It’s no secret that new markets, and new industries, provide buyers superior return potential. It’s a operate of an open area, one during which the excessive factors have but to be claimed and each transfer has a larger likelihood of touchdown in an advantageous place. One instance of this phenomenon is the hashish trade, and the vistas it has opened for enterprising inventory buyers.
Cannabis isn’t new – however the authorized regime is. Numerous states have been legalizing the plant and its extracts in previous decade or extra, and whereas the US has not handed nationwide legalization, Canada has, as have a number of nations in Europe. The result’s an increasing trade, as firms have grown as much as take benefits of openings in rising, producing, advertising, and distributing hashish and hashish extracts to the medical and grownup/leisure sectors.
Taking a have a look at the US hashish sector as an entire, Needham’s 5-star analyst Matt McGinley acknowledges the headwinds whereas foreseeing loads of development alternatives.
On the debit facet, the obvious is the fragmented nature of the US hashish market; and not using a nationwide authorized framework, the trade has to broaden state-by-state. And this results in the most important credit score for the trade, development. McGinley factors out that 37 states have a legalized medical trade, overlaying as a lot as 75% of the US inhabitants, whereas 18 states have legalized grownup leisure use. McGinley believes that, within the subsequent 2 years, 50% of the of the US inhabitants will stay in areas with authorized leisure use.
“With growth expected across all state regulated programs, we expect US cannabis industry revenue to nearly double by 2026, which provides for a bright growth outlook for public and private operators in the space… In our view, these stocks are undervalued given prospects for exceptional growth that we foresee continuing for 5+ years’” McGinley defined.
From an investor’s perspective, the prospect to double your cash is normally too good to disregard. We’ve used the TipRanks database to lookup the small print on two of McGinley’s picks, which he sees with higher than 100% upside within the coming 12 months. Each ticker has additionally acquired sufficient assist from different Wall Street analysts to earn a “Strong Buy” consensus ranking.
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Ayr Wellness (AYRWF)
We’ll begin with Ayr Wellness, a hashish firm within the well being & wellness phase. Ayr produces a line of hashish merchandise, together with smokable flowers, vapes, edibles, and drinks, that are bought via a community of dispensaries – 67 presently, with plans to broaden to 95 by the top of this 12 months. The firm has over 557,000 sq. feed of cultivation area in its develop services, producing some 100,000 kilos of hashish biomass.
The firm has been increasing its operations, and plans to extend its biomass manufacturing to close 300,000 kilos this 12 months. Toward that finish, in December, Ayr acquired approval to start out creating a brand new 86,000 sq. foot cultivation facility in Arizona. On the retail finish, Ayr opened its forty third and forty fourth Florida dispensaries in latest weeks, and entered the Pennsylvania market with a dispensary in Bryn Mawr.
Furthermore, through the third quarter, Ayr acquired the hashish beverage firm Levia, and entered a deal to amass the Herbal Remedies dispensary chain; that deal is predicted to shut through the first quarter of this 12 months.
The energetic growth displays robust gross sales development. Ayr noticed the highest line in 3Q21 (the latest reported) develop by 111% year-over-year, to $96.2 million, and the corporate expects to see a ten% sequential achieve in This autumn.
Needham’s McGinley chosen Ayr as a Top Pick for this 12 months, partially as a result of firm’s excessive development potential.
“Compared to MSO peers, we expect Ayr to have the highest revenue and EBITDA growth in ’22, but the stock trades at the lowest EV/EBITDA multiple in the group. We attribute most of the disconnect between high growth and low valuation to assets under development that will become operational and revenue-generative in ’22. While we see risk to revenue and EBITDA estimates related to timing and productivity ramps, we believe the multiple is low enough that it mitigates downside risk, and think will expand as assets become operational. As such, we see Ayr as one of the most compelling cannabis investments among MSOs, and rate this equity as our top pick for ’22,” McGinley wrote.
In line with his optimistic approach, McGinley gives Ayr shares a Buy rating and his $35 price target suggests an impressive 120% potential upside for the coming year. (To watch McGinley’s track record, click here)
Overall, the Strong Buy consensus rating shows that Wall Street is in agreement with the upbeat outlook here; the 5 recent reviews include 4 to Buy and only 1 Hold. Shares are selling for $16.84 and the $38.02 average price target suggests a one-year upside of ~140%. (See Ayr stock forecast on TipRanks)
Curaleaf (CURLF)
The next stock we’re looking at, Curaleaf, is one of the cannabis industry’s largest. Even after a year of share price losses – the stock is down 55% from last February’s peak – it still boasts a market cap of $5.5 billion. The company also has one of the industry’s widest distribution networks, with over 117 dispensaries in 23 states, supplied by 25 cultivation facilities with over 4.4 million square feet of grow capacity.
Like Ayr, and the cannabis industry generally, Curaleaf has been growing rapidly. Just in December, the company announced four new dispensaries in Florida, an important move as Florida is the third-most populous state and a major market for legal medical cannabis. Curaleaf also acquired the Natural Remedy Patient Center in Arizona, a deal that cost $13 million and added a tenth location to the company’s network in that state. That was the prelude to Curaleaf’s acquisition of Arizona’s Bloom Dispensaries, a $211 million deal that added another 6 outlets to Curaleaf’s Arizona footprint. The Bloom deal also included over 63,000 square feet of cultivation and processing space in the Phoenix area.
Curaleaf has seen explosive revenue growth over the past two years, with 8 consecutive quarters of top-line sequential gains. In the last quarter reported, 3Q21, the company hit $318.4 million in total revenue, for a 74% year-over-year increase. Cash flow from operations also grew substantially, to $52 million or 15% of total revenue. On a negative note, the company’s net loss deepened greatly, from 1 cent in Q2 to 8 cents in Q3.
McGinley sees Curaleaf poised to further revenue growth going forward, on the back of its successful acquisition campaign. He says of the company: “With an operational footprint in 23 states, Curaleaf has the most breadth among MSOs and with scale building in states likely to express the most growth, we look for it to grow its topline and EBITDA on a multi-year basis. We expect tuck-in acquisitions like Tryke [a November acquisition move -ed.] and Bloom to be typical of the types of assets Curaleaf will pursue in ’22.”
McGinley reminds buyers that there are appreciable positive aspects in retailer for Curaleaf in 2022. The analyst charges the inventory a Buy, and his $17 value goal implies an upside of ~120% on the one-year time horizon.
All in all, this hashish big has picked up 11 analyst opinions in latest weeks, together with 9 Buys to outweigh 2 Holds for a Strong Buy consensus ranking. Shares in Curaleaf are buying and selling for $7.74 and the $18.68 common value goal implies ~141% upside from that degree. (See Curaleaf inventory forecast on TipRanks)
To discover good concepts for hashish shares buying and selling at engaging valuations, go to TipRanks’ Best Stocks to Buy, a newly launched software that unites all of TipRanks’ fairness insights.
Disclaimer: The opinions expressed on this article are solely these of the featured analysts. The content material is meant for use for informational functions solely. It is essential to do your individual evaluation earlier than making any funding.