Weeding through cannabis stocks to find a good pick is getting easier. The greener field is now getting divided by flower and shake, as investors look at profitability and balance sheet stability.
Here are my top cannabis stock picks for 2021, based both on sprouting opportunities and results reported in the most recent quarter.
A Bigger Pot: Innovative Industrial Properties
As the leader in the cannabis real estate space, the company should continue to add to its portfolio of properties. I also expect it will keep delivering steadily increasing dividends, making this a solid choice for conservative cannabis investors.
And its numbers look good so far. The company reported total revenues of approximately $34.3 million for the third quarter. This was a 197% increase from the prior year’s third quarter. It also easily beat analysts' estimates. IIP also recorded net income available to common stockholders of approximately $18.9 million for the quarter, or 86 cents per diluted share. The adjusted funds from operations (AFFO), meanwhile, were approximately $27.9 million, or $1.28 per diluted share. For perspective, net income available to common stockholders and AFFO increased by 205% and 192% from the prior year’s third quarter, respectively.
The company also has some $161.1 million in cash and cash equivalents and approximately $451.2 million in short-term investments, totaling approximately $612.3 million. The debt picture looks good, too. By quarter's end, it had no debt, other than approximately $143.7 million of unsecured debt, consisting solely of 3.75% exchangeable senior notes maturing in 2024.
Believe in Trulieve
Florida-based Trulieve Cannabis Corp. (TCNNF) - Get Report has amassed a comfortable cash cushion, giving the company the ability to expand with ease. It could also handily beat the next quarter's expectations and set the stock up for another move higher.
In addition to its cash and cash equivalents of $193.4 million as of Sept. 30, the company just reported revenue of $136.3 million for the third quarter. This beat analysts' estimates. It also delivered a positive net income of $17.4 million, or 15 cents per diluted share, easily beating analyst estimates.
Further expanding its reach and solid footing, Trulieve has opened 73 dispensaries and achieved profitability in 2017. It has a 52% market share in Florida and is soon to be operational in Massachusetts.
The company is forecasting 2020 revenue to be in the range of $465 million to $485 million.
Mixing It Up in the Midwest: Cresco Labs
Cresco Labs Inc. (CRLBF) has cornered the Illinois market and will be able to command this market share for at least another year. The company got most multi-state operators to shift toward a limited license state strategy as a result of its success in Illinois.
Some 59% of Cresco Labs’ revenue comes from wholesale business -- an area that many cannabis companies haven’t capitalized on. It has done this in Illinois and Pennsylvania, where the company has 100% wholesale penetration.
This has apparently helped the bottom line.
Cresco released its unaudited financial results for the third quarter ending Sept. 30, showing revenue hitting $153.3 million -- a big jump over 2019's third-quarter revenue of $36 million. Cresco attributed the increase in revenue to wholesale growth driven by an increase in harvests from expanded capacity in Illinois and Pennsylvania and strong growth in California. Retail growth was driven by strong sequential same-store growth and two new store openings in Illinois. It has also reported 178% same-store sales growth in its third-quarter year over year.
Rx for Growth: GW Pharmaceuticals
Each quarter GW Pharmaceuticals (GWPH) - Get Report is reporting increased prescriptions for Epidiolex, and the number of patients that keep renewing these prescriptions keeps growing. While no new products are expected in 2021, off-label uses may also lead to more sales of the drug.
Indeed, it's seeing great results from this cannabidiol-based epilepsy drug. Total third-quarter net product sales of Epidiolex were $132.6 million and U.S. Epidiolex third-quarter net product sales were $121.6 million. Patients have been pleased with the drug and the number of prescriptions keeps rising.
The company reported total revenue of $137.1 million for the quarter ending Sept. 30, a big jump over the $91.0 million for the same time period in 2019. Net losses also fell to $12.2 million vs. last year’s net loss of $13.8 million for the same time period. In addition, the company said it had cash and cash equivalents of $480.3 million.
Cure for Burnt-Out Investors: Curaleaf
Despite Covid-19-related challenges in Massachusetts and Nevada, Curaleaf (OTC: (CURLF) ) has finally been able to recover from the closures in the Bay State. If Nevada tourism can come back, it will no doubt see those sales return, as well. With the addition of "Select" and "Grass Roots" sales to the revenue mix for 2021, Curaleaf is poised to have a great new year.
The business reported an impressive quarter and gave an even sunnier forecast. Current CEO Joe Lusardi said on the company’s most recent earnings call that it took a $25 million hit to revenue in the quarter, as a result of the pandemic (most tourist traffic in Nevada disappeared and the adult-use stores were closed in Massachusetts for weeks).
Now Lusardi is stepping away from the CEO role and handing it over to Joe Bayern on Jan. 1. Bayern joined the company in 2019 and led the Grassroots acquisition. Previously, Bayern served as president at INDUS Holdings, another cannabis company, and as chief executive and chief operating officer of the global beverage company VOSS of Norway.
This leadership change will come after Curaleaf delivered third-quarter managed revenue of $193.2 million, which grew 164% year-over-year. Total revenue came in at $182.4 million, a 195% year-over-year growth.
Seeing Green -- Green Thumb Industries
Green Thumb Industries (GTBIF) is in some of the hottest states in the country already, and if New Jersey comes on board quickly, the company will be well-positioned to benefit. Green Thumb has consistently delivered on increasing revenues and is a reliable performer.
The company reported for the third quarter a strong balance sheet. It retained a positive cash flow for the third consecutive quarter. Revenue increased year-over-year 131% to $157.1 million. The gross margin for the third quarter was 55.4%, an increase from a 53.2% gross margin the quarter prior.
The company’s adjusted operating earnings before interest, taxes, depreciation, and amortization increased by 50% to $53.2 million, or 33.9% of revenue for the third quarter. As of Sept. 30, Green Thumb’s current assets totaled $159.1 million and included cash and cash equivalents equaling $78.1 million. The company reported a total debt outstanding of $97.1 million, $300,000 due within 12 months.
Green Thumb also reported a net income attributable to the company of $9.6 million, or $0.4 per basic diluted share, calling this feat a “new milestone.” Retail revenue increased by 27.9% quarter over quarter, primarily being driven by increased foot traffic in established stores. Comparable sales growth exceeded 65%, on a base of 25 stores.
As of Sept. 30, the company’s family of consumer brands are available in retail locations in eleven states: Colorado, California, Connecticut, Illinois, Florida, Maryland, Massachusetts, Nevada, New Jersey, Ohio and Pennsylvania.
Debra Borchardt has no position in any security mentioned.
Borchardt is a regular contributor to Real Money, TheStreet’s premium site. Click here to learn more and get great columns, commentary and trade ideas from Jim Cramer, Helene Meisler, Mark Sebastian, Paul Price, Doug Kass, and others.