The past few months have been disappointing for investors in marijuana stocks. Mainly, that’s been due to a lack of progress with U.S. federal legalization of marijuana. A Democratic party victory in the 2020 elections made it seem as if a fully open American pot market was just around the corner.
But with more pressing issues at hand, Congress continues to put this on the back burner, despite it becoming an increasingly bipartisan issue. That said, while reforms to federal cannabis laws would be a boon to the industry, strong performance for pot stocks isn’t entirely dependent on this happening. It may still be a controlled substance on the federal level. Yet 18 U.S. states have legalized its recreational use. In a total of 36 U.S. states, it’s legal to use for medicinal purposes.
With this, the American pot industry is thriving. According to BofA Securities, legal cannabis sales were up 40% last year. Multi-state operators (MSOs) are seeing high levels of revenue growth. So too, are companies that provide related good and services to the U.S. cannabis industry. In addition, some Canada-based pot companies appear well-positioned to deliver much better results in 2022 than they did in 2021.
Regardless of whether federal reform happens in 2022, or if it gets delayed once more, pot plays could still become smoking hot again throughout this year. Here are seven marijuana stocks, all of which could be set to experience high times:
- Cresco Labs (OTCMKTS:CRLBF)
- Cronos Group (NASDAQ:CRON)
- NewLake Capital Partners (OTCMKTS:NLCP)
- POSaBIT Systems (OTCMKTS:POSAF)
- Sundial Growers (NASDAQ:SNDL)
- Turning Point Brands (NYSE:TPB)
- Verano Holdings(OTCMKTS:VRNOF)
Marijuana Stocks: Cresco Labs (CRLBF)
Based in Chicago, Cresco Labs is one of America’s larger MSOs. Operating in 10 U.S. states, it’s vertically integrated, from cultivation all the way downstream to retail. Experiencing high levels of growth, it’s expected to generate around $842.2 million in revenue this year. That’s nearly 82% above the $463.1 million top line number it posted for 2020.
Unfortunately, over the past six months, high growth hasn’t translated into higher prices for CRLBF stock. This over-the-counter (OTC) listed pot stock has dropped around 42.7% during this period. But now at around $6.91 per share, investors may want to add it to their watchlists.
Expected to see its sales surge another 35.3% next year, not to mention reach profitability, Cresco’s strong performance could soon translate into higher prices for shares. A rebound in price could be even more dramatic, if pot reform unexpectedly emerges between now and the end of 2022. Pot reform would also enable it to uplist to either the New York Stock Exchange or the Nasdaq Exchange.
Speaking of which, as a result of its OTC listing, shares trade at a considerable discount to Canada-based pot stocks like Canopy Growth (NASDAQ:CGC). CRLBF stock trades for around 3.7x trailing 12-month (TTM) sales, versus 7.3x sales for CGC stock.
Cronos Group (CRON)
One of the big name Canadian marijuana stocks, headwinds in its home market, plus a lack of progress with U.S. legalization, have sent CRON stock to the bargain basement. Trading for as much as $15.83 per share last year, today it’s at around $4 per share.
Despite a low stock price, some may argue that shares in Cronos Group are not cheap. With a $1.49 billion market capitalization, versus $56.6 million in TTM revenue, it looks richly priced with its 25.8x sales multiple. However, while it looks pricey on the surface, I wouldn’t necessarily write it off completely as an investment opportunity.
For one, with its high cash position, basing its value on price-to-sales (P/S) erroneously makes it look overvalued. Using the enterprise value/sales (EV/Sales) metric, which adds net debt and deducts cash from the market capitalization, valuation looks at lot more reasonable (7.3x). Not only that, the presence of a deep-pocketed strategic partner means there’s a path to substantial upside down the road.
Altria Group (NYSE:MO), parent company of American tobacco giant Philip Morris USA, owns a large stake in CRON stock. As a Seeking Alpha commentator argued back in November, with the pot company trading at rock bottom prices, Altria could buy up the rest of it that it doesn’t own, at a sharp premium. I wouldn’t buy it entirely on its potential as a takeover target. Still, it’s something to keep in mind, if you’re on the prowl for bargains among the Canadian cannabis plays.
Marijuana Stocks: NewLake Capital Partners (NLCP)
As you may be able to tell from its name, NewLake Capital Partners isn’t an MSO. So, what is it then, and what makes it one of the marijuana stocks? Although the name suggests it’s a private equity firm, NewLake is a real estate investment trust, or REIT, that leases out space to the state-licensed cannabis industry.
Sure, NLCP stock isn’t the only such play out there. Innovative Industrial Properties (NYSE:IIPR) is a much better-known of the Pot REITS. Even so, if you’re interested in ancillary pot plays, you may want to choose this name instead of the more familiar one.
Valuation-wise, it may be a draw. Right now, IIPR trades at a much lower price/funds from operations (P/FFO) ratio. This may make it seem like the latter is more of a value play. But based on earnings projections for 2022, this valuation gap could soon close. Plus, with its recent dividend increase, it’s offering a much-higher forward yield. With the increase of its payout to 31 cents per quarter ($1.24 per year), its forward yield is 4.47%, versus 2.8% for IIPR.
