3 Cannabis Stocks That Could 10X in a Legalization Scenario

  • These are the cannabis stocks to buy with good fundamentals and multibagger returns potential.
  • Tilray Brands (TLRY): Expecting to be free cash flow positive in all operating business units.
  • Curaleaf Holdings (CURLF): Presence in 21 states in the U.S. and expanding European presence.
  • Cronos Group (CRON): Strong cash buffer to pursue aggressive organic and acquisition driven growth.
cannabis stocks to buy - 3 Cannabis Stocks That Could 10X in a Legalization Scenario

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It continues to be a long wait for the cannabis industry towards federal level legalization. It was recently reported that Democrat and Republican congressional representatives will file a bill to prepare for legalization. However, there is no clarity on the timeline. Amidst this uncertainty, it’s a good time to look at some deeply undervalued cannabis stocks to buy.

Many cannabis stocks are also penny stocks. Investors can consider investing a small part of the portfolio towards these cannabis stocks with huge potential. Of course, the assumption is legalization in the U.S. and Europe in the coming years.

If the scenario plays out, the cannabis stocks discussed can skyrocket by 10x or more. Investors will remember cannabis stocks skyrocketed following Joe Biden’s election. A similar scenario can pan out in the future. It’s a matter of holding few promising stocks with patience.

Let’s discuss the reasons that make these cannabis stocks worth considering.

TLRY Tilray Brands $2.42
CURLF Curaleaf Holdings $2.45
CRON Cronos Group $1.96

Tilray Brands (TLRY)

Close view of Tilray (TLRY) logo on a smart phone. Tilray specializes in cannabis research, cultivation, processing and distribution
Source: Lori Butcher / Shutterstock.com

Tilray Brands (NASDAQ:TLRY) had skyrocketed to highs of $64 when Joe Biden was elected President in 2021. This provides an indication of the upside potential when cannabis is legalized at the federal level. At current levels of $2.5, TLRY is one of the most massively undervalued cannabis stocks to buy ahead of legalization.

Tilray is among the top producing craft brewers in the United States. Through the acquisition of two brewing companies, Tilray has already created a strong strategic infrastructure in the country.

In the core cannabis business, Tilray acquired Hexo (NASDAQ:HEXO) for a consideration of $56 million. The acquisition further strengthens the company’s leadership position in Canada.

In terms of fundamentals, there are several positives. First, Tilray continues to report positive adjusted EBITDA.

Further, the company has guided for positive free cash flow from operating segments in the current financial year. Tilray ended Q3 2023 with a strong liquidity buffer of $408.3 million. With these positives, TLRY stock is worth considering.

Curaleaf Holdings (CURLF)

multiple jars of different sizes carrying marijuana
Source: Shutterstock

Curaleaf Holdings (OTCMKTS:CURLF) is another name among cannabis stocks with huge potential. A major reason to like Curaleaf is the fact that the company is already present in 21 states. A legalization scenario will position Curaleaf to accelerate growth.

Cash burn has been a concern for most cannabis companies. However, Curaleaf reported a healthy adjusted EBITDA margin of 25% for Q3 2022. Operating leverage will position the company to deliver healthy cash flows.

Another reason to like Curaleaf is significant focus on research and development. Approximately 18% of Q3 revenue was from new products launched in the last 12 months.

The company has 15 new products in the active pipeline for launch. Further, more than 50 products are in the front-end innovation process. The pipeline is likely to ensure that healthy growth sustains.

At the same time, Curaleaf has been expanding presence in Europe. This will help in accelerating revenue in the coming years.

Cronos Group (CRON)

marijuana leaf in green traffic light
Source: Shutterstock

Cronos Group (NASDAQ:CRON) stock has remained in a downtrend with a correction of 37% in the last 12 months. However, it’s among the cannabis stocks to buy at current levels as CRON stock seems massively undervalued.

For 2022, Cronos reported 23% growth in revenue on a year-on-year basis. The company also reported significant reduction in adjusted EBITDA losses from $160 million to $80 million. With operating leverage and cost cutting, I expect improvement in margins to sustain.

It’s also worth noting that Cronos ended 2022 with $878 million in cash and short-term investments. The company has strong financial flexibility for organic and acquisition driven growth.

In the United States, the company reported lower revenue on a year-on-year basis. However, the decline was primarily due to transition from beauty products to adult-use product formats. I expect renewed growth in a legalization scenario.

On the date of publication, Faisal Humayun did not hold (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.

Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.

Article printed from InvestorPlace Media, https://investorplace.com/2023/04/3-cannabis-stocks-that-could-10x-in-a-legalization-scenario/.

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