Cannabis stocks have remained depressed for an extended period and have been investor wealth destroyers. Regulatory headwinds have been the key reason for stocks underperforming. Other important reasons include cash burn for cannabis companies and intense competition. However, if there was a good time to buy cannabis penny stocks, it’s now.
The reason is significantly depressed sentiments that have translated into overreaction on the downside. Most cannabis stocks look deeply undervalued, and a few positive news can send them skyrocketing. As an example, assuming a federal-level legalization scenario, cannabis penny stocks can deliver 5x to 10x returns in the blink of an eye.
It’s also worth noting that the U.S. cannabis industry is expected to be worth $71 billion by 2030 without legalization. If Europe is taken into consideration, the addressable market is significant. Therefore, it’s a good time to take some risk and buy cannabis penny stocks.
Let’s discuss three of the best cannabis stocks to buy.
Curaleaf Holdings (CURLF)
Curaleaf Holdings (OTCMKTS:CURLF) is among the cannabis penny stocks that’s poised for multibagger returns. Even after a rally of 46% in the last six months, CURLF stock seems deeply undervalued.
For Q2 2023, Curaleaf reported revenue and EBITDA of $339 million and $70 million, respectively. Besides a healthy EBITDA margin, the Company reported positive operating and free cash flow for the quarter. With sustained growth, I expect cash flow to swell, which will positively impact valuations.
It’s important to note that Curaleaf has established a strong presence in the United States. The Company is also aggressively expanding in Europe. With research and development-backed growth, the outlook is positive.
To put things into perspective, Curaleaf launched 171 new products in 2022. The Company has research collaborations with the likes of the Imperial College in London and the Institute of Cancer Research. Inroads in the medicinal cannabis business can be a significant growth catalyst.
Tilray Brands (TLRY)
Tilray Brands (NASDAQ:TLRY) has been in the news in the last few months as the Company pursues acquisitions for diversification. TLRY stock has, however, remained depressed and looks deeply undervalued at current levels of $1.9.
Assuming a federal-level legalization scenario, the stock can skyrocket by 5x or 10x in a matter of months. However, even if regulatory headwinds are sustained, TLRY stock is poised for value creation.
It’s worth noting that with multiple acquisitions, Tilray is already the fifth-largest craft beer brand in the U.S. The Company’s pro-forma beverage-alcohol revenue is likely at $300 million. Further, the Company has created a strong strategic infrastructure in the country for cannabis expansion in a legalization scenario.
At the same time, Tilray reported encouraging cannabis segment revenue in Q1 2024. Canadian and international cannabis revenue increased by 16.5% and 37% respectively yearly. The Company is also expected to generate positive adjusted free cash flows next year. With these positives, TLRY stock looks poised for a massive reversal rally.
Cronos (CRON)
Cronos (NASDAQ:CRON) stock has remained in an extended downtrend. However, I believe that the stock has overreacted to negative industry sentiments. Company-specific, there are several positives to talk about.
First and foremost, Cronos currently has a cash buffer of $841 million. That’s more than the Company’s market valuation and underscores my view on overreaction on the downside. It’s likely that Cronos will utilize the cash buffer for aggressive organic and acquisition-driven growth. However, the Company is waiting for clarity on the regulatory front.
Back in July, Cronos had reported receiving “unsolicited indications of interest.” Curaleaf was among the companies that showed interest in Cronos. It remains to be seen if there are positive developments on that front. Any potential deal can translate into a big rally for CRON stock.
On the financial front, the Company has undertaken cost-cutting initiatives. The focus is on improving cash flows. As EBITDA level losses narrow, the stock is likely to trend higher.
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.
