Cannabis stocks are down in 2023 due to plateauing demand, rising production costs, fierce competition and stalled legalization efforts at the federal level. Yet, with shares of many top cannabis producers and retailers down by double-digit percentages, it may be time for investors who are bullish on the sector long term to pounce on some cheap cannabis investments.
There is certainly reason for optimism, as several potential catalysts could spark a rebound. Research shows strong support for legalization in the United States. While federal lawmakers are dragging their feet, states continue to legalize cannabis for medical and recreational purposes. Further, as companies look to expand into international markets, revenue and profits could improve.
Here are seven undervalued cannabis stocks that are down 10% or more this year that investors may want to buy and hold for a rebound.
Curaleaf (CURLF)
Curaleaf (OTCMKTS:CURLF) has carved out a prominent space in the fast-evolving cannabis landscape. The firm’s geographical diversification is an asset. It operates in 19 U.S. states with 152 dispensaries, as well as in eight European nations following its 2021 acquisition of Emmac Life Sciences.
For the first quarter, Curaleaf reported 14% year-over-year revenue growth to $336.5 million. Adjusted EBITDA clocked in at $73.2 million, meaning the company’s adjusted EBITDA margin was an impressive 22%.
What sets Curaleaf apart is its blend of innovation and customer centricity. Last year, Curaleaf launched over 170 products and three new brands. This year, it has already rolled out its JAMS cannabis edibles brand, as well as a new mobile app to streamline customers’ cannabis purchases.
Cronos Group (CRON)
Toronto-based Cronos Group (NASDAQ:CRON) is charting a path to positive cash flow in 2024 through a focus on innovation, improving gross margins and cost efficiencies. Despite a 20% dip in net sales in the first quarter, Cronos’ strategy of pivoting toward higher-margin derivative products such as edibles and vapes should eventually pay off for investors.
Cronos’ leading brand, Spinach, has carved out a massive market share across multiple categories, including edibles and vapes, despite fierce competition in Canada. The success of Spinach speaks to the potential of Cronos’ borderless product platform in other markets.
The company is looking to take the U.S. market by storm with premium cannabinoid products and has an encouraging international presence. For instance, in Israel, impending regulatory changes and streamlined patient access create an environment ripe for expansion. Cronos’ Peace Naturals brand is already a top performer in the country.
The company’s robust balance sheet features over $836 million in cash and little debt. This provides a solid foundation for taking strategic risks while curbing cash burn.
Cresco Labs (CRLBF)
Cresco Labs (OTCMKTS:CRLBF) is one of the top vertically integrated businesses in the cannabis sphere. Its operations span 10 U.S. states, including Illinois, Massachusetts and Pennsylvania.
Cresco Labs manages a network of 68 dispensaries under its Sunnyside brand. Other popular brands under its umbrella include High Supply concentrates and vape pens and Good News cannabis gummies.
While the company’s growth has slowed, it is still leading the industry. Cresco Labs’ three year-revenue growth rate stands at 39%, better than 92% of its peers. And its three-year EBITDA growth rate of nearly 47% is better than 89% of the competition. Meanwhile, it is one of the most undervalued cannabis stocks, trading at just 0.6 times sales.
Green Thumb Industries (GTBIF)
Green Thumb Industries (OTCMKTS:GTBIF) is a Chicago-based titan in the cannabis market, which sports an expansive range of products from popular brands including Beboe, Dogwalkers, Good Green and Rythm. With its peer-leading balance sheet, significant geographical footprint and low capital expenditure needs, GTBIF presents an attractive opportunity for those eyeing cheap cannabis investments.
Despite regulatory hurdles and price compression, the company has found a profitable business model that should help it continue to navigate the shifting cannabis landscape. Revenue has skyrocketed from $62.5 million in 2018 to over $1 billion today.
While the past five years have been a rocky road from a shareholder return perspective, the next five could prove to be a very different story.
Innovative Industrial Properties (IIPR)
Innovative Industrial Properties (NYSE:IIPR) is carving out an impressive niche within the regulated cannabis industry. The real estate investment trust (REIT) specializes in industrial properties leased to state-licensed medical cannabis operators in 19 states with 108 properties.
As my InvestorPlace colleague Yiannis Zourmpanos points out, the REIT’s business model boasts “structured long-term cash flows with extended initial lease terms, capital-efficient lease structures, and non-dilutive capital provisions to facilitate tenant growth plans.”
The company boasts an enviable financial profile, with a solid profitability rank of 7 out of 10 and a growth rank of 10 out of 10 from GuruFocus. Additionally, GuruFocus assigns a “significantly undervalued” rating to IIPR stock, signaling shares have outsized long-term upside potential.
Trulieve Cannabis (TCNNF)
Trulieve Cannabis (OTCMKTS:TCNNF) is another juggernaut in the U.S. cannabis industry, operating an extensive network of 184 retail dispensaries and more than 4 million square feet of cultivation and processing capacity across 11 states.
Its expansive reach positions Trulieve as one of the country’s most significant cannabis retailers and also enables it to tap into the surging medical marijuana market, which is expected to expand at a compound annual growth rate (CAGR) of 32%, hitting $248.4 billion by 2030.
Although the company experienced a slight pullback in first-quarter sales and anticipates another decline in the current quarter, Trulieve’s outlook remains optimistic. It projects operating cash flow of $100 million this year, as well as positive free cash flow.
ETFMG Alternative Harvest (MJ)
For investors looking for diversification across cheap cannabis investments, consider the ETFMG Alternative Harvest (NYSEARCA:MJ). It tracks the Prime Alternative Harvest Index and has a modest expense ratio of 0.75%. Notably, it offers an attractive dividend yield of 4.6%.
With 31 holdings, this ETF boasts an impressive roster that includes many of the names on today’s list of undervalued cannabis stocks, as well as other prominent players like Tilray Brands (NASDAQ:TLRY) and Canopy Growth (NASDAQ:CGC).
Launched in 2015, MJ was the first cannabis ETF. Today, it is one of the most widely traded with average volume of more than 1.5 million shares and assets under management of $232.6 million.
On the date of publication, Muslim Farooque 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