In October 2018, Canada legalized cannabis for recreational use, leading to increased investor optimism. However, in the past five-and-a-half years, many Canadian marijuana stocks have experienced significant declines in market value. Factors contributing to this decline include rising competition, negative profit margins, oversupply of products, high inventory levels, overvalued acquisitions, and other challenges.
Currently, most Canadian marijuana producers are facing negative cash flows, making them high-risk investments despite their lower valuations. As a result, investors may want to consider diversifying their portfolios by increasing exposure to quality cannabis stocks in the United States, where the industry is projected to grow at an annual rate of 14% through 2030.
Two such quality cannabis stocks that investors may consider include Green Thumb Industries and Cresco Labs. Green Thumb Industries, valued at US$2.9 billion by market cap, is one of the largest cannabis consumer packaged goods companies in the United States. With consistent revenue growth and a strong profit margin, Green Thumb Industries is poised for potential growth in the future.
Cresco Labs, valued at US$700 million by market cap, has also shown promise, with a focus on cost optimization leading to positive operating cash flow and free cash flow. With a less expensive price-to-sales ratio and potential for improved profit margins, Cresco Labs may be a promising investment option. Analysts are optimistic about the growth potential of both Green Thumb Industries and Cresco Labs, forecasting potential surges in stock value in the next 12 months.
