The real winner on election day was cannabis. We now have legal, adult use cannabis in 15 states, and roughly 75% of the country has legalized medical marijuana – how does that play out when it comes to stocks?
In total, we have four new states (Arizona, New Jersey, South Dakota, and Montana) with recreational marijuana and another state (Mississippi) that passed legislation to launch a comprehensive medical program. Next year, Florida, New York, and Ohio are expected to pass adult-use legalization measures as well. When that happens, nearly half of Americans will live in a state where they can legally use marijuana.
With so much attention on legalization and future markets, cannabis stocks are expectedly hot. Even despite the pandemic, many cannabis stocks remained stable and have been skyrocketing in recent weeks. Check out the top few companies we’ve been keeping my eye on, and make sure to read to the end to learn about the biggest mistake to avoid when investing in today’s cannabis industry.
Planet 13 (OTC:PLNH.F)
Referred to as the “Disneyland of Cannabis”, Planet 13 is the largest dispensary in the world. At 115,000 square feet, it’s larger than an average Walmart, comparable to a small shopping mall. And it’s much more than just a run-of-the-mill dispensary, it’s an experience. Inside there is a restaurant, a museum, regular entertainment, and a viewing area where customers can watch the manufacturing process of various different cannabis derivatives.
With a place like Planet 13, located right off the Las Vegas strip, there was considerable fear about what kind of effects the pandemic and lack of tourism would have on the business and holdings. In my opinion, what really set P13 apart from other touristy destinations is how quickly hey pivoted to a delivery business model that catered to the local community. At the beginning of the pandemic, around April, Planet 13 shares where selling for just around $1. Now, they’re hovering around $3.50.
“They’ve done an excellent job of adapting to very challenging times and Planet 13, they got hit really hard. They operate right off of the Las Vegas Strip with their superstore there, and of course, when the pandemic hit, tourism just evaporated. But the management team really moved quickly,” says Motley Fool contributor Keith Speights.
“They switched to a distribution model within the state of Nevada and serving the local market more than just tourists and really have managed to get through an extremely difficult time. I think their last quarterly report, their revenue was actually even a good bit higher than it was in the prior-year period. So, I think Planet 13 is really positioned well to come out of the pandemic quite strong.”
Cresco Labs (CNSX:CL) (OTC:CRLBF)
Ever since it was founded in 2013, Cresco Labs has held its ranking as one of the nation’s fasted growing cannabis companies. Cresco Labs is the third largest producer of cannabis products in the country, currently operating 19 dispensaries across nine states, and their products are sold in nearly 800 dispensaries throughout the United States. They manufacture a wide array of products including raw flower, vape cartridges, edibles, prerolls, and cannabinoid sprays and capsules, which they just launched last month
At the moment, this company is just about breaking even but still not profitable. However, shares are trading at a price-to-sales (P/S) ratio of 5.8. That seems high, all things considered, but it’s because investors are convinced they’ll turn a profit with Cresco Labs in the Very near future.
During the first half of the year, nearly all of the company’s dispensaries in all the states where they currently operate saw over 30% sequential sales growth. In California, which is the world’s largest and most competitive marijuana market, Cresco Labs showed quarter-to-quarter sales growth of 41 percent. It’s a strong possibility that shares will go up when the company reports their third quarter earnings, with will be released on November 18.
GrowGeneration is another company that’s playing it smart. They stand to benefit significantly from legalization as states continue expanding their marijuana markets and giving people the right to grow cannabis in the own homes. As a way to save money in the long run, and have complete control over the growing environment, it’s becoming increasingly popular to set up a small home-grow.
GrowGeneration operates 31 hydroponic garden stores in 11 different states – which they plan on expanding to 50 stores in 15 states by the end of 2021. They provide nutrients, additives, lighting, fertilizers, and environmental control solutions to both individual growers and large-scale industry producers. It’s the largest chain selling such products, and their future doesn’t hinge entirely on the cannabis industry as they supply the needs of hydroponic growers of many other types of produce, such as tomatoes, lettuce, and peppers.
The company showed a revenue increase of 175% last year, bringing their profits to $76,4 million. By 2021, management expects to see roughly $300 million in sales and $36 million in operating income, excluding non-cash items (EBITDA). That’s nearly double the adjusted EBITDA of $20 million that GrowGeneration expects to rake in by the end of final quarter.
GrowGeneration ranked as the best-performing cannabis stocks during the first half of 2020, and third quarter earnings, which were reported September 2020, showed a revenue growth of 153% year-over-year. Shares are trading at a P/S ratio of eight.
Biggest Mistake Cannabis Investors are Making Right Now
The big mistake that some investors are making, though, is being to bullish, based on the assumption that the U.S. is set to soon legalize cannabis at the federal level. This is accurate, to an extent, and as many of us who are following investment trends noticed, cannabis stocks briefly soared when Joe Biden was named president on December 3rd.
But let’s not forget that Biden isn’t very enthusiastic about cannabis reform. As a matter of fact, any mention of cannabis reform was completely omitted from Biden’s initial draft transition plan on racial equality, despite campaign pledges to make that a priority.
To make matters worse, republicans still have a stronghold over the U.S. Senate. With senate majority leader Mitch McConnell (R-Ky.), we can expect any bills regarding cannabis legislation to be swiftly blocked. Despite backing hemp revisions in the 2018 Farm Bill, Sen. McConnell has stood in the way of marijuana reform for years.
As of now, the GOP is slated to hold 50 Senate seats next year, and it looks like two remaining races Georgia is the deciding factor on which party has the majority. So, if (or when) Republicans win those southern elections, it means Sen. McConnell will remain senate leader and go on preventing progressive cannabis bills from even reaching the Senate floor for a vote.
So yes, full federal cannabis legalization is on the horizon, but don’t start basing all your financial decisions on that just yet.
Cannabis stocks are hot, but still not so expensive that the average investor is alienated from the market. If you have the means, it’s great time to put your funds into the industry and get some shares of a reliable company that shows promising growth trends. Above are a few that have been getting a lot of attention and are positioned to perform well over the coming years.
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