5 Best Cannabis Stocks to Buy in July 2021

The legal cannabis industry is still at an early stage of its development, which makes it difficult for investors to identify the most promising candidates in the space as it remains highly fragmented.

Nowadays, most companies are struggling to establish their brands as leaders in what is a growing and promising market that could get even bigger if the United States ends up legalizing weed on a federal level.

To help you in short-listing your potential candidates for an investment, the following is a selection of five names that could deliver the kind of rapid growth that one would expect from companies in a sector with as much uncharted territory as this one.

1. Curaleaf Holdings (CNSX: CURA)

Curaleaf is a Canadian company based in the United States that operates over 100 retail establishments along with more than 20 cultivation sites and 30 processing facilities in America, to produce different cannabis-based products including flower, vaporizers, and edibles while also providing professional services to businesses within the sector to help them thrive.

Curaleaf managed to triple its sales in the last two years, with top-line results moving from $77 million to $221 million in 2019 to then jump to $627 million by the end of last year.

The retail segment accounts for over 70% of the firm’s sales followed by wholesale revenues, allowing the business to maintain solid gross profit margins above 60% in the past three years.

Meanwhile, Curaleaf’s EBITDA has been evolving positively lately, moving from negative 16% to positive 26% during the same period. The company has also managed to trim its losses as a percentage of sales, with negative net margins shrinking from 73% to 10% during the same period.

By the end of the first quarter, long-term debt stood at $506 million on total assets of $2.7 billion including $1.25 billion in intangibles and $315 million in cash and equivalents.

At its current market capitalization of CAD 12.59, CURA stock is trading at roughly 8 times its forecasted sales for 2021. For this year, the firm is expected to double its sales. Based on its track record, CURA has already demonstrated that it can scale up its operations profitably as it has managed to trim its losses at the same time its sales keep moving higher.

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2. Green Thumb Industries (CNSX: GTII)

Green Thumb is a US-based Canadian cannabis retailer that operates over 55 establishments in America, employing over 2,000 people to run its operations.

Similar to Curaleaf, Green Thumb’s sales have displayed an impressive track record of growth, moving from $62.5 million back in 2018 to $556.6 million by the end of last year.

Meanwhile, gross margins for the company have been improving from 45% to 55% and so has its bottom-line profitability. Last year, the company reported its first positive net earnings, delivering $15 million in profits for investors already.

By the end of the first quarter of 2021, the company had $250 million in long-term debt on assets of $1.55 billion including $779 million in intangibles and $275 million in cash and equivalents.

Interestingly, the firm has been reporting positive net cash flows in four of the past five quarters, which is a positive indication that the business fundamentals are improving.

Based on its current market capitalization of CAD 9.42 billion, the firm is being valued at 8.6 times its forecasted sales for 2021. Similar to Curaleaf, even though this multiple is high, the company’s track record of triple-digit revenue growth and its demonstrated capacity to turn a profit are making GTII stock an attractive stock to buy in the cannabis space.

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3. GrowGeneration Corp (GRWG)

Although it can’t be considered a pure-play cannabis stock, GrowGeneration offers indirect exposure to this growing industry as it provides the equipment, tools, and chemicals needed to cultivate marijuana.

The company’s sales have been multiplying at a fast pace, moving from $29 million back in 2018 to $193 million last year. Meanwhile, the firm reported yet another record-breaking quarter during the first three months of 2021, with sales landing at $90 million already while GrowGeneration is aiming to close the year with sales of around $460 million.

Gross margins are solid, yet a bit low, currently standing above 25%, while the firm has already reported positive EBITDA and net earnings, with both margins improving in the past two years from 3% and 1.7% to 5.7% and 2.8% respectively.

Impressively, the company has no long-term debt as it has managed to raise the money it needs through equity offerings. Meanwhile, at a market capitalization of $2.72 billion, GRWG stock is trading at 6 times its forecasted sales for the year while the firm’s earnings per share are expected to land at $0.52 this year, resulting in a forward P/E ratio of 85.

For a business with such a promising outlook, this P/E ratio seems either justified or irrelevant as the firm seems to be more than capable to double its net earnings over the coming years.

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4. Innovative Industrial Properties (IIPR)

IIPR is a real estate investment trust that specializes in acquiring and leasing specialized properties used for growing cannabis and other similar products. The company was founded in 2016 and has since delivered an impressive track record of revenue growth, with top-line results moving from $14.8 million back in 2018 to $116.9 million by the end of last year.

The company has been turning profits for shareholders since then and last year its net income landed at $66 million. Meanwhile, the firm’s adjusted funds from operations (AFFO) – a typical metric used to analyze REITs – landed at $117 million by the end of 2021 which results in $5 in AFFO per share.

Moreover, IIPR delivered a $4.47 dividend to investors last year, resulting in a 58% increase in distributions compared to the year before. At the moment, the stock is offering a 2.7% dividend yield while the price has surged nearly 16% this year on top of last year’s 151% gain.

At the current price of $209 per share, the stock is trading at around 35 times its forecasted AFFO for this year. This ratio is particularly conservative considering the firm’s track record of solid earnings and dividend growth.

IIPR’s specialized and profitable operations make it stand out in this growing industry as an increasingly mature player that should continue to benefit from the market’s ongoing expansion.

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5. ETFMG Alternative Harvest ETF (MJ)

For those who prefer a more diversified approach to the cannabis industry, the ETFMG Alternative Harvest ETF (MJ) offers exposure to a big basket of cannabis stocks. Interestingly, GrowGeneration (GRWG) – a stock we included in this list – is the top holding of MJ, currently accounting for almost 10% of its portfolio.

Meanwhile, the top 10 assets account for 60% of the total assets managed by the fund and they include big names in the industry including Tilray (TLRY), Canopy Growth (WEED), and Aurora Cannabis (ACB).

The fund currently charges an annual 0.75% expense ratio while it has $1.51 billion in assets under management.

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