For long, investors in the cannabis industry have pinned hopes on federal-level legalization. Without a doubt, that’s a big catalyst for growth for the cannabis industry. However, even without legalization at the federal level, the growth outlook is promising. Given the point that the sector has remained depressed, I would accumulate high-potential cannabis stocks at current levels.
To elaborate on my view, it’s expected that U.S. cannabis sales will touch $72 billion in 2030 without federal legalization. If we look at Europe, the addressable market will be wider. As an example, the medicinal cannabis market in Europe is expected to grow at a CAGR of 21.6% through 2030.
The key point is that cannabis companies will continue to grow through the decade. Further, as companies cut costs and streamline operations, cash burn has reduced significantly. Some of the best cannabis stocks are therefore positioned to rally from oversold levels and create value.
This column talks about three cannabis stocks with 10x potential in the next five years.
Cronos Group (CRON)
Cronos (NASDAQ:CRON) stock has remained depressed in the last 12 months with a downside of almost 40%. I however believe that the stock is deeply undervalued and a rally is impending.
It’s worth noting that Cronos currently commands a market valuation of $705 million. As of Q1 2023, the company reported $836 million in cash and equivalents. This is an indication of the point that the stock is massively undervalued. Additionally, in a federal-level cannabis legalization scenario, Cronos will be positioned to make aggressive investments for expansion considering the cash buffer.
Cronos has been focused on streamlining the operating structure and improving cash flows. The company expects to deliver positive cash flows next year. This is a key stock upside catalyst.
In another interesting development, Cronos confirmed in July that the company has received “unsolicited indications of interest from third parties.” A potential merger deal can be positive for CRON stock.
Curaleaf Holdings (CURLF)
Curaleaf Holdings’ (OTCMKTS:CURLF) stock has been largely sideways for year-to-date. I believe that after consolidation, a rally is likely. My view is backed by positive business developments for the company.
For Q1 2023, Curaleaf reported revenue and EBITDA of $337 million and $73 million respectively. The company’s growth has been steady coupled with positive adjusted EBITDA. There are two reasons for the positive trend.
First, Curaleaf has a presence in 19 states in the United States and even without federal-level legalization, sales have been robust. As an example, monthly cannabis sales exceeded $100 million for the first time in the state of Arizona. This make it one of those high potential cannabis stocks to buy.
Further, Curaleaf has been investing in research and development. Last year, the company generated 18% of revenue from products launched in the last 12 months. With continued R&D efforts, growth is likely to remain robust.
It’s also worth noting that Curaleaf is present in eight European countries. As the total addressable market expands, there is scope for sustained revenue growth and cash flow upside.
Tilray Brands (TLRY)
Tilray Brands’ (NASDAQ:TLRY) stock has skyrocketed by 60% in the last month. The stellar rally has been backed by strong financial performance with the company beating revenue and earnings estimates. With the rally from deeply oversold levels, I expect the positive momentum to sustain.
For the financial year 2023, Tilray reported revenue of $627 million. Importantly, the company delivered nearly $200 million improvement in adjusted free cash flow as compared to the prior year. With cost-cutting and operating leverage, Tilray is expecting to report positive free cash flows for FY2024.
An important point to note is that Tilray ended the year with a total liquidity buffer of $450 million. This provides flexibility for aggressive investments in the coming quarters. With the acquisition of two brewing companies, Tilray has also established a strong strategic infrastructure in the United States. It’s likely to yield results on potential federal-level legalization of cannabis.
On the date of publication, Faisal Humayun did not hold (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.
