Blame it on too much product, fierce competition, or the general economic haze - but 2023 was another tough year for cannabis stocks, with many start-ups in the weed niche now struggling just to stay afloat. That's why the proposal to reschedule marijuana at the federal level has been so closely watched in the industry; gaining more pharmaceutical credibility could unlock more favorable tax and employment regulations, as well as open up clinical testing possibilities - all factors that could give cannabis stocks a much-needed shot in the arm.
With marijuana already approved for recreational use in many states, 12 Democratic governors wrote the Biden administration earlier this month, urging the White House to reschedule weed by the end of the year. Their pitch? More jobs, tax cash, fewer folks behind bars, and a nod to fairness. Despite the plea, President Biden hasn't exactly put cannabis reform in the spotlight just yet.
While federal reclassification hangs in the balance, Wall Street analysts still like some of the smaller players in the cannabis space. Here are two top-rated pot stocks under $20 that could be worth adding to your portfolio.
GrowGeneration: A Leading Supplier of Hydroponic Equipment
GrowGeneration Corp. (GRWG) is a top spot in the U.S. for all things hydroponic and organic gardening, rocking a cool 50 stores spread across 18 states. From nutrients to grow lights and tents, they've got the whole shebang for both green-thumbed at-home enthusiasts and serious commercial cultivators.
GRWG is down 39% this year, which stands in stark contrast to the S&P 500 Index ($SPX) and its 20% gain. GRWG shares now trade around just $2.39, with a market cap of $155 million.
Financially, GRWG swung to a net loss of $7.4 million in Q3 2023, which was slightly wider than expected. Revenue took a hit too, down 21.4% to $55.7 million - but still narrowly beat Wall Street's expectations, even as same-store sales tumbled 14% from the prior year.
Looking ahead, analysts expect GRWG to narrow its bottom-line deficit in fiscal 2024. The consensus is calling for a full-year loss of $0.34 per share, compared to the expected $0.44 this year.
Overall, the analyst squad is leaning towards a “moderate buy,” with four screaming "strong buy" and two saying "hold." The average price target for GRWG is $4.42, hinting at expected upside of about 85%.
Green Thumb Industries: A Diversified Cannabis Operator
Green Thumb Industries Inc. (GTBIF) is a decent-sized player in the U.S. cannabis scene, with operations in 14 states. They sell and distribute cannabis in various formats - think flowers, edibles, vapes, concentrates, and topicals - through brands like Rythm and Dogwalkers, and you might have seen their retail stores, too, led by their RISE Dispensaries locations (including two new locations in Florida).
The over-the-counter traded GTBIF has been on the upswing, adding about 18.8% to nearly keep pace with the broader market. The shares currently trade just north of $10.
During Q3, GTBIF reported net income of $11 million, or $0.05 per share, while adjusted EBITDA rose to $83 million, or 30% of revenue. Revenue's booming too, up 38.4% to a stronger-than-forecast $275.4 million. Green Thumb also bought back $25 million worth of shares during the quarter.
In fiscal year 2024, Wall Street is targeting 25% EPS growth, with the consensus calling for a full-year profit of $0.25 per share.
GTBIF's valuation game is strong, too. The price-to-sales ratio of 2.49 and price-to-book ratio of 1.51 are both reasonable, considering long-term EPS growth projections of 52%.
Wall Street is giving Green Thumb stock a round of applause with a “Strong Buy” consensus – nine “Strong Buys” and two “Moderate Buys,” to be exact. And the average price target is $15.38 - a healthy 52% upside from current levels.
