This week, the major U.S. cannabis stocks all soared after reporting their first-quarter results. Despite the surge, investors still aren’t buying the idea that these stocks are “bargain buys.” So, will they bounce back now that the good news has been revealed? Here’s what you need to know about the latest quarterly results.
One of the questions that is often asked when it comes to investing in the marijuana industry is, “What is the best marijuana stock to buy?” Although investing in cannabis stocks is fraught with risk, the truth is that it is still a popular and worthwhile investment. One of the main reasons is that the U.S. cannabis industry is much more mature than other cannabis industries in other countries.
Marijuana stocks have been on fire over the past month. With the passage of recreational legalization in Oregon and Washington, the sector has seen unprecedented growth. After a string of positive earnings results, leading marijuana stocks are now up 30% over the past month. The latest data from the U.S. government also signaled a significant increase in the sale of cannabis products, as the country began tracking more than $2 billion in marijuana sales in the first quarter of 2018. This data mirrors a similar jump in sales that occurred after Colorado and Washington legalized the sale of recreational marijuana. The financial sector has also been bullish on medical marijuana, with both companies and ETFs trading at record highs.. Read more about cbd stocks to watch and let us know what you think.
U.S. marijuana stocks rise on better financial performance
It wasn’t that long ago that American grass stocks were in decline. Indeed, 2019 has been a terrible year for the cannabis industry as a whole. Shares have fallen due to scandals, rising costs, increasing debt and no signs of profitability. In 2019, the North American Marijuana Index plummeted by about 52%.
For many American marijuana enthusiasts, those red flags are in the rearview mirror.
That’s not to say there won’t be periods of volatility, but U.S. marijuana companies are currently getting a lot of attention. And for all the right reasons. Companies have become more effective and efficient, reporting significant growth in revenue and profitability.
Here’s the summary:
- Curaleaf Holdings Inc (CNSX:CURA, OTCMKTS:CURLF): Record first quarter revenues were up 170% over the prior year and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) were up 213%.
- Acreage Holdings Inc (CNSX:ACRG.A.U, OTCMKTS:ACRHF): First quarter revenues were up 58% year-over-year and adjusted EBITDA was positive.
- Charlotte’s Web Holdings Inc (TSE:CWEB, OTCMKTS:CWBHF): Revenues rise 9.1% in the first quarter
- GrowGeneration Corp (NASDAQ:GRWG): Record first quarter revenue up 173% and earnings of $0.10 per share
- Green Thumb Industries Inc (CNSX:GTII, OTCMKTS:GTBIF): First quarter revenue up 89% year-on-year, third consecutive quarter of positive net income and fifth consecutive quarter of positive operating cash flow
- Harvest Health & Recreation Inc (CNSX:HARV, OTCMKTS:HRVSF): In the first quarter, revenues doubled and adjusted EBITDA increased 196% from the previous quarter.
- Trulieve Cannabis Corp (CNSX:TRUL, OTCMKTS:TCNNF): Record first quarter sales have more than doubled and are now in their 13th quarter. First consecutive quarter in the profit zone
- Innovative Industrial Properties Inc (NYSE:IIPR): First quarter sales increased 103% and net income 121%.
As you can see in the chart below, strong sales in 2020 and an impressive start in 2021 have led to a surge in the cannabis stock market.
Although the S&P 500 has risen an impressive 40% over the past year, that pales in comparison to what has happened to cannabis stocks. At first glance, it appears that the S&P 500 has not changed over the past year. Of course not, but compared to the actions of marijuana, it sure looks like it.
Graph courtesy of StockCharts.com
The outlook for the cannabis industry in the United States remains extremely positive. First, Americans are increasingly optimistic about the legalization of recreational cannabis use at the federal level.
That’s because more and more states are legalizing cannabis for recreational use. In March, New York legalized cannabis for recreational use. New Mexico followed in April. Virginia legalizes the 1st. July. Cannabis for recreational use.
Today, recreational cannabis is legal in 16 states and the District of Columbia. Virginia will be the 17th. US state legalizing cannabis. In addition to the states (and the District of Columbia) where recreational marijuana (and therefore medical marijuana) is legal, 19 other states (35 in total) have legalized medical marijuana.
Other states that could also legalize marijuana in 2021 include Connecticut, Rhode Island, Delaware, Maryland, Pennsylvania and Texas. And they can do it with or without the blessing of President Joe Biden.
At the federal level, Senator Chuck Schumer said he would share his thoughts with President Biden, but when it comes to legalizing cannabis, we will eventually move forward, period. (Source: Schumer: Senate Will Act On Marijuana Legalization With or Without Biden, Politico, April 3, 2021).
2020 will be a turning point for cannabis in the United States.
Another reason to be optimistic about the cannabis industry in the United States is that more people are smoking marijuana. (Source: BDSA reports global cannabis sales of more than $21 billion in 2020; expected to reach $55.9 billion in 2026, GlobeNewswire, March 2, 2021)
While the coronavirus has harmed many industries, it has been a boon to weeds. In 2020, legal marijuana sales in the US (recreational in 14 states and medical in 36) will reach a record $17.5 billion, a 46% increase over 2019.
Most of the growth in 2020 will come from recreational marijuana markets, especially mature markets. Oregon sales increased 29% to $1.1 billion. Colorado sales increased 26% to $2.2 billion. In emerging markets like Illinois, where recreational cannabis was not legalized until the early 2020s, sales totaled $780.0 million.
Several other states have seen a huge increase in the sale of legal marijuana. Revenues increased by $586.0 million in California, $473.0 million in Florida, $451.0 million in Colorado and $400.0 million in Oklahoma.
Sales of legal cannabis in the US are expected to reach $41.3 billion by 2026, with a compound annual growth rate of 15%.
Analyst
The year 2020 was a breakthrough year for U.S. cannabis stocks, with legal marijuana sales up 46% year-over-year.
Clearly, these numbers have been pushed back to 2021, as the vast majority of U.S. marijuana companies have announced excellent, if not record-breaking, first quarter financial results and provided impressive forecasts.
Record sales of marijuana are the result of the increased acceptance and legalization of recreational marijuana in a growing number of states. This trend is expected to continue. US cannabis stocks could therefore be in demand in the coming years.
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