Cannabis stocks have emerged as an unlikely bipartisan favorite ahead of the November presidential elections. While Vice President Kamala Harris has previously backed rescheduling marijuana under less restrictive Schedule III guidelines, GOP candidate Donald Trump has now also voiced his support for the issue in Florida. As cannabis operators continue to await more business-friendly U.S. policies on everything from taxation to employment to banking, investors are becoming optimistic that a significant shift could be coming for the domestic market.
Against this backdrop, here's a look at three promising cannabis stocks for investors to consider - Organigram Holdings (OGI), Verano Holding (VRNOF), and Cresco Labs (CRLBF). All three stocks trade under $10 per share, with a consensus "buy" or better rating from analysts, presenting lower-priced opportunities for lucrative returns in a sector that's poised for rapid growth and transformation.
#1. Organigram Holdings
Based in Canada, Organigram Holdings (OGI) is a leading producer of high-quality medical and recreational cannabis. The company specializes in producing indoor-grown cannabis, utilizing innovative production techniques to meet consumer needs in both the medical sector and adult-use recreational markets.
Valued at $192 million by market cap, shares of Organigram have rallied over 41% YTD, outpacing the broader S&P 500 Index's ($SPX) gain of nearly 18%. OGI shares are now trading at a reasonable 1.72 price/sales (P/S) ratio, significantly lower than the sector median of 3.89 and its own 5-year average of 4.68.
In its fiscal Q3 results, announced on Aug. 13, revenue swelled to $30 million, surpassing Wall Street's estimate by $1.12 million and marking a 24.2% increase year over year. Most impressively, OGI reported a profitable quarter, with net income of $2.1 million surpassing Wall Street's forecast for a quarterly loss. On an adjusted basis, the company earned a profit of $0.03, marking the first time the firm has been profitable on a quarterly basis.
This outperformance is mainly attributed to cost cutting, though the company is still eyeing new opportunities. Organigram has delivered $7.9 million so far of its targeted $10 million in cost savings for fiscal 2024, and says it's on pace to achieve its target for the full year.
Looking ahead, OGI is targeting a move into the German market, where adult use was recently expanded, with its strategic $21 million investment into Sanity Group, which has the No. 2 flower brand in the German market and operates two dispensaries in Switzerland.
Analysts are predicting Organigram's revenue will rise 15.4% next fiscal year to reach $135.25 million, though the cannabis company isn't expected to reach consistent profitability for several more years - making this penny stock a riskier bet.
Overall, Organigram has a consensus "Moderate Buy" rating from four analysts in coverage. Two rate the stock a "Strong Buy," one says it's a "Moderate Buy," and one has a "Hold" rating.
The average 12-month price target for OGI is $2.95, implying a 58.6% upside potential from the current price.
#2. Verano Holdings
Based in Chicago, Verano Holdings (VRNOF) is a multi-state operator in the cannabis industry, specializing in the cultivation, manufacturing, and retailing of premium cannabis products. The company operates numerous dispensaries across the United States, catering to both medical and recreational users.
Valued at $1.10 billion, shares of this cannabis company have plunged more than 28% YTD, largely due to revenue that did not meet expectations in the most recent quarter. Following this pullback, VRNOF shares currently trade at a price/sales ratio of just 1.25, suggesting the cannabis stock is relatively cheap at current levels.
In its Q2 earnings, Verano reported net revenue of $222 million, marking a 5% decline from the previous year, and falling short of expectations. However, the adjusted quarterly loss of $0.03 per share was narrower than expected.
Verano Holdings is also eyeing strategic expansions. The company has significantly increased its footprint in Florida, opening new dispensaries in Melbourne and Okeechobee, bringing its total to 79 in the state and 152 nationwide. This expansion not only enhances its market presence but also improves access to its products for a larger customer base, which could lead to increased sales and potentially better financial outcomes in future quarters.
Moreover, Verano is actively participating in advocacy efforts to legalize adult-use cannabis in Florida, which could lead to substantial market expansion. Their support for the Smart and Safe Florida campaign underscores their commitment to influencing favorable legislative outcomes that could benefit both the company and the industry at large.
Looking ahead, analysts tracking the company expect Verano Holdings to hit $1 billion in revenue in fiscal year 2025.
Out of seven analysts in coverage, the consensus is a "strong buy" rating. This bullish group's mean price target of $8.50 indicates expected upside potential of 160% from current levels.
#3. Cresco Labs
Another Chicago-based company, Cresco Labs (CRLBF) is a multi-state cannabis operator that cultivates and manufactures products for both medical and adult use. Recently, Cresco announced the retirement of CFO Dennis Olis, who has been with the organization since July 2020. Olis will be succeeded in the role by Sharon Schuler, a cannabis industry newcomer who brings deep financial expertise from her time at BJ's Wholesale (BJ), The TJX Companies (TJX), and more large organizations.
With a market cap of $810 million, shares of Cresco have rallied over 26% YTD, surpassing the broader market with ease.
Cresco currently trades at just a 0.78 P/S ratio, which is a nearly 70% discount to its own 5-year average valuation - presenting an attractive entry point for prospective investors.
On Aug. 8, the company unveiled its Q2 earnings for 2024, which missed analysts' expectations on both the top and bottom lines. Net revenue came in at $184 million, showing almost flat growth from the previous quarter, while the loss per share of $0.15 was wider than anticipated. The quarterly net loss of $51.18 million was influenced by a substantial $61 million tax charge.
However, Cresco achieved an impressive 52% adjusted gross profit margin and a 29% adjusted EBITDA margin, signaling robust operational efficiency. This strong operational performance was led by its Sunnyside dispensaries, which retained a leading market share in Illinois, Pennsylvania, and Massachusetts - all key competitive markets.
Cresco Labs has strategically focused on maintaining operational efficiencies and expanding into potential adult-use cannabis markets, anticipating significant revenue growth in the coming years. They also anticipate cash savings from tax benefits due to expected legislative changes in cannabis regulations.
Wall Street analysts are overall bullish on Cresco stock, as the seven experts in coverage have assigned an average "strong buy" rating, with the mean price target of $3.48 indicating over 107% upside potential.
While investing in these cannabis stocks is still risky, given the broader regulatory uncertainty, investors with a high tolerance for volatility and the patience to hold these names for the long term may ultimately be rewarded by favorable policy outcomes.
On the date of publication, Nauman Khan 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.
