October 31, 2023 10:00 am ETEstimated Read Time: 7 Minutes
With recent cannabis-friendly laws and the fast-evolving market structure, the cannabis industry holds a promising future for investors. The cannabis stock landscape is vast and dynamic, offering investors a wide array of alternatives to choose from. Selecting which company’s stock to invest in can be confusing to potential investors.
To help you navigate the cannabis stock market easily, here are 5 top industry performers you should consider investing in. We’ll give you some insight into their financial performance, market presence, and potential for future growth.
Best Cannabis Stocks
With a market value of $3.31 billion, Curaleaf Holdings (CURLF) is a prominent player in the U.S. cannabis sector, particularly due to its commitment to delivering the best-in-class cannabis experiences. The Massachusetts-based company kicked off operations in New Jersey in 2010. There, Curaleaf pioneered the development of vaporizers designed for more precise medical marijuana dosing. Today, the company operates in 19 states, including leading markets like NY, NJ, Arizona, Florida, Illinois, and Massachusetts. With 150 dispensaries and 28 cultivation sites, Curaleaf has built a dominating presence in cannabis production and retail.
Curaleaf’s core strength is its dedication to enhancing cannabis users’ experience through bespoke scientific innovation. As the cannabis industry evolves, Curaleaf takes advantage of the organic growth opportunities.
On its growth journey, Curaleaf has successfully scaled some high hurdles. Earlier this year, it made headlines for reducing its workforce by 10%, looking to save $60 million annually. The company also made a strategic move to close its production and cultivation facilities in Oregon, California, and Colorado, focusing on markets with higher potential profit.
In its financial books, Curaleaf reported an impressive sales figure of $339.7 million in its third quarter. This translates to an adjusted EBITDA of $84 million. These figures mark year-over-year increases of 7% and 18%, respectively. However, investors should exercise caution, as CURLF, like many cannabis stocks, is traded over the counter, often with thin trading volumes, making limit orders and stop-loss strategies advisable.
Next is Cresco Labs (CRLBF), a multi-state operator (MSO) valued at $828.521 million. With 64 retail licenses, 21 production facilities, and 64 operational dispensaries across 10 states, Cresco Labs has an impressive portfolio. The company’s national brands—Cresco, Reserve, Remedi, and Mindy’s (edibles)—have made a significant contribution to the cannabis retail space.
In a groundbreaking move in March 2022, the company announced its intention to acquire U.S. and European cannabis cultivator, Columbia Care (CCHWF), in a deal worth $2.0 billion and billed to close by the end of the second quarter of 2023. This acquisition will make Cresco the largest MSO, generating over $1.4 billion in pro forma revenue from more than 130 retail locations across 18 markets, reaching over 180 million adults in the U.S.
Financially, CRLBF reported a 2% year-over-year decline in revenues to $210 million in the third quarter. Although the company faced sequential and year-over-year declines in adjusted EBITDA, its retail revenue surged by 11% year-over-year, reaching $118 million, with an average sales per store of $2.35 million.
Cresco Labs enjoys good reviews from Wall Street analysts. Out of 15, nine stock analysts rate Cresco stock as a Strong Buy, with six suggesting a Hold. The stock’s average target price of $5.00 implies substantial growth potential over the next year.
Tilray Brands (TLRY), valued at $2.12 billion, has faced considerable struggles since its merger with Aphria in May 2021. The cannabis industry’s path forward, particularly with regard to federal legalization in the U.S., has been fraught with uncertainty, leading to an approximate 86% decline in Tilray’s share price.
In response, CEO Irwin Simon has taken bold steps to position Tilray as a competitive force regardless of regulatory uncertainties. The company made the decision to enter the beer and premium spirit market with its $103 million acquisition of Breckenridge Distillery in 2021. More recently, Tilray also acquired Montauk Brewing for $35 million in cash and stock.
Montauk Brewing, located at the tip of Long Island, recognized as the fastest-growing craft beer brand in New York City, presents significant growth opportunities for Tilray. For its beer business expansion, Tilray brought in Ty H. Gilmore, a seasoned executive with an extensive background in the beverage alcohol industry.
