With two-thirds of Americans in favor of legalizing cannabis and a slew of states passing cannabis legalization bills since the November elections, federal action on cannabis de-regulation seems possible, though not assured, in the near future.
Yet if those excessive burdens were to go away, these companies could become very strong consumer discretionary stocks with a long runway for profitable growth.
cannabis stocks have pulled back in a similar manner to high-growth but unprofitable technology stocks.
Just recently, the company bought its way into Virginia, a medical state where the legislature just voted to legalize cannabis on a recreational basis, which will likely go into effect in 2024.
With a head start in that region, Green Thumb could do very well should customers from those three neighboring states travel to Virginia to buy legal cannabis.
Green Thumb has spread itself a bit thinner than its peers, and therefore garners lower margins than the leaders, but those margins are improving fast as each state scales up.
Led by Ben Kovler, heir to the Jim Beam fortune, Green Thumb has been one of the more aggressive companies in spreading its brands throughout the U.S.
Another MSO spreading its brands far and wide across the U.S.
Cresco has distinguished itself by really leaning into wide wholesale distribution of its brands, even if its brands are not sold in its own highly productive dispensaries.
While limited license states allow for high retail profitability today, Cresco appears to be preparing for a day in which state-level regulations fade away, and brands will have to compete more fiercely.
Through this strategy, Cresco has achieved number one market share in the highly attractive states of Illinois and Pennsylvania, where Cresco’s products are in 100% of retail stores.
Founded by value investors who put $47 million of their own capital into the company, Jushi has selectively targeted dispensaries in locations with limited licenses that should lead to high returns.
Jushi also has a presence in Illinois, with two dispensaries in the college town of Bloomington, as well as Sauget, a suburb of St.
Like Green Thumb, Jushi also bought into the Virginia market, with the sole license in Northern Virginia, the bustling suburb of Washington D.C.
In addition, Jushi has cultivation facilities in Ohio and Nevada, and four carefully chosen California dispensaries in Santa Barbara, Culver City, Grover Beach, and Palm Springs.
Analysts see more good things ahead, with an average price target of $10.34 among the seven analysts that cover the stock, about 94% above the current stock price.
Instead of branching out aggressively like Green Thumb and Cresco, prior to the Harvest acquisition, Trulieve mostly built up a dominant position within Florida, where it has almost 50% market share in this highly profitable state.
Harvest will bring a leading position in Arizona, a state which just voted to legalize cannabis on a recreational basis, along with neighboring western states including Utah, Colorado, and Nevada, while adding to the combined company’s California footprint.
However, Trulieve’s management has a history of solid capital allocation and high profitability, and Harvest appeared to be coming into its own in its recent earnings report, with surging profitability in its own right.
Just in the past few months, Ayr has already acquired cannabis companies in Florida, Arizona, Pennsylvania, and Ohio, to complement its 2020 footprint in Nevada and Massachusetts.
However, according to management, Ayr’s experts have already greatly improved operations, and has increased inventory on Liberty’s shelves from two days a week to five days a week, on the way to a full seven-day supply by the end of this year.
Ayr’s management believes its Florida assets, when brought fully up to speed, could one day be worth as much as the entire company.
While Wall Street analysts are highly bullish on these stocks, investors should be aware that these targets likely factor in some rollback of federal prohibition, particularly section 280e of the IRS code.