We can safely say that the fascination around marijuana legalization has diminished recently, at least as an investment strategy. For instance, the enthusiasm we saw leading up to legalization in certain parts of the U.S. hasn’t quite held up. However, anticipation continues to trend across the entire sector.
Experts predict that yearly growth rates in the cannabis industry will continue to grow between now and 2030. But this is based on the anticipation I mentioned above—for federal legalization, to be specific. Sadly, anticipation alone isn’t quite enough to validate investing in the cannabis market. Not right now.
The stocks I’ll cover today are each cheap and will likely grow in the future, but the industry likely won’t be profitable to public shareholders until it is legalized on a federal level. We can’t say when that will be, so why not just wait and observe? Cannabis will still be here in a couple of years, I’m sure.
Although many agree cannabis will one day be legal in all 50 states, there are more pressing issues right now, not to mention a lot more profitable portfolio choices we could make…
Cronos Group (CRON)
Let’s start with the only one on this list currently trading on the New York Stock Exchange (while the other two are “over-the-counter”). Cronos Group (CRON) has demonstrated some positive changes, but it’s important to be weary; its stock is down year-to-date by 28.74% and hasn’t shown that much movement. Although net losses have reduced overall, earnings reports for both Q1 and Q2 of 2023 revealed revenue figures for CRON that came in well below analysts’ estimates. Most recently, CRON reported $25.45 million in sales vs. $29.83 million as expected, losing to projections by -14.68% and also showing a year-over-year revenue growth decline of -11.98%. CRON is set to report Q3 earnings on November 14th.
CRON’s outlook is predicting positive cash flow to start coming within the next couple of years, but until then, the stock retains a negative SMA (simple moving average), a negative ROE (return on equity), and TTM (trailing twelve-month) asset declines and momentum declines. Despite CRON’s substantial liquidity reserves, its market valuation might not fully account for all the potential long-term challenges and fluctuations in the market, which could greatly impact the stock’s performance. Currently trading near the very bottom of its existing 52-week range, CRON has an average price target of $2.51, with a high of $3.77 and a low of $1.57. This leaves what will resonate through this list: potential for price upside but no momentum to drive and fulfill that potential, which otherwise could make it a promising growth stock.
Cresco Labs Inc (CRLBF)
Cresco Labs (CRLBF) has garnered attention in the cannabis arena with its trading price under $2 and vertically integrated operations covering 10 states and 68 dispensaries. However, CRLBF’s recent stock performance shows a contraction in sales from $214 million to $194 million in Q1 2023, casting doubt on its growth trajectory. In Q2 2023, CRLBF reported EPS of -$0.04 per share, which met analysts’ expectations and beat slightly on revenue. However, revenue fell year-over-year by -9.06%, while net profit margin growth declined by -4.67%. CRLBF is set to report earnings again (for Q3) on November 9th.
Regarding current stock performance, CRLBF is down year-to-date by 39.44%, and although it’s trading under $2, it’s been a little too long for comfort. CRLBF has a negative 20/200 day SMA, a negative ROE, and negative TTM growth in both its momentum and asset management. While CRLBF’s operational gains have improved, overall net losses persist, and it hopes to use its vertical integration strategy to curb said losses. Trading near the bottom of its 52-week range, CRLBF has a median price target of $3.91, with a high of $12.19 and a low of $1.49. The problem for CRLBF is that it’s too uncertain whether or not it can ensure a clear path to profitability in an industry recently defined by its significant financial woes.
Green Thumb Industries Inc (GTBIF)
While Green Thumb Industries (GTBIF) is often lauded for its profitability within the cannabis sector, a closer examination reveals potential shortcomings. Despite GTBIF’s consistent gross profits and net gains, its drop from $29.7 million to $9.4 million in Q1’s net income already suggested cost pressures that could hurt profits. For Q2 2023, year-over-year growth showed contractions in all the major categories: revenue (-0.76%), net income (-45.17%), EPS (-50%), and net profit margin (-44.75%). GTBIF is projected to post $266 million in sales at $0.06 per share for Q3 and is scheduled to report again on November 8th.
GTBIF is currently down by 22.22% year-to-date, has a negative 20/200 day SMA, a negative ROE, and a declining TTM momentum growth measure. GTBIF’s stock has been trading attractively and is certainly contending strongly against its peers in the industry. However, the inherent unpredictability of the cannabis market is what introduces risks. Despite being the largest on this list when it comes to its market valuation, GTBIF has the lowest 10-day average volume, at roughly 235 thousand shares. As you may have guessed, GTBIF is, like its peers, trading near the bottom of its existing 52-week range; currently, GTBIF’s average price target is $15.87, with a high of $23.79 and a low of $10. This indicates the typical potential for upside minus the impressionable metrics you’d typically see in a compelling growth stock.
There’s no harm at all in keeping an eye on GTBIF, or any other stock in the cannabis industry for that matter, on this last and even off. What’s most important about investing in this industry is that you keep an eye on both the sector’s performance and that of any given individual stock. The lasting and popular marijuana businesses are likely to make waves in the future, but that isn’t likely to happen until it’s federally legal, and frankly, marijuana legalization is far beyond our biggest issue right now. Patience.
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