The cannabis industry looks to be on the brink of significant growth in 2024, driven by key political developments and potential regulatory changes. With President Biden opting not to run for a second term, Vice President Kamala Harris, who has voiced support for cannabis rescheduling, could play a pivotal role in shaping the industry's future.
While the VP's policies are just starting to take shape ahead of this week's national convention, her presidential candidacy alongside Governor Tim Walz, with established 420-friendly credentials, could potentially create the first major party ticket to endorse federal cannabis legalization - which would signal a massive shift. Additionally, former president and current GOP presidential candidate Donald Trump has softened his own stance on cannabis, suggesting he supports decriminalization as more states move toward legalization.
Despite a generally positive fundamental backdrop, with recreational sales opening up in Ohio and Kentucky taking applications for medical marijuana licenses, not all cannabis stocks are capitalizing. Canopy Growth (CGC), a prominent Canada-based player, has had recent struggles with disappointing earnings and stock performance, causing investors to consider other promising cannabis stocks - particularly with CGC sporting a “Moderate Sell" rating on Wall Street, and trading at a steep premium to its average price target.
Instead, stocks like Green Thumb Industries (GTBIF) and Verano Holdings (VRNOF) have emerged as more attractive alternatives for investors eyeing the cannabis space, with both receiving “Strong Buy” ratings from analysts.
#1. Green Thumb Industries
Green Thumb Industries (GTBIF) is a significant player in the cannabis industry, recognized for its diverse range of products that cater to both medical and adult-use markets. Headquartered in Chicago, he company operates a comprehensive business model encompassing manufacturing, distribution, and retail, with brands like &Shine, Beboe, and Dogwalkers. Its retail operations are conducted under the RISE banner.
The stock has notched a 66.67% gain over the past year, even though GTBIF has lagged the broader market in 2024 with its virtually unchanged performance.
Currently, GTBIF trades at a P/E ratio of 30.25, roughly in line with the sector median, and a price-to-sales ratio of 2.27, which is a reasonable discount to GTBIF's historical valuation.
Speaking of growth, Green Thumb has been aggressively expanding its retail presence, particularly in Florida. On Aug. 7, the company opened its 12th retail location in the state, RISE Dispensary Clearwater, following the opening of RISE Dispensary Largo just a week earlier. These expansions highlight Green Thumb's commitment to capturing market share in Florida, a key growth area for the cannabis industry.
Additionally, the company has been actively buying back shares, repurchasing 1.65 million Subordinate Voting Shares for $20 million during the second quarter.
Financially, Green Thumb posted strong results for Q2 2024, with earnings per share (EPS) of $0.09 comfortably beating Wall Street's expectations, and revenue of $280.15 million representing an 11% increase year-over-year. Net income was $21 million, and adjusted EBITDA was $94 million, or 34% of revenue - highlighting operational efficiency.
Looking ahead, analysts project an EPS of $0.07 for Q3 2024, up 40% year over year, with revenue expected to reach $283.13 million. For the full year 2024, EPS is projected at $0.35, more than double GTBIF's 2023 earnings of $0.15 per share.
Analysts are optimistic about Green Thumb, with a “Strong Buy” consensus among the 10 analysts in coverage. Eight recommend a “Strong Buy,” and 2 suggest a “Moderate Buy,” with the mean price target of $21.34 implying expected upside of 90.5% from Friday's close.
#2. Verano Holdings
Verano Holdings Corp. (VRNOF) is making significant strides in the cannabis industry, with its operations spanning multiple U.S. states. The company is involved in cultivating, processing, and retailing cannabis products, serving both medical and adult-use markets.
VRNOF has gained 51.8% over the past year, though the shares have dipped by 5% on a YTD basis.
Verano's strategic expansion is particularly noteworthy, as it recently entered the Virginia market by acquiring a license from The Cannabist Company. This acquisition includes a 62,000-square-foot cultivation and processing facility, along with rights to six dispensaries, two of which are operational. This move is expected to enhance Verano's market presence and potentially boost investor confidence.
In addition to its Virginia expansion, Verano is growing its retail footprint in other states. The company recently opened Zen Leaf Fairless Hills, its 18th dispensary in Pennsylvania, and expanded in Florida with MÜV Naranja and Port Richey, adding exposure in the booming Miami-Dade and Pasco Counties.
Verano is also innovating with new incentives to keep customers coming back, such as the expansion of its Cabbage Club line beyond the initial rollout states - with plans to keep expanding as more markets open up to adult use.
Financially, Verano reported second-quarter 2024 revenue of $222.4 million, a slight increase from the previous quarter, but a 5% decrease year-over-year. The company achieved a gross profit of $114 million, representing 51% of revenue, despite facing a net loss of $22 million. However, its adjusted EBITDA was $71 million, accounting for 32% of revenue, indicating strong operational efficiency.
Looking forward, analysts estimate a net loss of $0.04 per share for the third quarter of 2024, with projected revenues of $234.05 million. For the full fiscal year 2024, the consensus EPS estimate is a loss of $0.16 on revenues of $923.68 million.
Analyst sentiment toward Verano Holdings remains positive, with seven analysts recommending a consensus “Strong Buy.” Five suggest a “Strong Buy,” while two recommend a “Moderate Buy.” The mean target price for VRNOF is $8.50, indicating a substantial upside potential of 100% from Friday's close.
Conclusion
In summary, both Green Thumb Industries (GTBIF) and Verano Holdings Corp. (VRNOF) are making strategic moves that position them well in the evolving cannabis market. Green Thumb's aggressive expansion in Florida and strong financial performance highlight its growth potential, while Verano's entry into the unique Virginia market and focus on customer loyalty showcase its adaptability and market reach. Though some heightened volatility is to be expected, the strong analyst ratings and substantial upside potential for both companies make them compelling options for investors looking to capitalize on the cannabis industry's growth - and able to stomach the risk.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
