As the winds of change sweep across the U.S., the once-taboo cannabis sector is steadily gaining traction. With increasing acceptance from both regulators and consumers, the marijuana sphere has the potential to inject robust long-term growth into your investment portfolio — especially with this list of the best cannabis stocks to own. 2022 was an incredibly challenging year for the sector, marred by inflation, overproduction, and capital constraints, resulting in plummeting stock prices. Moreover, ongoing discussions over federal legalization and piecemeal state-level changes have affected the sector’s volatility. Nevertheless, 37 states have legalized marijuana for medicinal use, while 21 have approved recreational use.
Research firm MarketsandMarkets estimates that the global cannabis market was valued at $22.5 billion in 2021, potentially skyrocketing to $82.3 billion by 2027 at a CAGR of 24.3% from 2022 to 2026. The industry is at the epicenter of a worldwide legalization whirlwind, presenting an enticing long-term prospect for forward-looking investors.
|IIPR||Innovative Industrial Properties||$75.84|
|MJ||ETFMG Alternative Harvest ETF||$3.52|
Curaleaf (OTCMKTS:CURLF) is one of the leading U.S. cannabis multi-state operators (MSO). It has a presence in 21 U.S. states, which positions it incredibly well in a legalization scenario. However, its stock price growth has been relatively choppy on the back of premature federal legalization hopes and supply-demand imbalances.
Like its peers, its business took a major hit last year due to an adverse macro environment. Nevertheless, it has done relatively well in terms of cost control, reporting an adjusted EBITDA margin of over 20% in its most recent quarter. Moreover, it has multiple products in its pipeline that could significantly boost revenue growth in the upcoming quarters. According to my fellow InvestorPlace colleague, Faisal Humayun, the firm has 15 new products in its active pipeline, ready for launch.
Tilray (NASDAQ:TLRY) is one of the largest cannabis businesses in the world in terms of market share. Moreover, it’s also one of the most diversified players in the space, aiming to become a marijuana lifestyle and consumer packaged goods business. Additionally, the Canadian firm has spread its tentacles in key markets such as the U.S. and Europe to diversify its revenue base.
Tilray has done remarkably well growing its distribution and cultivation, processing, and manufacturing facilities across multiple countries. Its robust distribution structure could potentially be massive in the case of cannabis legalization at the Federal level in the U.S. Additionally, it has a strong beer and spirits business in the U.S. and a substantial stake in a popular local cannabis retailer called MedMen Enterprises. As we advance, Tilray remains in a better position to march forward with its expansion plans with only $152 million in long-term debt, boasting a $433 million cash balance.
Cronos Group (CRON)
Cronos Group (NASDAQ:CRON) is a Canadian cannabinoid firm involved in cannabis product development, technology, and research. Its largest markets are in Canada and Israel while operating smaller operations in Germany, the U.S., and Australia. One of its key competitive advantages is its strong positioning in the Israeli cannabis market. Israel imported over 33,000 kg of medical cannabis in 2022, roughly 11,000 kg more than in 2021. Moreover, with favorable legislation, expect the industry to grow aggressively, benefitting Cronos Group.
From a financial standpoint, Cronos has done well to build its cash war chest of $877 million, which comfortably dwarfs its minuscule debt balance. Also, last year, its net loss narrowed by over 50% compared to 2021, an incredible feat given the market conditions.
Innovative Industrial Properties (IIPR)
Innovative Industrial Properties (NYSE:IIPR) is a specialty real-estate-investment-trust (REIT) focusing on cannabis properties. IIPR has 110 properties in its portfolio covering 19 states. To put things in perspective, it had just a single tenant in 2016. Moreover, it has grown its average funds from operations by a whopping 66%, compared to the sector median of 2.1%.
IIPR prioritizes long-term leases with a term of at least 15-20 years, committing billions of dollars to expand its real-estate footprint. Consequently, its levered free cash flow growth is an eye-catching 41.6%. Furthermore, investing in the REIT comes with an annual dividend payout of $7.20. Moreover, it yields 9.5%, with a payout growth of five consecutive years. All the while, its stock trades at nine times trailing twelve-month cash flow estimates, roughly 21.6% lower than the sector median.
ETFMG Alternative Harvest ETF (MJ)
Perhaps one of the best ways to invest in a risky long-term market is to wager on an exchange-traded fund. ETFMG Alternative Harvest (NYSEARCA:MJ) is one of the best ETFs in the sphere, offering a wide range of cannabis stocks at low cost. It includes most of the stocks discussed in the article and 34 others. MJ ETF tracks the Prime Alternative Harvest, which effectively measures the performance of some of the best medicinal and recreational marijuana stocks. Hence, with an expense ratio of 0.75% and a tremendous forward dividend yield of 7.5%, MJ ETF stock is worth wagering on at its current price.
Trulieve Cannabis (TCNNF)
Trulieve Cannabis (OTCMKTS:TCNNF) is arguably one of the best-performing MSOs in the U.S. It has over 7,600 employees spread out across its robust vertically integrated operation. At the conclusion of 2022, it had 181 dispensaries and 21 cultivation facilities in 11 states.
The firm wrapped 2022 with aplomb, generating $1.2 billion in sales, 32% higher than a year earlier. Moreover, it generated a non-GAAP adjusted EBITDA of $400 million, $15 million higher than a year earlier, accounting for roughly 32% of its sales. Trulieve has grown to surpass $1.2 billion in sales within seven years, a major milestone and a testament to its management’s execution. Despite its healthy track record of growth on both lines, TCNNF stock trades at under one times trailing-twelve-month sales, roughly 77.5% lower than the sector average.
Sundial Growers (SNDL)
Sundial Growers (NASDAQ:SNDL) has become a leading cannabis player in Canada through strategic acquisitions over the past couple of years. Its status as a meme stock in 2021 helped the firm close out the year with a 520% year-over-year bump in its cash balance to $510 million. Consequently, it went on a buying spree to diversify and grow its revenue base in the North American region.
Two of its biggest acquisitions have been leading alcohol retailer Alcanna for $255 million and biotech Valens Company for $138 million. Both acquisitions have helped bolster its top-line growth on a trailing twelve-month basis by 713% to $358 million. Moreover, the firm has invested heavily in vertical farming to reduce production costs and improve margins. It is still left with $235.7 million, which indicates more inorganic growth.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.