Politicians regale their voting base during election years with new promises and policy shifts. This time, the Biden admin announced intent to loosen up marijuana rules on a federal level. Specifically, to reclassify marijuana as a Schedule III substance, following half a century of it being classified as Schedule I (ecstasy, heroin, LSD) substance.
This would place the recreational plant among less controversial drugs, such as anabolic steroids, phendimetrazine for appetite suppression, or codeine for pain relief. According to sources familiar to NBC News, the DEA is expected to approve the opinion delivered by the Department of Health and Human Services (HHS), the agency responsible for the reclassification.
Predictably, the announcement sparked a resurgence in weed stocks. Laboring between regulatory walls and black market competition, marijuana companies have had trouble erecting sustainable profitability. But accounting for the recent investment spike, AdvisorShares Pure US Cannabis ETF (MSOS), tracking 25 marijuana stocks, is now up 47% year-to-date.
The question is, which cannabis stocks have established themselves in the current regulatory regime, making them well-suited to prosper in a more lax environment?
Cronos Group, Inc.
Based in Toronto, Canada, Cronos Group Inc (NASDAQ:CRON) has been busy building its cannabis-powered portfolio of brands. These are divided into three categories – mainstream (Spinach), medicinal (PeaceNaturals), and premium (Lord Jones). In addition to Canada, Cronos sources its products from Israel, Australia, and Germany.
Cronos Group concluded fiscal year 2023 with a net loss of $70.4 million, a 55% improvement from the net loss of $155.17 million in 2022. Moreover, the company reported $862 million in cash and cash equivalents while having zero debt. Cronos is also the beneficiary of the heavy weight Altria (NYSE:MO), having invested $1.8 billion in Cronos in 2019.
The group is scheduled to report its Q1 2024 earnings on May 9th. At the present price level of $2.94, the CRON penny stock is 44% above its 52-week low point of $1.64 per share. Per Nasdaq’s aggregated forecast data twelve months ahead, the average CRON price target is $2.42 per share.
Of course, this doesn’t account for the new investor resurgence and the inherent penny stock volatility. The next earnings report will likely set the tone for CRON investor sentiment for the rest of the year.
Canopy Growth
Having established a global marijuana presence across popular brands Tweed, Tokyo Smoke, Spectrum Therapeutics, and Houseplant, Canopy Growth Corp (NASDAQ:CGC) (TSX:WEED) is the most performant cannabis stock. Year-to-date, CGC has gained 114% value, exiting the penny stock territory at $10.80 per share.
In February, the Canadian company reported a 7% year-over-year revenue decline for Q3 FY24. From a massive net loss of CAD$2.6 billion in 2022, Canopy Growth made the most significant 78% improvement to CAD$583.4 million net loss in 2023. The company’s cash and equivalents depleted from CAD$598.1 million to CAD$142.7 million during the period.
On the upside, Canopy Growth halved its total liabilities from CAD$1.6 billion to CAD$815 million. The CGC stock had its 52-week low of $2.75 per share. Per Nasdaq, the average CGC price target is $3.45, making it highly overbought.
Nonetheless, the investor interest in growth stocks indicates that CGC shares will be the primary beneficiaries of further inflows following inevitable price corrections.
Curaleaf Holdings
Standing out from the Canadian cannabis crowd, Curaleaf Holdings Inc (OTC:CURLF) is an American company based in New York. The firm holds a presence in 17 states across 145 local dispensaries. Recently, on April 22nd, Curaleaf acquired Northern Green Canada (NGC), known for its penetration of the EU market via EU-GMP certification. NGC had a foothold in Australia and New Zealand, paving the road for Curaleaf’s international cannabis presence.
Curaleaf is also scheduled to report Q1 2024 earnings on May 9th. Following the conclusion of fiscal year 2023, Curaleaf claims to have one of the strongest balance sheets in the sector, with a 1.9x debt load to adjusted EBITDA ratio, which was reported at $83 million in Q4.
Curaleaf International tracked 63% year-over-year revenue growth of $18 million and expects further gains in Czechia, the UK, Germany (via the recently passed Cannabis Act “CanG”), Poland, and Switzerland. Europe’s total addressable market for Curaleaf and other cannabis companies is $248 billion.
Curaleaf concluded 2023 with $588 total debt and $92 million in cash. The company ended 2023 with a $290.3 million net loss vs a $376.9 million net loss in 2022, an improvement of 23%. CURLF stock is up 44.5% year-to-date, leaving behind its yearly low of $2.47 per share. Per Nasdaq, the average CURLF price target is $7.06 vs the present $5.96 per share.