These cannabis companies are poised for accelerated growth and EBITDA margin expansion in the next few years
In the last few years, cannabis stocks have been impacted by two factors. First, regulatory headwinds have played a spoilsport for an industry with huge potential. Second, cannabis companies have suffered significant cash burn on account of ambitious expansion plans and intense competition.
However, there finally seems to be light at the end of the tunnel. There are an increasing number of states in the U.S. where recreational cannabis has already been approved. Even without federal level legalization, the cannabis market in the U.S. is likely to be worth $71 billion by 2030. Recently, Germany legalized recreational cannabis and I expect other European countries to follow suit. I therefore expect accelerated growth for cannabis companies.
Further, some of the best cannabis companies have managed to control cost and move towards positive EBITDA and cash flows. With healthy growth and operating leverage, it’s likely that margin expansion will sustain in the coming years. This is another positive as fundamentals of cannabis companies improve.
Overall, it’s a good time to consider exposure to some of the best cannabis stocks for multibagger returns. Let’s discuss three ideas that look attractive for the long term.
Cronos Group (CRON)
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After remaining sideways to lower for an extended period, Cronos (NASDAQ:CRON) stock has trended higher by 25% in six months. In my view, this is just the beginning of the rally and multibagger returns are likely in the next few years.
An obvious reason to like Cronos is high financial flexibility. The Company ended 2023 with a cash buffer of $862 million. Further, Cronos has guided for positive change in net cash during the year. Therefore, there is high financial flexibility for organic and potential acquisition driven growth.
Further, Cronos has been making inroads in the big medicinal cannabis market. In 2023, Cronos entered Germany and Australia with its medicinal cannabis products. At the same time, the Company has expanded its product portfolio in Canada and Israel.
In the United States, Cronos has 5.9% stake in PharmaCann, which is one of the largest private multi-state operators (present in eight states). Assuming a federal level legalization scenario, Cronos will be positioned to aggressive expand considering the cash buffer.
Curaleaf Holdings (CURLF)
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Curaleaf Holdings (OTCMKTS:CURLF) is another promising cannabis stock to buy for massive value creation. CURLF stock has witnessed a strong rally of 65% in the last 12 months. Considering the Company’s business outlook, I expect a bigger move in the coming quarters.
In a recent news, Curaleaf announced the acquisition of Northern Green Canada to bolster European flower supply. The latter is one of the few Canadian cultivators with EU-GMP certification. It’s worth mentioning that Curaleaf is focusing on aggressive European expansion in the medicinal cannabis business.
Further, the Company has strong presence in the U.S. with presence in 17 states. Even without federal level legalization, the U.S. market is expected to be worth $71 billion by 2030. Therefore, there is ample headroom for growth.
Another important point to note is that the management believes that 2024 will be a “catalyst year” for Curaleaf. While revenue growth was muted in 2023, it’s likely that growth will accelerate in 2024 and beyond. The supporting factors being European expansion and the continued launch of new products.
Canopy Growth Corporation (CGC)
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Canopy Growth Corporation (NASDAQ:CGC) stock has skyrocketed by 126% in the last one month. However, the big rally comes after a deep correction. As a result, CGC stock is still lower by almost 60% on a 12-month returns basis. I believe that the stock is worth adding on corrections.
An important point to note is that Canopy Growth has strong presence in Germany. From April, cannabis will officially be recognized as a non-narcotic in the country. This paves way for growth in the recreational as well as medicinal cannabis segment. This is one reason for the big rally in CGC stock.
Another point to note is that Canopy Growth has focused on cutting losses. The Company has guided for positive adjusted EBITDA from all business units by the end of financial year 2024. With operating leverage, it’s likely that EBITDA margin expansion will sustain in 2025 and beyond.
Canopy has also set ambitious expansion targets. The company is looking at expansion in markets like Australia, Poland, and Czech Republic. Potential federal level legalization of cannabis in the U.S. would be another big catalyst for growth. It’s one of those cannabis stocks to consider.
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.