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Amidst the diversification, cannabis remains at the core of Tilray’s operations. In its fiscal third quarter, cannabis accounted for 33% of the company’s quarterly revenue. Tilray’s commitment to maintaining its leading position in the Canadian cannabis market while expanding its footprint in the U.S. positions it well for the eventual federal legalization.
Tilray investors should anticipate more non-cannabis acquisitions in 2023, reflecting the company’s adaptive approach to navigating the complex cannabis landscape.
Innovative Industrial Properties
With a market value of $2.48 billion, Innovative Industrial Properties (IIP) is unique among the cannabis stocks discussed, serving a critical role in addressing the capital challenges faced by U.S. cannabis companies. Due to federal cannabis prohibition, securing capital from traditional banks or financial institutions remains a daunting task for investors.
IIP has carved out a vital niche by purchasing properties owned by struggling U.S. medical cannabis operators and leasing these properties back to them. This approach injects much-needed cash into the cannabis operators’ operations while providing IIP with a reliable revenue stream. As a real estate investment trust (REIT), IIP is required to return at least 90% of its taxable income to shareholders.
While federal cannabis reform may not have as substantial an impact on IIP as other companies, it’s worth noting that IIP’s shares already trade on the New York Stock Exchange (NYSE). Federal reforms could potentially introduce more competition if traditional banking services become readily available to U.S. cannabis operators. However, such reforms would also expand the U.S. cannabis market, potentially benefiting IIP in the long run.
It’s been a roller-coaster ride for Scotts Miracle-Gro (SMG) in the world of cannabis stocks over the past four years. Starting below $60 at the end of 2018, SMG’s stock soared to an all-time high of $250 by April 2021, a cumulative total return of nearly 320%. A significant portion of these gains come from SMG’s Hawthorne Gardening division, which provides essential materials for indoor and hydroponic growers, including cannabis farmers.
In Q1 2021, SMG reported record first-quarter revenue of $749 million, with Hawthorne’s sales surging by 71% year-over-year to $309.4 million. However, fast-forward to SMG’s fiscal first-quarter results in 2023, Hawthorne’s revenues for the three-month period dropped to $131.5 million, a 57% decline from two years earlier. This downturn in Hawthorne’s business significantly impacted SMG’s share price.
Nonetheless, CEO Jim Hagedorn maintains optimism about the cannabis industry’s future. Hagedorn emphasized the company’s commitment to supporting growers when the cannabis industry recovers, citing ongoing consolidation in the sector and opportunities for high-value partnerships.
On the consumer side, SMG holds a $150 million six-year convertible note in RIV Capital (CNPOF), representing a 42% stake. RIV Capital’s acquisition of Etain Health, one of New York state’s original medical marijuana producers, for $247 million in March 2022 underscores SMG’s involvement in the evolving cannabis landscape.
From a valuation perspective, SMG stands out as one of the best marijuana stocks. Trading at 1.07 times sales, the stock appears considerably cheaper than its five-year average multiple of 1.79, offering investors potential value.
Surfing the Booming Cannabis Stock Market
The world of cannabis stocks is a dynamic landscape with a mix of challenges and opportunities. While past performance is not indicative of future results, these top-performing cannabis stocks have demonstrated resilience, adaptability, and growth potential, making them compelling candidates for investors seeking exposure to this evolving sector.
While the performance of cannabis stocks over the past year has been underwhelming, the sector continues to hold significant growth potential for investors willing to embrace some risk.
According to MJBizDaily, U.S. cannabis sales are projected to exceed $33 billion in 2023 and could hit nearly $57 billion by the end of 2028. Moreover, the global cannabis market is anticipated to surge to nearly $200 billion by 2028, up from $28 billion in 2021.
That said, as with any investment, due diligence and careful consideration of the associated risks are crucial before you settle with any cannabis stock.
Destiny Obasohan is a staunch advocate for cannabis legalization and education. He's committed to providing accurate and insightful information to help readers make informed decisions about cannabis use. When not writing, he’s exploring new strains, attending industry events, connecting with fellow cannabis enthusiasts, or teaching his Lhasa Apso some new tricks.
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