With the difficult conditions of the cannabis market showing some signs of easing in the U.S. and Canada, the odds of a summertime rally of cannabis stocks are higher than ever. What's more, the industry is now on the verge of experiencing a few regulatory catalysts in several different regions, paving the way for growing markets and larger top lines, too.
So, without further ado, let's dive in and examine three of the top cannabis stocks that have a good shot at climbing during the next few warm months.
1. SNDL
SNDL (NASDAQ: SNDL) stock is already soaring, and with long-awaited profitability inching nearer and nearer with every quarter, it might not have any problem continuing to climb throughout the fall as well.
During the past three years, its trailing-12-month (TTM) gross profit climbed by 351%, arriving at $154.3 million. To accomplish that, it reduced costs while opening new stores, two processes that are set to continue. In particular, this year, it is making inroads in British Columbia with its Spiritleaf brand stores and also via its recent acquisition of Dutch Love, which will enable it to open Value Buds brand stores in the region throughout this year.
Beyond the immediate gains that expanding its retail footprint is likely to provide, its SunStream Bancorp cannabis investment bank is now officially cruising for opportunities to invest in U.S. marijuana businesses.
Florida is an area of special interest thanks to its large market and shifting regulations. While the income offered by lending to businesses there probably won't be enormous right away, it will have the benefit of requiring no actual operational expenditures to generate, which will help shore up the bottom line, perhaps significantly.
2. Green Thumb Industries
Green Thumb Industries (OTC: GTBIF) is planning to expand its retail footprint from the 93 stores it currently has spread across 14 states in the U.S., and that will sustain its top-line growth, driving its shares upward in the process.
During the past 12 months, its quarterly revenue rose by 9.2%, reaching $275.8 million in Q1. While that may not seem like much growth, it's important to recognize that it was profitable the whole time, with its quarterly net income topping $31 million in the same period after rising by 132%.
The rescheduling of cannabis in the U.S., shifting it out of the most restricted drug category, could also provide a tailwind for Green Thumb. Though its recreational cannabis sales are by definition restricted to states in which adult-use marijuana is legal, the rescheduling process could catalyze favorable legal changes.
Even if it doesn't, the company should benefit from pending adult-use permission in markets like Ohio, Virginia, and Minnesota, where it is already currently operating.
3. Cronos Group
Cronos Group (NASDAQ: CRON) just entered a few new medicinal marijuana markets, and the fruits of its labor will start to roll in throughout the rest of the summer. Between its fresh operation in Australia and its recent initiation of business in the U.K., not to mention its work in Germany, investors will likely see its top line burgeoning as the company settles into its new digs.
Though Cronos isn't profitable, it has made significant progress toward changing that during the past few quarters, and more progress is likely to be on the way. Just take a look at this chart:
CRON Revenue (Quarterly) data by YCharts
As it continues to drive down its quarterly operating expenses as a percentage of revenue while adding to its revenue and gross profit, the market will likely bid up its shares. That's especially true considering that its shares are priced for the bargain bin right now, with a price-to-book (P/B) multiple of just 0.8.
At that price, the market is valuing Cronos' shares lower than the book value of its assets, with the implicit assumption being that those assets will not be operated in a way that adds any value to the business. Such a bleak view is unlikely to be right in the long term, so the stock is likely to go up once the mistake is corrected.
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Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Green Thumb Industries. The Motley Fool recommends Cronos Group and SNDL. The Motley Fool has a disclosure policy.
