In the ever-evolving cannabis realm, sifting through the multitude of cheap cannabis stocks can be a daunting task. The industry’s 2022 journey was akin to a roller-coaster ride marked by a mixed bag on the financial front.
However, the silver lining in this somewhat gloomy landscape was the progress made on the legislative front. Multiple states hopped on the bandwagon of legalizing adult-use cannabis. Additionally, the steady growth of legal marijuana sales in the U.S. is predicted to persist, maintaining a robust double-digit annual compound growth rate.
On top of that, the gradual acceptance and normalization of cannabis are chipping away at the opposition to federal legalization. These factors can reward people who invest in cannabis stocks early, but which cannabis stocks should you scoop up? These three undervalued cannabis stocks look like good picks.
Innovative Industrial Properties (IIPR)
Innovative Industrial Properties (NYSE:IIPR) is a top real estate investment trust (REIT) that has effectively carved a niche for itself in the burgeoning cannabis industry. Operating at the intersection of real estate and cannabis cultivation, it has effectively bridged the gap left by traditional banks due to federal restrictions on marijuana.
The company’s early strategy involves raising funds, constructing greenhouses, and leasing them to cannabis growers. It provides a lucrative avenue for IIPR and much-needed infrastructure for growers. This has put the company at a crossroads, with possible paths including repurposing their greenhouses or revising rent structures.
Furthermore, the business continues to operate a rock-solid business, with its average-funds-from-operations over the past five years at more than 60%, dwarfing its sector median by roughly 3,000%. Moreover, its year-over-year free cash flow growth is at a remarkable 29%, over 400% higher than the sector average.
Trulieve Cannabis (TCNNF)
Trulieve Cannabis (OTCMKTS:TCNNF) is a true giant in the U.S. cannabis landscape. It effectively commands a sprawling network of 184 U.S. retail dispensaries and over 4 million square feet of cultivation and processing capacity spread across 11 states. Hence, it has earned Trulieve the accolade of being one of the largest cannabis retailers in the country, standing tall in the rapidly expanding medical marijuana market. According to reports, the market could catapult from $26.9 billion in 2021 to a mind-boggling $248.42 billion by 2030.
Despite the industry’s inherent volatility, Trulieve has done remarkably well compared to its competition. Moreover, despite a slight dip in the first quarter revenue and a predicted sequential decrease in the next, Trulieve’s long-term outlook instills confidence. It forecasts an operating cash flow of $100 million and a commitment to generate free cash flow throughout the year. These projections underscore Trulieve’s ability to tackle the turbulent tides of this dynamic industry.
Planet 13 Holdings (PLNHF)
Planet 13 Holdings (OTCMKTS:PLNHF) is a top stalwart in the cannabis market. The corporation has effectively navigated the tumultuous pandemic era with remarkable resilience. The company recently expanded its foothold in the saturated Nevada market, boasting a commanding presence with two branches in Las Vegas. Notably, its Las Vegas Superstore continued to account for a healthy portion of Nevada’s cannabis sales each year.
Moreover, with the acquisition of Next Green Wave and the consequent revenue expansion in its Orange County dispensary, Planet 13 is firmly on a trajectory of becoming a leading retail player in the Golden State. Additionally, it’s looking to spread its wings to Illinois, positioning itself near the Wisconsin border, where adult-use cannabis is yet to make its mark.
Furthermore, its first-quarter results point to a sturdy business witnessing a slight dip in revenue, with a healthier-than-expected adjusted EBITDA. The company’s balance sheet remains robust, though it’s not as cash-rich as it used to be.
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