Hidden Gems: 3 Cannabis Stocks Flying Under the Radar
Cannabis stocks have navigated an extended period of uncertainty and financial depression thanks to regulatory headwinds. Further, most cannabis companies have witnessed an extended period of cash burn. There is, however, some optimism and I believe that these overlooked cannabis stocks to buy should be considered.
The good news is that even without federal level legalization, the cannabis market in the U.S. is likely to be worth $71 billion by 2030. If we consider the European markets, the total addressable market will be well over $100 billion. This provides ample headroom for growth for some of the top cannabis companies.
Another reason to be optimistic is that cannabis companies have settled down to reality. Instead of aggressive expansion, companies are focused on cost cutting and building a strong foundation. This includes investment R&D for medicinal cannabis.
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Overall, I believe that these overlooked cannabis stocks to buy can be value creators in the next few years.
Curaleaf Holdings (CURLF)
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Curaleaf Holdings (OTCMKTS:CURLF) stock has surged by 50% in the last month. However, CURLF stock remains undervalued and is worth accumulating at current levels.
Curaleaf reported strong Q2 2023 results. While revenue growth was muted, gross margin and EBITDA margin were solid at 44% and 20.7%, respectively. The company has guided for continued improvement in EBITDA margin in the next few years. This would translate into higher free cash flows and provide the company flexibility to invest in research and development.
Talking about R&D, the company launched 171 new products in 2022. A recent R&D collaboration had Curaleaf working with the Institute of Cancer Research in London and Boiron, a major European pharmaceutical company. These efforts will translate into growth and expansion in the European medicinal cannabis market.
Curaleaf ended Q2 2023 with cash and equivalents of $85 million. A strong cash position coupled with FCF growth visibility provides flexibility for investments.
SNDL (SNDL)
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SNDL (NASDAQ:SNDL) stock is another option in overlooked cannabis stocks to buy. Year-to-date, the stock has remained largely sideways and I expect an upside breakout after some consolidation.
SNDL is a diversified cannabis company with segments that include liquor retail and cannabis retail, operations and investments. The company is Canada’s largest private sector liquor retailer and has the largest cannabis retail footprint.
Further, SNDL has a diversified portfolio of cannabis brands in the consumer segment. The company has also built an investment portfolio that is currently valued at $569 million. This can be a potential value creator on legalization and as cannabis industry growth accelerates.
Of course, the downside is that SNDL is focused on Canada. The addressable market is limited with intense competition. However, with a diversified portfolio and market leadership position, the company seems positioned for growth.
Cronos (CRON)
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Cronos (NASDAQ:CRON) stock has trended higher from lows of $1.6. However, the stock remains massively undervalued. In the next 12 to 18 months, I would expect at least 100% returns from CRON stock.
A big advantage for Cronos is a cash buffer of $841 million. This can be utilized for organic and potential acquisition driven growth. The key catalyst for aggressive investments being lower regulatory headwinds. It’s also worth noting that Cronon has focused on cost control. It’s likely that the company will deliver positive operating cash flows in 2024, which will increase its financial flexibility.
In recent news, Cronos launched its medicinal cannabis brand, Peace Naturals, in Germany, which has a significant addressable market. In August, a bill was introduced in Germany for permanent legalization of adult-use of cannabis. With presence in medicinal and recreational cannabis business, the growth outlook is positive.
On the date of publication, Faisal Humayun did not hold (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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