These marijuana companies are positioned for healthy top-line growth and margin expansion
- These undervalued marijuana stocks have sustained industry growth potential throughout the decade.
- Cronos Group (CRON): Healthy top-line growth, narrowing EBITDA level losses and strong financial backing recommend this stock.
- SNDL (SNDL): Strategic investments in debt and equity of marijuana companies are likely to create value in the long term.
- Curaleaf Holdings (CURLF): This company has a strong presence in the U.S. in states where marijuana is legalized.
Undervalued marijuana stocks can be difficult to tell from marijuana stocks that are on the way out.
It’s been a few years since the markets were expecting a major inflection point for the marijuana industry. Regulatory hurdles and sustained cash burn have restricted growth.
There was a euphoric rally for marijuana stocks in 2019, which was followed by a big crash. Stocks in the industry have remained depressed for an extended period and there are several undervalued marijuana stocks.
While there is a delay in the industry reaching an inflection point, there is no doubt about the potential. Estimates indicate that the legal marijuana market is likely to be worth $75.6 billion by 2025. Another report expects the marijuana market to grow at a CAGR of 25.5% through 2030.
Given this potential, it’s a good idea to consider some undervalued marijuana stocks for the portfolio. Of course, I would not consider a big plunge. However, with potential legalization in the U.S. and Europe, these undervalued marijuana stocks can deliver multi-fold returns.
Cronos Group (NASDAQ:CRON) stock is among the top undervalued marijuana stocks to consider. After a correction of 53% in the last 12 months, the stock seems to have bottomed out.
As an overview, Cronos has a diversified brand portfolio with mainstream, wellness and premium products. Cronos also has a presence in the U.S. with hemp-derived consumer products and cosmetics.
A major reason to like Cronos is the company’s focus on evidence-backed medicinal products. This includes dried flower, pre-rolls and oils. The medicinal segment has bright growth prospects in Europe.
For the first six months of 2022, Cronos reported top-line growth of 70%. For the same period, the company’s adjusted EBITDA losses narrowed. If margin improvement sustains, CRON stock is likely to trend higher.
From a financial perspective, Cronos has the backing of Altria (NYSE:MO). This is important as it provides Cronos with strong financial backing. In particular, when industry growth accelerates after potential legalization in U.S. and Europe.
SNDL (NASDAQ:SNDL) is another attractive name to consider among undervalued marijuana stocks. The stock has also been in a correction mode, but it seems that current valuations are attractive.
The company’s business can primarily be divided into two segments. First, the company is a leading private sector distributor of liquor and cannabis in Canada. Currently, SNDL has 355 retail locations.
Further, SNDL has a strategic investment arm. The segment is focused on equity and debt investments in the marijuana segment globally. With $689 million in strategic investments, SNDL is positioned to create value as the marijuana industry grows.
SNDL also closed Q2 2022 with cash and equivalents of $356 million. This provides the company with ample flexibility to continue pursuing aggressive growth.
Recently, SNDL announced the acquisition of The Valens Company (NASDAQ:VLNS) in an all-stock deal. Given the cash buffer, further acquisitions seem likely.
Curaleaf Holdings (OTCMKTS:CURLF) stock has outperformed peers in the last six months. However, CURLF stock remains undervalued and poised for a rally.
As an overview, Curaleaf has a strong presence in the U.S. with an increasing presence in Europe. Currently, the company has 26 cultivation sites and presence across 136 retail locations.
With marijuana legalized in several states in the United States, Curaleaf has been increasing its presence in the country. Impending Federal level legalization would be a big stock upside catalyst.
One reason to like Curaleaf is healthy top-line growth and positive adjusted EBITDA. For 2022, the company has guided for revenue and adjusted EBITDA of $1.5 billion and $406 million respectively.
Focus on research and development is another reason to like Curaleaf. The company has 180 different products in experimental development. For Q2 2022, the company generated 20% revenue from new products launched in the last 12 months. With a strong balance sheet, the company is positioned for sustained growth.
This post originally appeared at InvestorPlace.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.