Are you on the hunt for some undervalued cannabis stocks? The government’s potential rescheduling of cannabis from Schedule I to Schedule III (or perhaps even descheduling) has been one of the most anticipated catalysts of the cannabis market. The market setting its sights on the potential reelection of President Biden presents an opportunity to look at the potential rallies in the cannabis sector.
This article considers three cannabis stocks with the potential to rally should cannabis laws be relaxed. These companies continue to show resilience, even in the challenging environment of the cannabis market.
Tilray Brands (TLRY)
Tilray Brands (NASDAQ:TLRY) is a pharmaceutical and lifestyle consumer brand that operates in four segments:
- Cannabis: medical and adult use;
- Distribution: for the resale and purchase of pharmaceutical products for customers;
- Beverage alcohol business: produces and markets its beverage and alcohol products; and
- Wellness business: hemp-based cannabidiol (CBD) and hemp food products.
The company reported a net revenue of $177 million for Q1’24, with 15% YoY growth and a 13.4% increased market share in Canada. In addition, cannabis revenue in Canada grew by 16.5% YoY, while international cannabis revenue rose by 37%.
Its acquisition of eight craft beer and beverage brands has propelled the company to fifth place in size for the U.S. craft beer brewers market, with a 5% market share. For example, the company recently acquired the Truss Beverage Co. to help solidify its position as a beverage producer.
Tilray’s venture to a diversified business model positions it as the #1 Canadian cannabis LP and a leader in medical cannabis across Europe while also being a big player in the craft beverage-alcohol industry. Moreover, TLRY’s strategic acquisitions, strong performance and leading position in the market make it one of the most undervalued cannabis stocks for risk-takers.
Flora Growth (FLGC)
Flora Growth (NASDAQ:FLGC) manufactures medicinal-grade cannabis for medical and well-being products for its plant-based wellness and lifestyle brands. Today, the company operates in three main segments:
- Pharmaceuticals: for its research and development of pharmaceutical-grade products derived from cannabis plant molecules;
- Commercial & Wholesale: focuses on cultivation to the distribution of its products to the international markets; and
- In-house brands: Offering brands like Mind Naturals, Vessel, Nocap and JustCBD that consist of cannabidiol (CBD) gummies, tinctures, topicals,and vape products.
According to Flora Growth’s last financial report, it reported a record-breaking performance and profitability for the first time. From its net loss of $7.4 million from last year’s comparable quarter, the company reported a net income of $1.1 million. Revenue surged by 78% YoY to $17.3 million, with gross profit increasing by 6% to $4.9 million. Operating expenses also decreased 40% YoY to $5.5 million. EBITDA turned positive at $0.9 million from its loss of $6.1 million in the same quarter last year. Cash flow from operating activities ended positive at $0.5 million. This was a significant improvement from its negative cash flow of $4.0 million from last year.
Its business transformation plan has been highly productive as it emphasized cost-cutting measures and focused on its profitable segments, solidifying its position on our list of undervalued cannabis stocks for future quarters.
Silver Spike Investment Corp. (SSIC)
Cannabis producers have, so far, always had a challenge securing capital for growth. Silver Spike Investment Corp. (NASDAQ:SSIC) helps cannabis companies who require a cash infusion. SSIC is a cannabis-focused specialty finance company that provides direct loans and invests in privately held cannabis companies. Silver Spike’s debts are investments often secured by a first or second-priority lien on the borrowing company’s assets. Loans can be fixed or have floating rate terms between two and six years from the original investment date.
Silver Spike Investment’s last financial results for the quarter ending 9/30/2023 indicated a strong financial position. Total investment income was $2.9 million, almost double its previous year. Net investment income is $1.6 million, equivalent to $0.26 per share.
The company also holds a strong liquidity position with $29.8 million in cash equivalents. CEO Scott Gordon is optimistic about the growth of the cannabis market due to signs of improved market dynamics for several state markets and increased interest in debt financing from cannabis operators. While the market has become even more challenging, the company sees that the risk/reward characteristics of the cannabis market give it a potential for future growth while maintaining a disciplined approach in its future investments.
Its strong financial position, diligent approach to investments and commitment to shareholder value with its dividends make SSIC an undervalued cannabis stock worth looking at.
On the date of publication, Rick Orford 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.
