Constellation Brands (NYSE:STZ)
- Tilray (NASDAQ:TLRY)
- Curaleaf Holdings (OTCMKTS:CURLF)
- The Cronos Group (NASDAQ:CRON)
Marijuana Stocks for Conservative Investors: Trulieve (TCNNF)
Trulieve Cannabis is known as an MSO in the cannabis industry with a $5 billion market capitalization. Based in Florida, it has Trulieve stores in California, Massachusetts and Connecticut as well. Florida has one of the fastest medical sales of marijuana and edibles in the U.S. The Motley Fool says that Trulieve has a 50% market share of medical sales in Florida.
As a result, analysts now expect Trulieve to post revenue over $804 million this year, up 57% from sales in 2020 of $513 million. And this is after sales doubled from just $253 million in 2019.
Moreover, analysts also expect earnings per share (EPS) to almost triple to $1.28 this year from 45 cents in 2020. That puts TCNNF on a reasonable 37 times earnings, with the stock around $45.
The company had $193 million in cash as of Sept. 30 and was almost free-cash-flow (FCF) positive for the first nine months of 2020. The company has not yet delivered its Q4 earnings and balance sheet, but it is expected to be very financially healthy. In fact, one analyst in Seeking Alpha believes that TCNNF stock is the most attractive investment in the cannabis industry.
Constellation Brands (STZ)
Constellation Brands is a $44 billion market cap liquor company that has a sizable investment in the Canadian cannabis industry. Assuming it exercises all its warrants and converts its notes in Canopy Growth (NYSE:CGC), it will control 55% of the company.
Revenue at Canopy Growth is forecast to rise 42.6% to $640 million this year from $448.5 million forecasted for FY 2021. However, analysts expect profits won’t hit until the year ending March 2024. That is when they expect EPS of 35 cents, putting CGC stock on a forward price-to-earnings (P/E) of 109 times.
This is a little expensive for most investors. That is why buying Constellation Brands stock is a much better option. It allows investors to get the best of both worlds. For example, STZ stock trades on a forward P/E of just 20.9 times and also pays a dividend with a yield of 1.34% at today’s price.
Moreover, since Constellation Brands controls Canopy Growth, STZ can ensure that CGC gets profitable sooner than expected. Once Constellation acts to control the company, it will have to consolidate the Canopy Growth revenue and earnings on their own financial statements. Therefore, STZ stock looks like a better bet here to gain exposure safely to the cannabis sector.
Tilray just reported its Q4 and full-year 2020 earnings on Feb. 17. The most important news was that the company finally was able to achieve EBITDA (earnings before interest, taxes, depreciation and amortization) profitability. This news, along with the upcoming merger closing with Aphria (NASDAQ:APHA), could push TLRY stock up over the next year.
The company reported that it achieved its stated goal of becoming breakeven or positive EBITDA. It made $2.2 million in adjusted EBITDA during Q4. This is compared to negative $35.3 million in adjusted EBITDA last year.
Tilray did this by both raising revenue by 26% over last year and by cutting costs by $57 million over that period. The company said it now operates with a “more focused, efficient and competitive cost structure.”
Tilray’s merger with Aphria, announced in December and set to close in Q2, will create the largest cannabis company. The “new Tilray” will have synergies of over 100 million CAD in cost savings from both companies. TLRY says this will bring significant value to the combined company.
If those synergies work out within the next year, that could potentially mean roughly $80 million in adjusted EBITDA. Assuming half of that leads to free cash flow, along with 20% growth, the FCF of the combined company could be as high as $50 million.
Therefore, assuming the merger results in a new market cap of approximately $13 billion, the FCF yield of the new company would be 0.38%. In several years, if the combined company’s FCF were to triple to say $150 million, the market value of the two would have a 1.15% FCF yield.
Curaleaf Holdings (CURLF)
Curaleaf has both cannabis and non-cannabis revenue MSO operations, including CBD products. It is forecast to double sales this year to $1.26 billion. It will be the first cannabis company to exceed $1 billion, according to The Motley Fool.
In addition, earnings are foreseen by analysts as turning positive this year as well. Analysts expect EPS to hit 7 cents this year and 23 cents per share next year. That puts the stock on a forward P/E of 71 times forward earnings. Given its fast growth rate, the forward P/E is likely worth this high valuation.
Curaleaf has an $11.43 billion market capitalization and is based in Wakefield, Massachusetts. It currently has operations in 23 states, including the recent addition of Arizona. The company recently issued $50 million in debt and also raised 316.882 million CAD ($251 million) in equity shares.
This is one of the largest and most stable cannabis stocks and is likely to do well over the next several years as the legalization of marijuana moves forward.
The Cronos Group (CRON)
Cronos is a marijuana and CBD company based in Toronto, Canada with a $3.85 billion market cap. Revenue is forecast to more than double this year to $92.3 million from $42.4 million in 2020. Moreover, analysts forecast earnings to rise to 2 cents per share for FY 2020.
However, for the next two years, they will be negative until 2024. In 2025, EPS will hit 40 cents per share, putting CRON stock on a forward P/E ratio of 30.6 times in 2025.
Cronos plans on releasing its earnings results for the year ending Dec. 31, 2020, on Feb. 26. Analysts are increasingly positive on Cronos especially in relation to their expected revenue growth.
Moreover, based on the company’s presentation, it had over $1.2 billion cash and securities and almost no debt as of Sept. 30. This is undoubtedly one of the most pristine balance sheets in the industry.
Look for this stock to do exceptionally well over the next several years. It has real staying power and will likely be one of the most profitable cannabis and marijuana companies in the business.
On the date of publication, Mark R. Hake did not hold a long or short position in any of the securities in this article.