Navigating the tricky world of cannabis stocks has often been a perplexing endeavor for investors. Currently, the sector is grappling with headwinds. These include inflationary pressures, pricing troubles and an ever-developing regulatory landscape.
The likely outcome of the lack of progress from the federal government and limited capital availability could alleviate competitive pressures as we advance.
Astute investors are finding value in pot stocks that offer enticing valuations in a market poised for long-term growth. Statista forecasts that sales in the cannabis market could surge to a staggering $51.3 billion in 2023, with an impressive annual growth rate of 15.8% from 2023 to 2027.
For those looking to wager on marijuana stocks, now could be the perfect time to build positions in select multi-state operators (MSOs), offering robust upside ahead despite being few and far between. This article will look at one speculative cannabis stock to buy and two to avoid.
| GTBIF | Green Thumb Industries | $7.30 |
| CGC | Canopy Growth | $1.06 |
| TLRY | Tilray | $2.43 |
Green Thumb Industries (GTBIF)
Green Thumb Industries (OTCMKTS:GTBIF) continues to be a front-runner in the cannibis space. Amid the ongoing selloff, GTBIF stock remains an attractive long-term option.
Green Thumb has historically generated strong double and, at times, triple-digit top-line growth. However, amidst the market slowdown, revenue growth has stalled. In its first quarter, its sales grew to $249 million, a modest 2% increase on a year-over-year (YOY) basis.
It posted remarkable profitability metrics, with adjusted EBITDA growth hitting the $76 million mark, translating into a 31% margin. Its profitability metrics are significantly ahead of its historical averages by hefty margins.
The firm is looking to deploy capital to expand its market share proactively. It expects to spend $165 million this year, developing new facilities that will follow in tandem with new sales opportunities. Based on its strong outlook ahead, it trades at just 1.6 times trailing twelve-month sales, with Tipranks analysts forecasting a 98% upside from current price levels.
Canopy Growth (CGC)
After reporting another dismal loss of $266.7 million in its most recent quarter, Canopy Growth (NASDAQ:CGC) decided to transition its Canadian business to an asset-light model. Unfortunately, these reductions have effectively triggered a vicious cycle of declining sales and profitability.
Canopy Growth’s struggle to sell cannabis without incurring excessive costs is remains a major issue for its business. Its recent decision to leave the cultivation business and sell its retail store operations highlights the extent of this challenge.
The firm is still pursuing opportunities in the U.S. market. However, with the Congress split following the midterm elections and no immediate interest in addressing marijuana laws, CGC stockholders find themselves between a rock and a hard place.
Tilray (TLRY)
Tilray (NASDAQ: TLRY) is another Canadian cannabis giant that continues to erode shareholder value. Its stock trades under the $3 mark, a far cry from its peak of more than $140 in 2018. In the past 12 months, the stock is down more than 50%, reflective of its lackluster performance.
In its most recent earnings report, revenues fell 4% YOY to $145.59 million, missing analysts’ expectations of $151.02 million. It posted a whopping net loss of $1.19 billion, a sharp contrast to the last year’s profit of $52.47 million. Additionally, its cash and cash equivalents are down to just $164.99 million, compared to the $415 million held just nine months ago.
Meanwhile, Tilray continues to expand its business by acquiring New York-based Montauk Brewing Company and Hexo Corporation, another major cannabis operator after Aphria, in 2020. However, it doesn’t have a stable base business to support these growth projects.
On the date of publication, Muslim Farooque did not have (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.