In the last five years, cannabis stocks have gone through brief phases of optimism that has been followed by an extended period of depression. The reason is no secret as the industry suffers on the back of regulatory headwinds, intense competition, overcapacity, and cash burn.
As I talk about cannabis stocks to buy, the question is – What’s different this time?
I believe that there are two big positives. First, regulations are turning friendlier. Germany recently legalized cannabis. It’s likely that cannabis will be reclassified as a Schedule III drug (less dangerous) in the United States. As more countries legalize recreational and medicinal cannabis, companies will witness accelerated growth.
Further, cannabis companies have gone through phases of excess capacity and significant cash burn. Some of the best companies in the industry are moving towards EBITDA breakeven. Therefore, fundamentals will improve coupled with financial flexibility.
I am therefore bullish on some of the top cannabis stocks creating massive wealth by the end of the decade.
Cronos Group (CRON)
Cronos Group (NASDAQ:CRON) is my top pick from the cannabis sector for multibagger returns. I believe that Cronos is significantly undervalued and the company is making the right moves towards growth acceleration.
The first point to note is that Cronos ended Q1 2024 with a cash buffer of $855 million. The company has been conservative in utilizing its cash in the past. As regulations headwinds wane on a relative basis, Cronos is well positioned to make inroads into key markets.
In the last few quarters, Cronos has entered new markets of Germany, Australia, and the United Kingdom. Further, Cronos will provide a $51 million secured non-revolving credit facility to GrowCo (50% stake). These funds will be utilized for expansion to address the increased global market demand for high-quality cannabis flower.
For Q1 2024, Cronos reported healthy revenue growth of 30% on a year-on-year basis to $25.3 million. With geographic expansion, I expect revenue growth to accelerate. At the same time, EBITDA breakeven is likely in the next few quarters.
Tilray Brands (TLRY)
Tilray Brands (NASDAQ:TLRY) stock has declined by 23% for year-to-date. I see this as a good buying opportunity as the cannabis company focused on accelerating growth.
In May, Tilray announced a $250 million at-the-market offering for acquisition and expansion in the U.S. once cannabis is reclassified as a Schedule III drug. The impending reclassification is a catalyst for TLRY stock upside.
It’s also worth noting that Tilray diversified its portfolio in 2023 and became the fifth largest craft beer brewer in the U.S. Recently, the company launched premium non-alcoholic brews. Diversification is likely to support long term growth. At the same time, it provides a strategic infrastructure in the U.S. for potential cannabis expansion.
Tilray has also been aggressive in the international medicinal and recreational cannabis market. In Germany, the company has received cannabis cultivation license under the new regulation. Tilray has also received license to distribute medical cannabis products to pharmacies, hospitals, and medical wholesalers throughout Germany. With multiple initiatives, Tilray is setting a strong base for accelerated growth and value creation.
Curaleaf Holdings (CURLF)
Amidst volatility, Curaleaf Holdings (OTCMKTS:CURLF) stock has traded marginally lower in the last 12 months. I see this as a good buying opportunity with a long-term investment horizon.
While federal level legalization of cannabis in the U.S. remains elusive, several states have legalized the use of cannabis. Curaleaf has presence in 17 states and is well positioned to benefit. Estimates suggest that even without federal legalization, the U.S. cannabis market will be worth $71 billion by 2030.
In addition to this, Curaleaf has also been pursuing aggressive expansion in Europe. The company believes that the European region has an addressable market of $248 billion. Expansion in Europe is through the organic and acquisition route.
For Q2 2024, Curaleaf reported subdued revenue growth of 2% on a year-on-year basis to $342 million. It’s however worth noting that international revenue surged by 78%. This was driven by growth from UK and Germany. As international revenue swells, I expect overall growth to accelerate and this will translate into continued cash flow upside.
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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.