As regulations gradually turn friendlier, the global cannabis market is at an inflection point of growth. By the end of the decade, there are likely to be several massive wealth creators among cannabis stocks.
Of course, with industry potential, there is intense competition. However, in the next few years, the industry will witness consolidation and fundamentally strong companies will survive. The focus of this column is on three cannabis companies that are likely to survive and grow at a healthy pace in the next five years.
Talking about the market potential, it’s estimated that the legal cannabis market will be worth $157 billion by 2030. Between 2023 and 2030, the market is expected to grow at a CAGR of 28.8%. The best companies will therefore grow at a CAGR of over 30% during this period. This is an indication of the potential that quality cannabis stocks hold.
Let’s therefore discuss the factors that make these cannabis stocks potential wealth creators.
Cronos (CRON)
Amidst volatility, Cronos (NASDAQ:CRON) stock has remained largely sideways in the last 12 months. I see this as a golden opportunity to accumulate. If regulations turn friendly, CRON stock can be a 10-bagger in quick time.
From a valuation perspective, it’s worth noting that the company’s cash buffer of $855 million as of Q1 2024 is almost the same as the market valuation. This cash buffer will allow the cannabis company to pursue aggressive expansion and accelerate top-line growth in the next few years.
Prior to 2023, Cronos had presence in Canada and Israel. However, in the last few quarters, the company has entered new markets of Germany, Australia and the United Kingdom. This is likely to have a positive impact on growth in the medicinal cannabis segment.
It’s worth noting that Cronos has 50% ownership in GrowCo. Recently, Cronos decided to provide a $51 million secured non-revolving credit facility to GrowCo to fund facility expansion. This will help in addressing the increased global market demand for high-quality cannabis flower. I also believe that acquisitions might be on the cards to boost growth and market presence.
Curaleaf Holdings (CURLF)
Curaleaf Holdings (OTCMKTS:CURLF) is another cannabis stock that has remained sideways in the last 12 months. One reason is relatively subdued revenue growth even as adjusted EBITDA margin is healthy. However, I believe that growth acceleration is likely in the coming quarters and CURLF stock will rally from oversold levels.
The first potential catalyst for growth acceleration is the impending reclassification of cannabis as a Schedule III drug in the U.S. With Curaleaf having presence in 17 states, there is headroom for growth.
The second catalyst for revenue growth acceleration is expansion in Europe. Curaleaf believes that the total addressable market in the European continent is $248 billion. With organic and acquisition driven growth, Curaleaf is positioned to benefit.
Through investment in Four20 Pharma, Curaleaf is selling premium, high quality flowers in Germany and Poland. Further, the acquisition of Northern Green Canada will help bolster presence in markets like Australia, New Zealand, Germany, Poland and the United Kingdom. I must add that with positive operating and free cash flows, financial flexibility is likely to remain high for aggressive investments.
Tilray Brands (TLRY)
Tilray Brands (NASDAQ:TLRY) is yet another subdued cannabis stock that’s likely to go ballistic. With a well diversified business and aggressive international expansion, the outlook is positive from a revenue growth perspective.
It’s worth noting that through acquisitions, Tilray has established itself as the fifth largest craft beer brewer in the U.S. Recently, the company also announced a new brand of non-alcoholic brews. This segment has steady growth visibility and provides Tilray with strategic infrastructure in the U.S.
I must add that in May, the cannabis company raised $250 million. The objective is to pursue acquisitions in the U.S. after the reclassification of cannabis as a Schedule III drug. For Q3 2024, Tilray reported cannabis revenue growth of 33% on a year-on-year basis. For the same period, international cannabis revenue growth was 44%. With focus on the medicinal cannabis business, it’s likely that international growth will remain robust. This will support improvement in EBITDA margin and the progress towards achieving positive adjusted free cash flows.
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.
On the date of publication, the responsible editor did not have (either directly or
indirectly) any positions in the securities mentioned in this article.
