Predicting which marijuana companies will be the best investments 10 years from now is not easy. The market is growing, new companies go public, and there's an increase in mergers and acquisitions.
Many marijuana companies' stock prices doubled between the Presidential election in Nov. 2020 to shortly after the inauguration of the Biden administration in January, as investors anticipated progression toward legalization at the federal level. But after a year of stock price declines, Curaleaf Holdings (CURLF -1.72%), Green Thumb Industries (GTBIF -0.86%), and Verano Holdings (VRNO.F -4.73%) make a strong case to be included in portfolios for years to come.
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Curaleaf leads the way in revenue
Curaleaf has dispensaries in 17 states, as well as operations in the United Kingdom, Spain, Germany, Italy, and Portugal. Its third quarter revenue grew by 74% on a year over year basis, topping multi-state operators at $317 million. The company's growing its 15% market share in Florida, with plans to open 23 new stores there by the end of the year, in addition to opening new stores in Arizona, New Jersey, and Pennsylvania. In all, it has operations in six of the top eight markets -- by projected 2025 market share -- including Florida, and Arizona, ranked #3 and #4 respectively in a growing Millenial and Gen X population -- which accounts for 77% of marijuana sales in the country. It's also expanding its cultivation capacity in anticipation of a booming flower market in New York, a market projected to be worth $7 billion by 2025 with a compound annual growth rate of 14.7%.
But its expansion efforts don't come free, leading to a Q3 loss of $0.08 per share that didn't sit well with some investors. An already declining stock price fell even lower, which opens the door for new long-term investors looking for a better entry point. As markets continue to grow, and the population increases in states where marijuana is legal, investors might look back five years from now and realize this was the time to buy Curaleaf.
Green Thumb boasts one of the top selling edibles brands
Green Thumb is headquartered in Illinois, where marijuana is legal for recreational- and medical-use, but has manufacturing facilities and dispensaries across 14 states. The company grew revenue 49%, to $233 million in Q3 on a year over year basis; good enough to rank it third among public cannabis companies for the quarter.
Its advantages include its locations, edibles, and profitability. Like Curaleaf, the company has strategically expanded its footprint toward future growth, including operations in six of the top eight states in estimated 2025 market share -- California, Florida, Illinois, Colorado, Massachusetts, and New Jersey. These states are expected to make up 52% of total market share by 2025. The company also has operations in Virginia, Ohio, and New York, all of which are expected to be strong markets with total sales ranging from $1.3 billion (VA) to $2.8 billion (NY) by 2025, supported by a robust population over the age of 21.
Edibles should help Green Thumb perform well in these markets. According to analytics firm BDSA, Green Thumb's Incredibles brand, featuring gummies, chocolates and mints, is the fourth ranked edibles brand in sales in an edibles market expected to grow at a 30% compound annual growth rate through 2025, hitting a value of $13.6 billion. What's interesting about Incredibles is that it's only available in six states today, leaving much room for expansion and revenue growth.
Although edibles is a growing segment of the market, Green Thumb does face competition from the top ranked edibles brand, Wyld ; as well as the top sellers in California (Kiva Confections), and Colorado (Wana Brands). Wana was recently snatched up by Canopy Growth, while Wyld and Kiva are not publicly traded and worth keeping an eye on in the interest of M&A action.
In the face of competition Green Thumb has grown its total revenue in 12 straight quarters, and its third quarter produced a profit of $0.08 per share. Its footprint, quality brand products combined with an expanding number of states legalizing marijuana, and its ability to turn a profit in this massively growing market makes it one of my top choices for the long haul.
Verano -- the new kid on the public block
Like Curaleaf and Green Thumb, Verano has operations in six of the top eight projected markets in 2025, including Florida, Illinois, and Michigan. It's also a top five MSO based on revenue, pulling in $207 million in Q3 which represents a 106% increase year over year for the period and resulted in a 33% spike in sequential gross profit. Unlike its peers, its stock has only been public for a year. And although the stock price has tumbled from a high of $28 at the time of IPO to a recent $10, the company has produced positive earnings in each of its three public quarters.
But where Verano falls short of its peers is its cash which sat at $57 million at the end of Q3, compared to $317 million for Curaleaf, and $285 million for Green Thumb.In order to keep up with what is expected to be a year of increasing M&A activity in the marijuana market, the company may need to turn toward more debt or the dilution of shares, making some investors nervous.
In 2021 Verano was aggressive with acquisitions, totaling 13 of them in its first year as a public company, enabling it to grow to 37 dispensaries in Florida -- on pace with Curaleaf -- with plans to build 90 more retail locations across the states in which it operates, including its core markets in Florida, Ohio, and Pennsylvania -- where it touts a unique four-lane drive-thru retail store.
Based on its growth potential in burgeoning markets and its ability to produce positive earnings it will likely gain the attention of more investors. The company will look to build on that momentum when it posts Q4 results around April 6. A fourth consecutive positive quarter could be just what is needed to turn the stock price around, and for those looking long-term Verano seems to be on the right path.
Keep an eye on Texas
Sentiment toward legalization of marijuana in Texas has improved, including a drop -- from 54% to 40% -- in voters who said possession of marijuana ought to be illegal or for medical use only. There is also a rise in support of lowering penalties for possession of small amounts, including police not enforcing arrests.
Texas has experienced a 162% increase in patients under the compassionate use program during the first nine months of 2021. We are talking about a state that has the second highest population in the country, is showing movement toward less restrictive laws, and only has three licensed marijuana operators. The state ranks #1 and #2 respectively for where Millenials and Gen X'ers are moving to, which make up a demographic reponsible for 77% of marijuana use in the U.S.. It's also worth noting that Dallas and Austin are ranked as the #7 and #8 top cities for Gen Z'ers, which could mean that Texas will hold its status for a location of choice for marijuana users for years to come.
Investors might want to keep an eye on any tilt toward expanded laws supporting marijuana use in the state. Companies like Curaleaf, Green Thumb, and Verano all have the resources and track record to make acquisitions to plant a footprint in what could become a massive market worth $2.7 billion annually.
