Many cannabis investors have suffered significant losses in recent years as marijuana companies failed to deliver on promises of explosive growth. But the growth opportunities are far from gone, and there are still good cannabis investments out there. With many states reporting strong marijuana sales this year, 2020 could be the year where many pot stocks bounce back.
Below are two stocks that are among the industry leaders and are likely to post strong numbers this year. And that could send their shares soaring, potentially even doubling in value:
1. Cresco Labs
Cresco Labs (CRLBF -1.71%) is a cannabis company that's slowly starting to creep up and gaining market share in the U.S. pot market. On May 28, the Illinois-based company released its first-quarter results and sales of $66.4 million were up more than 60% from the fourth quarter when it reported revenue of $41.4 million. It's the fourth straight quarter where the cannabis producer's produced positive quarter-over-quarter sales growth. And at $66.4 million, Cresco would be on pace to generate more than $265 million in revenue over a full year. Those numbers could continue to get bigger as it expands its reach in its home market where cannabis sales have been taking off this year. Cresco launched its eighth dispensary in Illinois on July 13 and now has a total of 18 stores up-and-running in the U.S.
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Shares of Cresco are down more than 30% in the past year while the Horizons Marijuana Life Sciences ETF's(HMLSF 4.88%) declined by 55%. The stock's currently trading at around 4.3 times its revenue, and its value could rise in one of two ways. The first is if people simply value the stock at a higher multiple (industry giant Canopy Growth trades at around 20 times its sales) and the second is if Cresco's sales numbers continue to grow, which could happen if it's able to just maintain its current sales numbers. The former scenario may not happen, but the latter is almost a certainty given the red-hot cannabis market in the U.S. which looks to be on track to grow by 40% this year.
According to its website, Cresco's operational in nine states with 29 retail licenses available.
2. Curaleaf
Curaleaf Holdings (CURLF -1.83%) is not as cheap a buy as Cresco is with its stock trading at more than 12 times revenue. However, Curaleaf's also a much bigger pot stock with a bigger presence in the U.S. that investors are willing to pay a premium for.
On July 23, the Massachusetts-based company announced the completion of its acquisition of cannabis operator Grassroots, which expands Curaleaf's presence from 18 states to 23. It now has 88 dispensaries that are operational and its cultivation capacity now totals 1.6 million square feet.
Curaleaf's been wheeling-and-dealing over the past year in an effort to dominate the U.S. market. In February, it closed on its acquisition of Cura Partners, which owns the popular Select brand of cannabis products, which was mainly known around the West Coast, particularly in California, Nevada, Arizona, and Oregon. But Curaleaf's been working to expand that brand into more states.
In May, it announced it was partnering with Mango Cannabis to get Select products in Oklahoma. And on July 10 it completed its acquisition of BlueKudu which will help further expand its Select brand in Colorado. Curaleaf also announced on July 16 that Select would be available in Maine. Select's now available in more than 800 dispensaries across 11 states. With so much expansion, Curaleaf's going to get even bigger than it is today.
The company last reported its quarterly results on May 18 when it released its first-quarter numbers. Sales of $96.5 million in Q1 were up 28% from the fourth quarter and up 174% from the prior-year period. Its pro forma sales, which are calculated as if its pending acquisitions were closed as of January 1, were $147.4 million. If Curaleaf could maintain that over a 12-month period its revenue would be $590 million. That would bring its P/S ratio down to just 7.3.
Shares of Curaleaf are flat over the past 12 months.
Which stock is the better buy today?
Both cannabis stocks have struggled over the past year but in 2020 there's been a lot more bullishness surrounding Curaleaf:
Although its valuation is pricier than Cresco's, the sky looks to be the limit for Curaleaf. Not only will it benefit from rising cannabis sales but its growing presence in new markets sets up the cannabis company for what could be some very strong numbers this year. It's got more potential this year than Curaleaf but both pot stocks could double from where they are right now given their (relatively) low valuations and the opportunities ahead of them.
