Three Billion-Dollar U.S. Cannabis Stocks

In a recent piece on The Impact of No Brokerage Fees on Retail Investors, we discussed how zero-fee stock trading helps investors adhere to best practices like dollar-cost-averaging. What we didn’t talk about was how zero-fee stock trading apps such as Robinhood would open up a floodgate of newbie investors whose irrationality knows no bounds.

You may have read recently about how investors flocked to buy up Hertz shares even though the company warned that the shares they were selling were most likely worthless given how badly their debt situation is. Given that nearly half of all millennials can’t tell you what interest rates they have on their personal debt, it’s no surprise they don’t understand what happens when a company files for bankruptcy. If Hertz has enough assets to pay down their $24 billion in debt, then maybe those shares might be worth something.

These are the same sort of “investors” who sent Virgin Galactic’s stock soaring into the stratosphere, only to see it come crashing back down to earth. We can only assume Nikola Motor’s stock follows a similar trajectory. They’re also the sort to be attracted to investing in themes like cannabis. Today, we want to talk about three cannabis stocks that seem to be weathering the storm.

3 Billion-Dollar Multi-State Operators

Back in August 2019, we wrote about “The Biggest Cannabis Multi-State Operator Stocks” in which we listed eight names, all with a market cap exceeding $1 billion.

Over the course of that same year, cannabis stocks came crashing back down to earth. Today, only three of those names exceed the billion-dollar threshold:

  • Curaleaf (CURLF) – $3.06 billion
  • Green Thumb (GTBIF) – $2.12 billion
  • Trulieve (TCNNF) – $1.388 billion

Perhaps more sophisticated investors see value and are picking up shares dropped by weaker hands. While cannabis fiascos like MedMen (MMNFF) continue to crash and burn, there will be some great opportunities for companies with dry powder to make acquisitions and expand market share while others shrink. This will require capital, and capital has quickly dried up.

For growing cannabis companies, losses can be expected during expansion, but strong revenue growth is non-negotiable. Cannabis is a high-growth market, and you better be growing your revenues at a rate that coincides with that. Here’s a look at how much revenue growth these three cannabis companies saw last quarter when compared to all of 2019.

2019Last Quarter
Green Thumb216103

Surprisingly, all three companies seem evenly matched when it comes to revenues. Next, let’s look at net income numbers over the same time frames.

2019Last Quarter
Green Thumb-59-4

Let’s talk a bit about each of these three cannabis stocks.

Trulieve Flaunts Profitability

Trulieve’s large net income number for 2019 is a bit misleading because of how the company accounts for “growth of biological assets.” What matters is that the company achieved profitability for every quarter of 2019. That’s extremely rare for a cannabis company. In our last piece on Trulieve Stock and the Cannabis Risk Problem, we noted that they’re the dominant player in Florida (54% market share at the moment) and that e-commerce is becoming increasingly important for the company call center, which receives an average of 2,700 calls per day. Turns out delivering weed to elderly people who are stuck at home because of a pandemic could be the way forward for 2020 as the company projects another strong year for revenue growth:

Credit: Trulieve Investor Deck

Their CFO should be commended for the financial discipline on display here, and profitability alone makes Trulieve stand out among the rest.

Curaleaf’s Focus on Acquisitions

Then there’s Curaleaf with lots of cash being burned as they continue on their self-described legacy of being “one of the most successful acquirers of cannabis assets.” In 2019 alone, they spent $96 million on acquisitions:

Credit: Curaleaf Investor Deck

Gracing the first page of the company’s latest investor deck is the mandatory “we’re doing everything we can to keep you safe during these troubling times” slide. Immediately after that, the first sentence addresses what every investor should be most concerned about – financial stability. The company talks about how they issued debt at the beginning of this year to provide $228 million in cash on their balance sheet along with a commitment by existing investors of another $100 million if needed for “opportunistic acquisitions.” It’s more important that the biggest cannabis company in the United States not become overextended and use this cash as a runway to profitability.

GTI’s High Price of Acquisitions

The last time we looked at Green Thumb Industries (GTI) was in a piece titled The High Price of Cannabis Stock Acquisitions in which we noted that they were spending money like drunken sailors. Of particular concern was the amount of “goodwill” on their books – about $375 million right now – that probably could have been better spent waiting for bargain shopping when their competitors start going under due to the cannabis cash crunch. (Compare that to the $90 million in goodwill Curaleaf has on their books.) The latest glossy investor deck dated June 2020 contains plenty of aspirations about how much opportunity there is, and little in the way of a concrete plan to get there. As investors, we want to see companies that have their pulse on the cannabis market and anticipate concerns that investors might have about a company that likes to spend money when capital is drying up.

Stock Picking vs. ETFs

In our recent piece in The Puzzling Paradox of Marijuana Stocks, we talked about how all the bad apples out there may spoil the bushel when it comes to marijuana ETFs. Now that the music has stopped, companies like MedMen are showing just how badly investors’ money can be mismanaged. When you also consider that the most popular marijuana ETFs probably haven’t vetted their constituents as well as they could have, this may be a case where stock picking is a better option than diversification.

The combined market cap of the three biggest multi-state-operators is about $6.57 billion. That’s about the same size as Canopy Growth Corporation, a single Canadian grower with a present-day market cap of $6.37 billion. If we take the combined market cap of all eight MSOs, we get only $8.6 billion. That’s about the same size as Western Union (WU), that venerable institution that helps so many Southeast Asian mistresses avoid a life of poverty.

Today, the value of the eight largest vertically integrated cannabis companies across America doesn’t even surpass what Canopy Growth was valued at a few years back under peak marijuana hype:

Credit: Bloomberg

It’s pretty clear that the Robinhood types were propping up cannabis stocks, and now we’re approaching something that resembles normalcy. Ironically, the combined market cap of all eight cannabis multi-state operators barely exceeds Robinhood’s current valuation:

  • Market cap of eight largest U.S. cannabis stocks – $8.6 billion
  • Valuation of Robinhood – $8.3 billion


They say you shouldn’t take advice from someone who doesn’t have to live with the consequences, so take this with a grain of salt. Our advice is that unless you’re an experienced investor playing with a small percentage of your total capital, the cannabis theme is best avoided. There is an undercurrent of regulatory risk and uncertainty at both the federal and state level which means any company can fail, no matter how well it’s run.

If we were inclined to throw some chips down on this table, we wouldn’t go for any of the cannabis ETFs because there are too many bad apples to spoil the bunch. We might consider taking an equally weighted position in all three billion-dollar marijuana stocks and hope that none of them pulls a MedMen. In reality, we’ll just take that money and put it into boring old dividend growth stocks that have weathered five recessions while giving us a raise every single year.

If you're going to invest in cannabis stocks, there are only a handful you should hold. Become a Nanalyze Premium subscriber and we'll tell you which ones. Sign up, then send us an email and we'll point you to the appropriate research pieces.

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