Despite their somewhat lacklustre results over the last few years, cannabis stocks shouldn’t be underestimated.
The total return potential of these companies is huge. U.S. states continue to push for legalization, and continued research into the plant shows promise in treating a variety of health problems. So which one of those cannabis stocks should you buy?
Not all cannabis stocks are created equal. Indeed, many cannabis stocks failed in their startup phases or are heading in that direction. However, some continue to make strides year after year, particularly in the edibles industry. Due to the indecision we’re seeing now in the market, some cannabis stocks are poised to make big moves in the near future.
Let’s delve into some undervalued cannabis stocks with momentum signals pointed to the upside.
Cresco Labs (CRLBF)
Cresco Labs (OTCMKTS:CRLBF) stands out as a major player in the U.S. cannabis market. The company cultivates, manufactures, and sells retail and medical cannabis products across the nation.
Similar to other growth stocks, CRLBF stock is also aggressively expanding its operations. The company’s recent acquisition of Columbia Care, one of the nation’s largest fully integrated cannabis companies, underscores its strategy of prioritizing growth above all else.
However, it should be noted that all this growth activity has come at the expense of immediate profitability. Last quarter, it reported $198 million in revenue (2% sequential increase) and $87 million gross profit (44% of revenue). It cited adjusted gross profit of $93 million (47% margin) and adjusted EBITDA of $40 million (38% sequential increase). More pointedly, it reported a net loss of $43 million, including $22 million of impairment charges.
A bright spot is that impairment charges are essentially losses that exist solely on paper. On the other hand, the appearance of lower book value could scare some prospective investors. More importantly, its adjusted EBITDA tells us a clearer story. As a company that’s growing fast with expanding profit margins, this makes it a cannabis stocks to consider.
Tilray Brands (TLRY)
Tilray Brands (NASDAQ:TLRY) is making significant strides in the global cannabis market. With operations spanning Canada, the U.S., Europe, Australia, New Zealand, and Latin America, Tilray has a broad reach.
TLRY is a standout because of its expansive product portfolio. It’s also made strategic acquisitions to ensure it remains a dominant force in the cannabis sector. Tilray recently launched its Redecan products across Canada, and also acquired Truss Beverage, which signaled a significant pivot away from the cannabis industry.
Additionally, TLRY’s short-term results show a promising trend. It posted break-even earnings for Q4, outperforming analyst estimates of a 4 cent loss and improving from a 34-cent loss per share from the previous year. The company recorded $184.19 million in revenues for the quarter ending May 2023. This represents a 20.37% increase from the predicted estimate which is up from $153.33 million year over year (YOY).
Management’s challenge will be about balancing the expanding complexity of its business with its already achieved efficiency. In contrast to most cannabis stocks which are deeply in the red, TLRY continues to grow its top and bottom lines. This makes it one of those promising cannabis stocks to buy.
TerrAscend (OTCMKTS:TSNDF) is a hot player in the cannabis industry, operating mainly in the U.S. and Canada. It makes hemp wellness products as well as edibles with an artisan twist.
Like other cannabis stocks on this list, TSNDF stock has also been on the acquisition warpath. Its recent addition of Herbiculture, a medical dispensary in Maryland, is expected to have an immediate positive impact on the company’s EBITDA and cash flow.
The numbers also look good for this cannabis stock. In its Q2 financial results, TSNDF announced a 12.7% YOY revenue growth at $72.1 million and a gross profit margin of 50.2%. This marks their seventh consecutive quarter of sequential growth. For the remainder of 2023, the company anticipates at least $305 million in net revenue and $58 million in adjusted EBITDA, reflecting a 23% and 49% YOY growth.
TSNDF also carries the benefit of having a smaller market cap than other cannabis stocks on the major exchanges. This means it potentially has more value to shareholders if and when it takes off in value. Either way, the results of the company are promising, and its acquisitions position it to move forward successfully. Thus, these factors give it breakout potential.
On the date of publication, Matthew Farley did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed are those of the writer, subject to the InvestorPlace.com Publishing Guidelines