The Drug Enforcement Administration is looking to reschedule marijuana from a Schedule I substance down to Schedule III. The move would mean marijuana is no longer grouped in with ecstasy, heroin, and other harmful substances, and it would be a recognition that there is some medicinal benefit to using pot.
For U.S.-based cannabis companies, it would be a big win as it would mean they would be able to make more tax deductions since Section 280E of the tax code would no longer apply.
Three of the largest multi-state operators (MSOs) that would have the most to gain from the rescheduling of cannabis are Curaleaf Holdings (CURLF -2.56%), Green Thumb Industries (GTBIF 0.78%), and Trulieve Cannabis (TCNNF -1.36%). Here's a look at each company.
1. Curaleaf Holdings
Curaleaf is one of the largest MSOs in the country, with 145 dispensaries in 17 states. It has approximately 1.4 million square feet of cultivation capacity. And in addition to the U.S. market, the company has been growing its presence internationally, recently making its first wholesale shipment to the Czech Republic.
Over the trailing 12 months, Curaleaf has generated nearly $1.4 billion in revenue, and it incurred a net loss of $275.1 million. Included in that is a tax provision totaling $113.9 million. The cannabis producer does, however, consistently post an adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) profit; for the first three months of the year, its adjusted EBITDA margin was 23%, and in the period before that, it was 24%.
By lowering its tax bill, Curaleaf will be in a position to improve upon on its bottom line. Chairman Boris Jordan previously referred to 280E as "unfair" and "unconstitutional" for the company to be saddled with such a burden, even going as far as suggesting that the cannabis industry should consider not paying it in protest.
This year, Curaleaf's stock is up more than 10%, but over a five-year period, its shares are still down 40%. At a price-to-sales multiple of 2.4, the stock isn't expensive and does have room to rise higher, should investors grow more bullish on the cannabis industry and look to invest in one of the country's top producers.
2. Green Thumb Industries
A company that's already profitable today is Green Thumb Industries. Its footprint is smaller than Curaleaf's, as Green Thumb has 93 retail locations and it's in 14 U.S. markets. Its focus on offering a variety of branded cannabis products has allowed it to reach a wide range of customers.
Green Thumb has generated roughly $1.1 billion in sales over the past four quarters, and despite taxes accounting for nearly 11% of its top line, the company has still managed to post a profit of $58.2 million over that time frame. It also generated $234.3 million in operating cash flow.
Green Thumb's stronger financials have made it one of the better buys in the industry, as the pot stock is in positive territory over the past five years with a gain of around 1%. It's modest, but it's still impressive in an industry where many stocks are often deeply in the red.
Rescheduling would help boost its profits and make it an even better buy. It trades at 2.6 times its trailing revenue.
3. Trulieve Cannabis
This month, Trulieve will reach a milestone by opening its 200th dispensary in the country. It will take place on June 14 in Brooksville, Florida. It's by far the largest cannabis retailer, with its footprint easily surpassing both that of Green Thumb and Curaleaf.
Trulieve too has a lot to gain from cannabis rescheduling and relief from 280E. The company's chief financial officer Wes Getman says that Trulieve would stand to benefit significantly from a lower tax bill, adding, "If the 280E burden is lifted, Trulieve could realize hundreds of millions of savings in the next few years."
Over the trailing 12 months, Trulieve's sales have totaled $1.1 billion, and it has paid $171.3 million in taxes. During that time, the company has incurred a loss of $485.8 million, but that also includes a particularly bad quarter a year ago when Trulieve reported a goodwill impairment charge totaling $307.6 million.
If the company can reduce its taxes, its prospects for profitability would improve significantly. Despite its massive expansion over the years, Trulieve has also been an underwhelming stock to own -- in five years, its shares have fallen by 11%.
The rescheduling of cannabis could result in a more favorable outlook on MSOs, resulting in a better valuation for the stock. At just 1.5 times revenue, Trulieve is the cheapest stock on this list in terms of sales.
