As Republicans in Congress make a new push for federal legalization of cannabis, it’s a good time to hold some quality cannabis stocks. It’s expected that the legal cannabis market could be worth $100 billion in the United States alone by 2030.
Further, Canada is already an attractive market and medicinal cannabis is gaining traction in Europe. Chrystal Capital Partners expects the global cannabis market to be worth $350 billion by 2030. The investment firm has launched the world’s largest medicinal cannabis fund.
With the industry gradually overcoming the regulatory headwinds, revenue growth for cannabis companies can be robust. Further, some of the top cannabis companies have taken steps to reduce the cash burn and focus on few growth markets.
This column will discuss three cannabis stocks that seem to be positioned to benefit from positive industry tailwinds. These companies have a relatively strong balance sheet with financial flexibility to pursue aggressive growth.
Let’s take a deeper look into three cannabis stocks worth buying on Robinhood now.
- Tilray (NASDAQ:TLRY)
- Canopy Growth (NASDAQ:CGC)
- Sundial Growers (NASDAQ:SNDL)
Cannabis Stocks: Tilray (TLRY)
After the completion of the merger with Aphria, TLRY stock is possibly among the top cannabis stocks to consider buy on Robinhood.
The merger has created an entity with a leading position in recreational cannabis in Canada. In addition, Tilray now has expanding presence in Europe and the United States. With a big addressable market in recreational and medicinal cannabis, the company is positioned to grow.
In Canada, Tilray has a market share of 17.3%. With the launch of cannabis 2.0 products, the company is likely to witness margin improvement. However, it’s worth noting that the company has premium plus, premium and economy products. This gives the company a wider customer reach in Canada’s retail market.
In Europe, the company already has an EU-GMP certified cannabis cultivation and production facility in Portugal. Another state-of-art facility is being established in Germany. The country already has a large medicinal cannabis market. Therefore, Tilray seems to be making the right moves.
The company’s presence in the United States is currently through the sale of branded hemp and CBD products. Tilray has access to 17,000 stores in North America. Further, Aphria had acquired SweetWater Brewing Company, which will help the company make inroads in the cannabis beverage market.
Overall, TLRY stock looks positioned for upside with potential federal level legalization being a big trigger.
Canopy Growth (CGC)
Last month, Bank of America analysts opined that TLRY stock and CGC stock are worth buying. The key reason is the “ability to enter the U.S. market should federal marijuana legalization occur and CBD beverage distribution.”
CGC stock has been largely sideways in the last six months. This seems like a good accumulation opportunity.
Canopy Growth has set an ambitious growth target of net revenue growth at a compound annual growth rate of 40% to 50% over the next three years. The company also expects positive adjusted EBITDA in the second half of 2022. Over the next two years, the company expects EBITDA margin to increase to 20%.
Canopy is the second largest player after Tilray in the Canadian recreational cannabis market. With continued product innovation, the company is likely to maintain a healthy market share in a key market.
Further, the company has strong medicinal cannabis presence in Germany with C3 and wholesale medical sales. As a matter of fact, the company has maintained a leading market share in Germany’s flower business.
In the United States, the company is looking to expand through CBD-focused brands. With federal legalization on the horizon, growth can potentially accelerate.
Overall, CGC stock looks attractive with an ambitious growth target. The company expects to achieve positive free cash flow by 2024. This seems realistic with strong growth; cost cutting and launch of premium products.
Cannabis Stocks: Sundial Growers (SNDL)
SNDL stock is another cannabis stock worth considering. The stock touched a high of $3.96 in February 2021 and has corrected sharply to current levels of 76 cents per share.
The correction has been on profit-book and significant equity dilution. With the capital raising program, the company reported cash and equivalents of $873.5 million as of the first quarter.
With strong financial flexibility, Sundial seems positioned to pursue aggressive organic and inorganic growth. In May, the company announced the acquisition of Inner Spirit for a consideration of $131 million. The franchiser and operator of retail cannabis stores already has 86 stores in operation. In the fourth quarter of 2020, Inner Spirit reported $9.2 million in revenue and an adjusted EBITDA margin of 19%.
Sundial also has a 50-50 joint venture with SAF Group. The company has committed $188 million towards the joint venture to invest in equity, debt and hybrid instruments globally in the cannabis sector.
The company reported 74% branded cannabis sales for the first quarter. Sundial also reported a positive adjusted EBITDA of $3.3 million for the quarter. EBITDA growth was supported by revenue of $15.7 million from cannabis related portfolio investments.
It seems that SNDL stock has bottomed out. With the current cash buffer, it’s likely that revenue and EBITDA growth will accelerate in the coming quarters.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.
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