The past year hasn’t been kind to marijuana investors, who have watched most cannabis stocks collapse as momentum for federal legalization has stalled in Congress. The Horizons Marijuana Life Sciences Index ETF was down 20% in 2021, off 34% from the highs it hit last February.
Many pot stocks did much worse, and the only reason the exchange traded fund is not down even more is the performance of companies like marijuana-focused real estate investment trust Innovative Industrial Properties — a top 10 holding of the ETF, and one that performs well in good times and bad.
I recently discussed why I think Innovative Industrial is a strong buy for the sector, but there are other good marijuana stocks to consider as well, even those that have plummeted because of industry pessimism.
With a massive opportunity still in front of them, the following trio of cannabis companies should be on your list of stocks to buy in January.
One of the largest vertically integrated multi-state operators (MSO) in the country, Cresco Labs (OTC:CRLBF) has a two-pronged approach to growth, operating retail stores on the front end while handling production and processing behind the scenes. It makes it an industry-leading wholesaler of branded cannabis products.
At the end of the third quarter it had 21 production facilities and 46 owned dispensaries, but in December it closed on its acquisition of Laurel Harvest Labs, which gave it another operational dispensary in Pennsylvania with licensing options to open five more. It also opened its 13th dispensary in Florida, the fifth new one it opened since entering the market last April through its acquisition of Bluma Wellness.
The twin strategy of growing both organically and through acquisitions is giving Cresco broad coverage in the most important states for marijuana expansion.
Not only does Cresco sell its marijuana products in its own dispensaries, but it is able to embed its own branded cannabis products such as Mindy’s and Sunnyside in over 1,000 dispensaries across the country. More than half of them are sold in retail stores throughout California, the largest marijuana market.
Cresco stock lost a third of its value in 2021, but Wall Street sees revenue growing at a compounded rate of 33% a year and reaching nearly $2 billion by the middle of the decade, while turning from losses to adjusted net profits of $370 million. At $5 a share, Cresco Labs is a stock to buy this month.
GrowGeneration doesn’t grow or sell cannabis itself, but rather is the country’s largest specialty hydroponic and organic garden center supplier. It’s a picks-and-shovels stock that should expand alongside the industry because it provides the basic materials commercial and consumer growers need for their business.
The garden center operator has broad coverage with 62 stores in 13 states, but it is also building up its e-commerce presence, and online sales are expected to hit $35 million for the year when it reports fourth-quarter results. It is also focusing on private-label and proprietary brands to bolster its profit margins. Gross margins expanded 290 basis points to 29.4%, and it is profitable on both an adjusted and GAAP basis.
Revenue is expected to double in the next five years to $843 million, and adjusted profits are forecast to triple. Back in February GrowGeneration was flying high at almost $68 a share, but today goes for around $13. Wall Street has a consensus price target of $35.75 per share, giving this stock some 170% upside over the coming year.
Another big MSO, Columbia Care (OTC:CCHWF) surpasses Cresco Labs with 99 dispensaries in 17 states, as well as 32 cultivation and manufacturing facilities operating alongside its wholesale distribution business in 13 markets. But it really concentrates on limited license markets such as Pennsylvania, Ohio, and Massachusetts, which limits its competition and gives it a measure of pricing power.
Its goal though is to get to scale as quickly as possible. In recent months, it’s acquired vertically integrated medical marijuana company Green Leaf Medical; CannAscend, a four-dispensary operation focused on Ohio; and California-based cultivator, wholesaler, and retailer Project Cannabis. It also bought Medicine Man, and just entered Virginia’s new medical marijuana market with some of the state’s first whole-flower sales for patients under its Seed & Strain and gLeaf brands.
Columbia Care’s stock has lost over half its value in 2021. That’s despite third-quarter revenue more than doubling from last year and comparable store sales rising nearly 16%.
Wall Street remains upbeat, expecting it to surpass $1.3 billion in revenue in the next few years, and with a consensus price target of $12.80 per share, this MSO is expected to rise almost 350% in the next year from its sub-$3-per-share current value. January would be a great time to get in on this growing marijuana stock.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.