With upside potential, as well, from it one day moving from the OTC to a major exchange, this much smaller landlord to the pot industry may be the better buy. You can scoop it up now for around $27.05 per share, about a dollar above its August 2021 IPO price of $26 per share.
Like NLCP stock, POSAF stock is another ancillary pot play. Up nearly 9x over the past 12 months, taking a look at its stock chart it may seem like you missed the boat here. Yet as InvestorPlace Markets Analyst Thomas Yeung made the case Dec. 30, it may have room to run during 2022. So, why does Yeung believe this moonshot play could continue to rocket towards the moon?
A Canada-based provider of point-of-sale (POS) payments services to the marijuana industry, this small company has carved out a niche. Until pot is fully legal stateside, payment processing giants like Visa (NYSE:V) and Mastercard (NYSE:MA) can’t get into the space. As a result, it’s likely to continue seeing very high levels of growth, as legal retail sales of marijuana continue to climb.
Admittedly, POSaBIT’s “edge” depends almost entirely on the American pot industry continuing to be in a legal grey area. However, as Yeung counters, if it scales up in time, the above-mentioned payment giants may end up buying it out, as a quick way to get into this market.
Trading for around $1.14 per share, this is still a small cap penny stock. That means high risk, and high volatility. Don’t bet the ranch on it, however you may want to enter a small, speculative position in it, ahead of its next possible breakout in price.
Marijuana Stocks: Sundial Growers (SNDL)
A meme stock for a hot minute last February, speculators who bought SNDL stock at its 52-week high ($3.96 per share) are likely still regretting their decision. Falling all the way down to well below $1 per share, it’s down nearly 85%. But considering its latest gambit to create shareholder value?
As Louis Navellier recently put it, even if you were burned on it once, you may want to give it a second chance. Today, it’s no longer just a way to make a moonshot wager on U.S. federal pot law reforms. Instead, Canada-based Sundial may be able to surge to higher prices, due to the direct efforts it is making to improve its operating performance. Namely, by putting to work the massive war chest of cash it amassed last year, via secondary offerings.
First, by engaging in a “roll-up” acquisition strategy. Deals like the one pending for liquor retailer Alcanna (OTCMKTS:LQSIF), will give the company (still operating in the red) a cash-flow positive business. The Alcanna deal will also give it a majority stake in cannabis retailer Nova Cannabis (OTCMKTS:NVACF). Consolidating Nova into its existing retailer business could result in substantial cost savings.
Second, Sundial has gone into the business of lending money to other pot companies. This is another endeavor that’s likely to be profitable from the start. Getting back to $3.96 per share may be a pipe dream. SNDL stock could still see solid returns this year, if its new game plan proves successful.
Turning Point Brands (TPB)
When you think marijuana stocks, Turning Point Brands may not be what first comes to mind. Yet besides being a producer of smokeless tobacco and vaping products, it is also a major name in the cigarette paper space, through brands like Zig-Zag.
Cigarette paper, of course, can also be used to smoke marijuana. The company has smartly capitalized on this. Along with the growth of its smokeless tobacco business, it saw its sales move gradually higher, from $332.7 million in 2018, to a projected $442.3 million in 2021.
However, TPB stock has been struggling since October. That’s when the company released a disappointing guidance update. Its projection for 2021 revenue came in well under analyst numbers. With this, the sell-side has lowered its projections for 2022. Their numbers now call for anemic 2.2% revenue growth this year. As a result, shares have pulled back, from near $50 per share, to around $37 per share today.
Nevertheless, this sales growth slump may be temporary. It’s continuing to pursue bolt-on acquisitions. Along with this, re-position itself as more of a provider of product to marijuana users than tobacco users. Both efforts could re-accelerate its growth. Coupled with its low valuation (shares trade for just about 17x projected 2021 earnings), this value stock could morph again into a growth stock.
Marijuana Stocks: Verano Holdings Corp (VRNOF)
With the slogan, “Cannabis can and should be better,” Verano Holdings is an MSO targeting the premium end of the marijuana market. This focus on the higher end of the market has made one analyst, Wolfe Research’s Greg Badishkanian, bullish on the stock.
Initiating coverage on Jan 7, Badishkanian gave VRNOF stock the equivalent to a “buy” rating, and a 19 CAD ($15.13) price target for its Canadian-traded shares, nice upside from the current $12.75 a share the U.S. listed shares trade at the OTC.
In his view, its choice to focus on quality rather than price could pay off. Going the price-focus route would potentially leave it at risk of discounting, which could harm its high margins. How high are its margins? Based on results from the past 12 months, EBITDA margins come in at nearly 63% ($378 million in EBITDA, versus around $600.5 million in revenue).
Sure, sky-high margins like these may not be sustainable. Yet even if they come down over time, continued revenue growth could more than make up for it. Trading for around $12.50 per share today, down big from the $28 per share it traded for early last year, a gradual recovery may be possible.
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On the date of publication, Thomas Niel held a LONG position in MO stock. He did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Thomas Niel, a contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.