Choosing the right penny stock can be rewarding and can deliver multibagger returns in quick time. It’s not surprising if a penny stock delivers 5x returns within 12 to 24 months.

However, for this to happen, there needs to be one big business or industry catalyst that materializes. Since the markets are not in a stage of euphoria, purely speculative penny stock rallies for 5x or 10x returns are unlikely.

Three penny stocks are likely to deliver 5x returns before the end of 2025. It’s a risk worth taking with 5% to 10% portfolio allocation. The impact on the portfolio will still be significant since we are talking about 5x returns potential.

Let’s discuss the business or industry factor that can trigger a massive rally for these penny stocks.

Tilray Brands (TLRY)

With the Presidential election around the corner in the U.S., many hope potential cannabis policy changes will materialize. I would keep a close eye on the view of Presidential candidates on the federal level legalization of cannabis.

Assuming that cannabis is indeed legalized in the next 12 to 24 months, Tilray (NASDAQ:TLRY) is poised for 5x returns. Consider a buy and hold of TLRY stock for this single catalyst to play out. Tilray has already created a strong strategic infrastructure in the U.S. with the acquisition of multiple craft beer brands.

Notably, even without legalization, the U.S. cannabis market is expected to swell to $71 billion by 2030. Legalization would imply that TLRY stock immediately skyrockets. Either way, Tilray’s business will likely grow in the U.S. and Europe.

Additionally, Tilray has guided to deliver positive adjusted free cash flow (FCF) for 2024. As FCF accelerates in the coming years, expect higher flexibility to invest in growth and R&D. Therefore, it’s likely that the stock will create value.

Bitfarms (BITF)

Bitcoin (BTC-USD) currently trades at $42,600 and is higher by 106% over a 12-month period. With the introduction of Bitcoin spot ETF, the impending halving event, and potential rate cuts this year, the cryptocurrency can surge higher.

Last year, Standard Chartered opined that Bitcoin will touch $120,000 by the end of 2024. This is a likely target. And if Bitcoin reaches these levels, Bitfarms (NASDAQ:BITF) stock will expand 5x from current levels of $2.3.

Of course, the obvious reason is higher price realization would boost revenue, EBITDA, and cash flows for Bitfarms. Further, the digital assets in the balance sheet will also swell in value. At the same time, BITF is undertaking massive mining capacity expansion. The company reported hash rate of 6.5EH/s as of December 2023. The target is to increase capacity to 17EH/s by the second half of 2024.

This would further magnify revenue and cash flow growth. Additionally, Bitfarms expects debt-free status by February 2024. Hence, strong fundamentals will add fuel to the rally.

Solid Power (SLDP)

Solid Power (NASDAQ:SLDP) stock performance has been disappointing, plunging 56% in the last 12 months. However, after a deep correction, the stock looks undervalued. As the company works toward the potential commercialization of solid-state batteries, I am bullish on a sharp reversal.

During Q3 2023, Solid Power reported an important business development. The company made its first A-1 EV cell deliveries to BMW (OTCMKTS:BMWYY) to formally enter automotive qualification.

Impressively, Solid Power had earlier licensed its cell design and manufacturing technology to BMW for parallel research and development. If the automotive validation is positive, it’s likely to be a big catalyst for SLDP stock to skyrocket. The partnership with BMW would deepen in that scenario, and Solid Power would be looking at selling solid-state batteries by 2026. Therefore, this single catalyst would be enough to trigger a 5x rally.

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Read More: Penny Stocks — How to Profit Without Getting Scammed

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.