Fortunately, with many stocks of marijuana on the market, investors will have no choice if they want to buy the sector. Two companies stand out at the moment.
In this segment of Motley Fool Live recorded on February 5, 2021, lOngtime contributor Motley Fool Eric Volkman and head of health and cannabis department Corinne Cardina focus on that high-potential pair.
Corinne Cardina: Pure game, these are companies where their entire business model is cannabis, they depend on cannabis, they have no backup plan, if you want. What is the first one we are going to talk about?
Eric Volkman: What do we have on our sheet here? Let me look at the glue sheet. Where are we going? The first one we’re seeing is Cresco Labs (OTC: CRLBF).
Cresco Labs is headquartered in Illinois, which we talked about just a second ago, which is now a relatively open marijuana market. The stock has gone up, it is not an unknown stock. Last year, it increased 152%, which is a lot.
But there is an impulse behind them. Sales growth of almost 330% in this last quarter, which tells us one thing, that a lot of it is organic. They are not profitable. What a surprise, right? This never happens with marijuana stocks. But they are beautifully positioned.
They have good control of the Illinois market, more dispensaries are coming, they also operate outside their market. Their dispensaries are popular, clean, and good places to buy marijuana. I see more growth in your future. I really like this company. I think that, for me, it is probably my favorite of the retail stocks, Cresco.
They don’t have a big national footprint, but they are getting there and are positioned in certain places that, I would bet money, will be legalized sooner or later. I’m thinking about New York, they have – I think – three dispensaries there. Three or four dispensaries.
Of course, at the moment, they can only sell medical marijuana there. But a dispensary is a dispensary, whether they are selling medicines or recreational. Thus, once the key is activated for recreation, Cresco is there in the market. Once they have established themselves and know all the peculiarities and legal details, it is not so complicated for them to grow up.
I’m a fan of Cresco. It’s been a while and I’m still optimistic about the company.
Cardina: Incredible, yes. Governor Cuomo said he had pledged to open the adult recreation market in New York. This will probably happen sooner or later. What is your second pure play in which you are optimistic?
Volkman: Number 2 is another potential recreational game in Illinois. They are also heavy in retail, and that’s Green Thumb Industries (OTC: GTBIF).
This action went up even more, but it is still not so expensive, believe it or not. It rose almost 270% last year.
But, like Cresco, and for some of the same reasons, they also had three-digit revenue growth [in] the most recently reported quarter. In relation to the previous year, more than doubled, 131%. At an EBITDA level, they are profitable. It depends on how much faith you have in EBITDA, OK, this is a little unstable. But just the fact that they are doing well and positive territory, in some measure of profitability, is remarkable and encouraging. They’re getting there.
In terms of net income, they are not much in the red. By action, [in] in the last reported quarter, the loss was only $ 0.11 per share. It is manageable, not all of their money will be sucked out and they will go bankrupt. So, they are doing well.
Again, let us not forget, operating in Illinois, there is room for many companies. There is room for more than one major operator. I think I see that Green Thumb may not have as much potential as Cresco, but I like its perspectives. I think they have a bright future ahead of them.
Again, in retail across the country, certain states are almost 100%, they will legalize recreational marijuana. And Green Thumb is one of several companies, I think, well positioned to take advantage of that.