Of the 38 cannabis companies tracked by the cannabis-focused news and news platform New Cannabis Ventures, only two have similar financial characteristics that put them at the forefront of other multi-state operators (MSOs). And only one has what no one else has.
But a number of obstacles keep investors from fleeing cannabis stocks, including disappointing progress in the fight for federal marijuana legalization, a wide range of supply chain problems, inflation and rising interest rate. The result is a 71% drop in cannabis stocks Trulieve Cannabis (TCNNF -0.96%) i Green Thumb Industries (GTBIF -1.64%). So now is a good time to invest in these two MSO shares that can be had for less than $ 15 each?
Trulieve and Green Thumb have two of the top three revenue totals in the first quarter of 2022 for tracked cannabis companies. Both also have a market cap of more than $ 200 million, positive adjusted operating income for the first quarter of 2022, and sequential quarterly revenue growth. Both would also have had quarterly revenue growth from year to year, but Green Thumb’s stayed flat.
Trulieve won Curaleaf for first-quarter revenue of $ 318 million, up 64% year-on-year, driven by sales of a wide range of products in the cannabis market, such as flowers, groceries, clichés and nasal sprays. to name a few.
As a result of Trulieve’s acquisition of Harvest Health & Recreation in October last year, Trulieve became the largest cannabis operator in the U.S., with facilities in 11 states, with a main focus in his home state of Florida, where he has 113 of his total. 162 dispensaries. The big problem in Florida is that it is currently for medical use only. If this were to change to include recreational use, Trulieve’s current 50% market share would likely place it in the driver’s seat for accelerated revenue growth potentially rapid in the state. However, investors should not expect a quick change, as the latest bill to legalize recreational marijuana in the state died in a committee in March.
With the stock price below $ 15, one of the reference investors can use to determine whether or not a stock is priced at a good point of purchase is a preferred buy stock, specifically for members of the management team. superior. Trulieve’s CEO, chief financial officer and chairman recently bought shares, totaling more than $ 31,000 to just under $ 15. This is not to say that outside investors should buy stocks just because the people most responsible for the success of a business bought stocks, but sometimes the preferred purchase can help draw attention to the stocks and signal a good entry point.
What is probably most important to investors is the prospect of what will drive future revenue growth. The company’s investment in Florida and its centers in Arizona and Pennsylvania will be the main focus of sales. By focusing on a limited number of states, the company could improve on higher margins, which should support stronger profitability.
Arizona legalized recreational marijuana in January 2021 and became the fastest-growing state to generate sales after legalization was approved. In its first year of legalized recreational use alone, sales totaled $ 1.4 billion. In the meantime, Pennsylvania is still in medical use, but with the surrounding states of Maryland, New York and New Jersey approving legalization bills, it may be only a matter of time before Pennsylvania does the same. Doing so could mean that the estimated 2 million residents of Keystone State who use cannabis on a regular basis could become recreational Trulieve customers. The total value of the state’s cannabis market is expected to double in 2025, topping $ 1.2 billion.
In addition, Trulieve has $ 267 million in cash, and this should provide more confidence to investors that the company has the funds to wait for the legalization of recreational use in its main states or actively seek acquisitions to increase market share. and horse.
2. Green thumb
Green Thumb offers investors a financial feature for the quarter that other MSOs do not have: profits. Green Thumb finished third in revenue, nearly $ 70 million off Trulieve, but it was the only MSO to make a net profit ($ 29 million) that should give investors confidence in the ability of the management team to control expenses and focus on higher margin products. .
As a vertically integrated MSO, Green Thumb sells many of the same products as Trulieve in the recreational and medical use markets. However, its footprint is slightly larger, generating revenue from its 77 dispensaries in 15 states. If you break down the quarterly revenue per dispensary, Green Thumb outperforms Trulieve per store, with an average of $ 3 million per store compared to $ 1.96 million per store in Trulieve.
The company has also done a good job of reducing operating costs. While costs are rising overall, they are declining as a percentage of revenue. In the first quarter, the company’s general and administrative expenses reached 28% of revenue, while a year ago this figure stood at 31%. This has helped generate net profits and allowed the company to accumulate $ 175 million in cash to support future expansion.
For now, it seems that the success of the cannabis market is based on the incorporation of more states. We may still be a few years away from federal legalization at the earliest. But a major step before federal legalization may be a more achievable Senate vote for the SAFE Banking Act, which prohibits federal regulators from taking action against institutions that provide funding to legitimate cannabis operators and ancillary companies that support them. .
A vote in the Senate could come at the end of the year, but depending on how you look at it, some investors may prefer the Senate to reject the bill again after passing the House six times. The benefits of this bill can help all MSOs get additional funding, but if you are an investor in a large MSO that weighs cash, seeing how smaller players become acquisition targets can be a patient hand that you are willing to play.
If federal legalization occurs, there will probably be fewer big players like Trulieve and Green Thumb to reap the rewards of a long-term strategy. Picking up shares of these two large MSOs for less than $ 15 could be a long-term risk worth taking.