Pot stocks may have struggled, but the outlook for the sector is strong — boding well for undervalued marijuana stocks.
Curaleaf Holdings (CURLF): The cannabis producer has increased its total store count to 126, up from 117 at the end of 2021.
Green Thumb Industries (GTBIF): This pot company has been reporting positive net income for six quarters in a row.
Trulieve Cannabis (TCNNF): The medical marijuana company has more than doubled its retail holdings, adding 58 new dispensaries during the recent quarter.
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2022 could be a decisive year for the cannabis sector and undervalued marijuana stocks that have been under pressure.
An increasing number of Americans support the legalization of marijuana. At present, about 20 states have fully legalized both medical and recreational use. At the federal level, though, it remains a Schedule I substance and is illegal.
That said, Grand View Research estimates that the global legal marijuana market could expand at a compound annual growth rate (CAGR) of more than 25% between 2022 and 2030. So, against this backdrop, investors are focused on searching for undervalued cannabis stocks to buy before they heat up.
Many cannabis stocks have suffered significant declines in recent months. For example, the AdvisorShares Pure U.S. Cannabis ETF (NYSEARCA:MSOS) — one of the largest and most liquid cannabis ETF — has declined 37% year-to-date (YTD).
However, analysts anticipate a recovery in the cannabis industry due to improving profitability. In addition, expanding revenue growth will help these companies self-finance further growth. That development would be a critical competitive advantage given that cultivators struggle to gain access to loans due to federal regulations.
So, with that information, here are three undervalued marijuana stocks that could gain traction in 2022.
Curaleaf Holdings (CURLF)
Our first marijuana stock is the Canada-based Curaleaf Holdings (OTCMKTS:CURLF). It produces and sells medicinal and recreational cannabis in 23 states within the U.S. The pot group’s strategic acquisitions of cannabis products, manufacturers, and dispensaries include Select, Curaleaf NJ, Arrow, MEOT, Remedy, Blue Kudu, and Grassroots.
Curaleaf released Q4 results on March 3. Revenue increased 39% year-over-year (YOY) to $320 million. Meanwhile, adjusted net loss narrowed to $30 million, compared with $37 million a year ago. The companya also ended the year with $299 million in cash and $436 million in outstanding debt.
In March 2021, the company announced the acquisition of EMMAC Life Sciences Group, Europe’s largest independent cannabis company. The acquisition offers exposure to crucial medical cannabis markets in Europe, more than twice the size of the U.S.
Yet, CURLF stock has lost more than 53% of its value over the past year. Shares are also trading at 3.7 times trailing sales. Meanwhile, the 12-month median price forecast for Curaleaf stands at $14.10 per share.
Green Thumb Industries (GTBIF)
Next up is Green Thumb Industries (OTCMKTS:GTBIF), which produces and sells medical and adult-use cannabis products in 15 states. Its consumer-packaged-goods strategy to offer a wide range of premium house brands has improved profit margins and branding equity.
Green Thumb reported Q4 results on March 1. Revenue increased 37% YOY to $244 million. Net income was 10 cents per diluted share, down from 11 cents in the prior-year quarter. Furthermore, cash and equivalents ended the year at $230 million.
The marijuana company boasts solid fundamentals, delivering positive net income for six quarters in a row. It enjoys increased traffic at its 76 dispensaries and is now focusing its expansion on limited license states with large populations.
Despite positive developments, GTBIF stock has dropped 33% YTD. Shares are trading at 29 times forward earnings and 4 times trailing sales. At present, the 12-month median price forecast for Green Thumb is $37.25 per share.
Trulieve Cannabis (TCNNF)
Our last undervalued marijuana stock is Trulieve Cannabis (OTCMKTS:TCNNF), a vertically integrated and fully licensed medical marijuana company. 113 of its 162 dispensaries are located in Florida. Last October, the company acquired Harvest Health, which offers a significant growth opportunity in Arizona, Pennsylvania and Maryland.
Moreover, Trulieve Cannabis announced Q4 results on March 30. Revenue soared 81% YOY to $305 million. However, operating expenses also surged 169% YOY. Adjusted net earnings, excluding charges related to the Harvest Health deal, declined to 1 cent per share, down from 35 cents in the prior-year quarter. Cash and equivalents ended the period at $234 million.
Management is guiding for $1.3-$1.4 billion in revenue for fiscal 2022, representing roughly 40% YOY growth. Its 60% gross margin stands above those achieved by most names in the industry.
However, TCNNF stock is trading at a 52-week low and has declined 43% YTD. As a result, shares are trading at 23.7 times forward earnings and 2.6 times trailing sales. Finally, the 12-month median price forecast for Trulieve Cannabis stands at $51.49 per share.
On the date of publication, Tezcan Gecgil did not have (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.
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