The thrill has gone from cannabis stocks, as the past few years have failed to deliver the lush industry profits envisioned when legalization began to waft across the continent.
But some investors have taken a liking to the stocks lately. After tumbling 90% from its 2021 peak, the
AdvisorShares Pure US Cannabis
exchange-traded fund (ticker: MSOS) is up 50% in the past month, to a recent price of $7.15.
What’s created a buzz is the Biden administration’s proposal to move the drug to a less severe category of federally illegal drugs, and the vote of a U.S. Senate committee to advance a bill that would ease some banking restrictions for state-licensed cannabis operators.
While a cannabis banking bill seems unlikely to make it through the paralyzed House of Representatives, some cannabis operators are generating cash and have stocks that don’t make you pay too much for that cash flow.
We used
FactSet
to screen the stocks of cannabis retailers that trade at an enterprise value of at least half a billion dollars, when adding their debt to their stock market capitalization, then subtracting their cash.
The resulting nine names show that the hefty gain in an ETF like the AdvisorShares Pure US Cannabis masks a wide variance across the industry’s stocks. Onetime industry leader
Canopy Growth
(CGC) has sunk to a penny stock, while Canadian rival
Tilray Brands
(TLRY) has battled falling marijuana prices and tried to diversify into the beer business. Their shares are down significantly this year.
| Company / Ticker | Price | YTD Price Change | Enterprise Value (mil) | Fully Diluted EPS (TTM total) | Free Cash Flow Per Share (TTM total) | Ent Val / Operating EBITDA |
|---|---|---|---|---|---|---|
| Trulieve Cannabis / TCNNF | $5.81 | -23% | $1,884 | -3.49 | -0.44 | 6 |
| Green Thumb Industries / GTBIF | 10.63 | 23 | 2,940 | -0.08 | 0.07 | 9 |
| Verano Holdings / VRNOF | 4.45 | 43 | 1,934 | -0.83 | 0.15 | 9 |
| Cresco Labs / CRLBF | 1.93 | 7 | 1,164 | -0.77 | 0.06 | 10 |
| Curaleaf Holdings / CURLF | 4.11 | -4 | 4,112 | -0.61 | -0.01 | 25 |
| Cannabist Company Holdings / CBSTF | 0.86 | 15 | 867 | -1.00 | -0.07 | 100 |
| TerrAscend / TSNDF | 1.97 | 74 | 795 | -1.43 | 0.00 | 923 |
| Canopy Growth / CGC | 0.68 | -70 | 937 | -1.85 | -0.76 | NM |
| Tilray Brands / TLRY | 2.24 | -17 | 1,776 | -2.35 | -0.02 | NM |
NM=not meaningful
Source: Factset Research Systems
Tallying profit according to generally accepted accounting principles, FactSet finds that none of the weed sellers were in the black over the past four quarters combined.
Setting aside noncash expenses, however, a number of the companies are at least producing cash from their operations. Three even generated some free cash flow—including capital expenditures — over the past four reported quarters:
Green Thumb Industries
(GTBIF),
Verano Holdings
(VRNOF), and
Cresco
Labs (CRLBF).
So we ranked the stocks by their cheapness in relation to their last four quarters’ operating cash flow—that is, their operating income before interest, taxes, depreciation and amortization. By that measure, some still look cheap, even after their recent rise.
Green Thumb, Verano, Cresco, and
Trulieve Cannabis
(TCNNF) all trade at 10-times trailing Ebitda or less. By way of comparison, the S&P 500 has sported an Ebitda multiple above 15 in recent times.
The federal government may not do much for the cannabis industry this year, but there remain growth opportunities as states continue to ease their laws. New York state is about to announce over 1,000 recreational marijuana licenses, after taking two years to draw up regulations.
Legal weed could yet become an investible business.
Write to Bill Alpert at [email protected]
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