Sometimes, popular sentiment fuels a market boom, and nowhere is that more evident than in the legal marijuana industry. However, cannabis remains illegal in the US at the Federal level, rendering the various state-level legalization regimes a patchwork of disconnected policies. Still, there is hope that the current Congress may pursue a Federal legalization bill – but before that happens, investors are watching to see which state or states will enact full legalization next. And high on that list is New York.
BTIG analyst Camilo Lyon has been following the marijuana legalization movement in New York, and sees positive developments down the road.
“Currently, we are modeling adult use sales in NY to begin in 4Q22, however, given the pace and focus cannabis reform is being given by the state legislature, we could see our timeline for legal adult use sales advance to 1Q22. We estimate this would increase our NY market revenue assumption to $749M from $187M, an increase of $562M. More importantly, we estimate 2023 sales would grow to $3.8B in recreational sales, that is $2.8B greater than what our current timeline would suggest,” Lyon opined.
To this end, Lyon has picked out two cannabis stocks that have already built a presence in New York State, and could surge over 60% in the year ahead. After running both tickers through TipRanks’ database, we found out that the rest of the Street is also on board, as each sports a “Strong Buy” consensus rating.
We’ll start by going big, and looking at Curaleaf. This company’s $10.9 billion market cap and $670 million annual revenues make it the world’s largest cannabis company. Curaleaf has a wide reach, with headquarters in Massachusetts and operations in 23 states. These operations include 23 cultivation facilities, 30 processing facilities, 101 dispensaries, and over 1,800 wholesale dispensary accounts.
Even though the US cannabis market is fragmented, Curaleaf showed steadily rising revenues and year-over-year gains in each quarter of 2020. Starting with $104 million in Q1, the company reached $240.4 million in top-line revenues by Q4, a 201% year-over-year (yoy) gain. This was driven by a 242% yoy gain in quarterly retail revenue, which reached $164.9 million, and a whopping 578% yoy gain in wholesale revenue, which came in at $64.4 million.
New York State makes up a small part of Curaleaf’s total business. Per the state’s current regulation, Curaleaf has the maximum of 1 cultivation/processing facility in New York, along with 4 dispensary licenses, all operating for the medical cannabis market. Still, this gives Curaleaf an established footprint from which to expand should the state legalize for recreational use.
In his coverage of this stock, BTIG’s Lyon writes, “We believe CURA’s diverse geographic footprint will be the key growth driver supporting annual sales growth of 87% for the next two years…. Importantly, we estimate CURA turned free cash flow positive last year and will continue to generate sufficient FCF over the next two years to fund investments in its broad 23 state footprint.”
To this end, Lyon rates Curaleaf a Buy rating, and his price target, at C$35 (US$28) suggests an upside of 75% for the coming year. (To watch Lyon’s track record, click here)
Wall Street seems to agree with Lyon’s bullish call on this stock, as shown by the unanimous Strong Buy consensus rating based on 9 Buy reviews. The stock is selling for US$15.99 and its US$22.26 average price target suggests it has room for 39% growth by year’s end. (See Curaleaf stock analysis on TipRanks)
Green Thumb (GTBIF)
Next up is Green Thumb, a Chicago-based medical and consumer marijuana company with a network of facilities across 12 US states. These facilities include 13 manufacturing operations and 97 retail locations. The company’s retail products include edibles, vapes, and pre-rolled cannabis cigarettes, as well as CBD wellness items for the home health market.
Like Curaleaf above, Green Thumb has a footprint in New York, within that state’s regulatory limits. The activities include three dispensary licenses, but no cultivation facility. The company, however, has already experienced transitioning a medical-use-only operation to a recreational model in the state of Illinois, and so has an organizational template should New York make a similar legal change.
Green Thumb has released Q4 numbers on Wednesday, delivering better than expected topline growth. Specifically, revenue grew 13% QoQ to $177.2 million, beating consensus estimate of $166.7 million. EBITDA was also better than expected, growing 23% to $65.4 million, compared to the Street’s estimates of $58.3 million.
Camilo Lyon covers Green Thumb, and writes of the company and its New York prospects: “Local news reported in January that [Green Thumb] may be planning to build a distribution facility in Warwick, NY (~50 miles north of Manhattan). According to reports, the distribution facility would include three buildings, two at 100,000 square feet and one at 200,000 square feet at the Warwick Technology Park. This news is particularly important as we believe NY could legalize adult-use as early as this year, and [Green Thumb] investing in new distribution capacity ahead of legalization should give it an edge to meet what should be overwhelming demand by recreational customers.”
To this end, the analyst puts a Buy rating on this stock, and his C$73 (US$58 price target suggests a 69% one-year upside potential. (To watch Lyon’s track record, click here)
All in all, Green Thumb has 8 Buy reviews, adding up to unanimous Strong Buy consensus rating. The stock is selling for $34.49, and its $47 average price target implies a 36% 12-month upside from that level. (See Green Thumb stock analysis on TipRanks)
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