There’s no doubt, the past year has been a massive disappointment for investors of cannabis stocks. Following Joe Biden’s presidential win and the Dems wrestling control of both houses of Congress, hopes were high that Federal legalization was just around the corner.
That, however, hasn’t materialized so far despite overwhelming public support. Side by side with the lack of progress on comprehensive cannabis reform, cannabis stocks’ appeal has waned, and investors have turned away from the sector.
Most Cannabis names – both the Canadian LPs (licensed producers) and U.S. MSOs (multistate operators) – have shed huge chunks off their valuation since peaking early in 2021 and riding on the post-election euphoria.
But cannabis isn’t going anywhere; the industry is anticipated to keep on growing and Federal reform – while pushed back for now – will come eventually. In the meantime, investors can pick up some names at what appear to be very enticing prices.
With this in mind, let’s take a look at two leading cannabis stocks and see which one is a better proposition for investors right now.
Tilray (TLRY)
We’ll start off north of the border, with Tilray, a Canadian LP (licensed producer). This company is a result of a May 2021 merger of two Canadian heavyweights – Tilray and Aphria – which created an industry giant. The company might be Canada-based but boasts a global footprint, with operations also in Europe, Latin America, and the U.S. With the aim of being a CPG (consumer packaged goods) powerhouse, Tilray’s verticals also include alcohol, hemp and a growing beverage and wellness segment.
That said, the company’s latest quarterly results for fiscal 3Q22 reflected the stiff competition in the Canadian marketplace.
On account of continued Canadian market share loss, total cannabis revenues declined by 6% sequentially to show net revenue of $55 million.
Countering the soft trends of the Canadian industry, international market sales reached $15.8 million, amounting to a 15% sequential uptick with the company’s performance in Germany particularly strong; Tilray now boasts a 20% share of that market.
With the prospect of eventual U.S. federal legalization, Tilray has also been busy expanding its footprint south of the border, a factor noted by Roth Capital analyst Scott Fortune.
“On the U.S. CPG side, we are encouraged by growth within the beverage and wellness (Manitoba Harvest) segments, and expect outsized beverage growth to come from the synergies brought in by Sweetwater/Breckenridge distillery on top of westward expansion,” the analyst said.
However, although Fortune thinks a new pricing game plan along with “ongoing flower yield/THC improvements on the cultivation side” should go some way toward boosting Canadian market share growth, the analyst believes there’s still a lot of uncertainty around the international and U.S. opportunity.
“While we believe TLRY continues to position itself as a leading global cannabis brand, we remain cautious on the timing of European/U.S. legalization, which in turn inhibits material upside growth,” Fortune explained.
Accordingly, the analyst rates TLRY a Neutral (i.e., Hold), although the $8 price target still makes room for one-year upside of 55%. (To watch Fortune’s track record, click here)
Most on the Street agree with Fortune’s stance; based on 6 Holds, 2 Buys and 1 Sell, the analyst consensus rates this stock a Hold. However, just like Fortune’s take, most see plenty of upside; going by the $8.57 average target, shares are anticipated to climb 66% higher over the one-year timeframe. (See Tilray stock forecast on TipRanks)
Curaleaf (CURLF)
Let’s turn our attention now to Curaleaf, the U.S.’s largest cannabis company by market cap. The leading MSO has a presence in 23 states, boasts 128 dispensaries, 26 cultivation sites and more than 30 processing sites. That this is a big operation is evident by its 5,600+ workforce. The company also has an international presence with a supply and distribution network in Europe.
Curaleaf might be eying global expansion, but the latest positive development was entirely U.S.-based.
Adult-use cannabis sales began last week in New Jersey and Curaleaf is well-positioned to benefit. On April 21, rec sales kicked off in two (Bellmawr, Edgewater Park) of its three NJ stores – all are located close to the PA border – and the 3rd store should gain rec approval in the coming months.
Going by the company’s estimations, on a run rate basis and accounting for wholesale, NJ alone should boost revenues by $250 million.
That should go toward enhancing a top-line which has been steadily rising for the past few years until a recent slowdown. In 4Q21, revenue increased sequentially by 1% to reach $320 million. Still, that amounted to 39% year-over-year growth, which resulted in record revenue of $1.2 billion in 2021. Additionally, the net loss in the quarter contracted by 26% from the same period a year ago to $27.5 million.
For Cantor analyst Pablo Zuanic, Curaleaf’s value proposition is just too good to ignore, with the company among his “top picks” in the MSO group.
“We believe on scale (~130 stores, 4.4mn sq ft of capacity), rec optionality in key eastern states, breadth (23 states) and depth (claims to be #1-2 in most markets), and European exposure, the stock deserves even a heftier premium than the current >40% on EBITDA,” the analyst explained. “Regardless of the timing and shape of federal-level reform, we believe Curaleaf should be a long-term core holding for those seeking US cannabis sector exposure.”
Zuanic, therefore, has an Overweight (i.e., Buy) rating for CURLF along with a $16.5 price target. Should the target be met, investors are looking at returns of ~163% in the year ahead. (To watch Zuanic’s track record, click here)
All of Zuanic’s colleagues agree with his prognosis; the stock claims a Strong Buy consensus rating based on a unanimous 9 Buys. Moreover, the $14.69 average price target makes room for share growth of 134% in the year ahead. (See CURLF stock forecast on TipRanks)
Verdict
So, down to the nitty-gritty, which company is the better buy here? By the analyst ratings, it is clear Wall Street favors Curaleaf. This is given further credence by the respective Smart Scores, which also show the U.S. MSO to be a better pick.
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
