3 Under-The-Radar Cannabis Stocks To Buy Right Now
Jushi Holdings (JUSHF -2.61%), New Lake Capital Partners (NLCP 1.37%)and Ascend Wellness Holdings (AAWH -1.48%) are some of the lesser-known names in cannabis, especially as two of the three turned a profit in the first six months of this year and the third is nearing profitability. There is a lot of growth ahead for cannabis companies. Global legal marijuana sales, estimated at $22 billion in 2022, are expected to grow at a compound annual growth rate of 28% over the next six years, becoming a $97 billion business by 2026, according to a report of Facts and Factors. However, investors should be patient and keep a long-term view, as cannabis stocks have been depressed so far this year.
I like these three cannabis companies. Although they don’t sell their shares on a major exchange, their lack of notoriety means their valuations are far from oversold, if you compare their respective price-to-sales ratios to those of industry leaders. This provides more upside opportunities for long-term investors.
Jushi Holdings attractive as a takeover target or as a standalone business
Jushi Holdings has seen its shares fall more than 51% this year, but not as much as industry benchmarks such as the AdvisorShares Pure Cannabis ETFwhich is down more than 63%, or the ETFMG Alternative Harvest ETF, which is down more than 53%. Still, this is hardly comforting for Jushi investors.
Jushi is a relatively small multi-state operator (MSO), but is growing aggressively. It has 35 stores but plans to have 50 by the end of 2023. It is also conveniently located in three key medical marijuana states that are expected to open for adult sales in the near future: Pennsylvania, Virginia and Ohio. It has 18 dispensaries in Pennsylvania; four in Virginia, with two more planned; and one in Ohio, with four more planned.
In the last six months, the company recorded revenue of $134.6 million, up 50.5% from the previous year. In the second quarter, it reported revenue of $72.7 million, up 52.8% year-over-year and 17.6% sequentially. It posted net income of $12.1 million in the quarter, up from net income of $3.6 million in the same period last year, albeit due to the sale of shares, it recorded an earnings per share (EPS) loss of $0.15, compared to an EPS loss of $0.09 in the second quarter of 2021.
Jushi’s biggest concern is that he only has $43 million in cash in the second quarter, although with only $200 million in total debt, he could easily raise more cash for his operations. The company also released guidance that put its expected annual revenue at $320 million to $350 million, up from $209 million in 2021. The company’s strong positions in potentially adult-use states and relatively low debt make it also an attractive takeover candidate for another MSO.
NewLake Capital Partners thrives in a long shadow
NewLake Capital Partners has seen its shares fall more than 45% so far this year. This is a real estate investment trust (REIT) that owns cannabis businesses, which is a very specialized area. With 31 properties comprising 1.7 million square feet in 12 states, it is eclipsed by the largest cannabis REIT, Innovative industrial properties, which has 111 properties representing 8.7 million square feet in 19 states. As such, NewLake is easily overlooked, which would be a mistake for investors. The company minimizes risk with triple net leases that put most of the expense on tenants.
NewLake just increased its dividend for the sixth consecutive quarter, this time by 5.7% to $1.48 per share quarterly, giving it a yield of around 9.55%.
The decline in share price stands in stark contrast to the company’s financials, making it an excellent long-term opportunity for investors. In the second quarter, the company reported revenue of $10.5 million, up 59% year-over-year. More significantly for a REIT, adjusted funds from operations (AFFO) totaled $8.7 million, up 7% from the same period in 2021. The company’s net income was reported at 3 $.8 million, compared to $5 million year-over-year. Both the AFFOs and the company’s net income were hit by one-time severance charges.
Over the past six months, NewLake’s position looks even stronger with revenue of $20.5 million, up 86% year over year; net income of $8.8, up 109% from the same period in 2021; and AFFO of $16.8 million, up 102% year-over-year. For six months, the Company’s properties were fully leased, with no defaults or rent deferrals, and the average remaining lease term was 14.5 years.
Ascend Wellness is at a crossroads
Ascend Wellness is a small MSO with 22 dispensaries in six key cannabis states; Illinois, Michigan, Ohio, Massachusetts, New Jersey and Pennsylvania. Shares of the company have fallen more than 69% so far this year.
The company just opened its first Pennsylvania dispensary in Scranton, but it has plans for five more in the state. It is also in the process of adding adult sales to its three medical marijuana dispensaries in New Jersey.
In the second quarter, Ascend reported revenue of $97.5 million, up 15% sequentially and 17% year-over-year. The company also narrowed its net income loss to $21.2 million, from a loss of $27.8 million in the same quarter of 2021. Six-month period, the company said it had revenue of $183 million, up 22% year over year, and it cut its net losses 47.3% to $48.9 million.
Like Jushi, as a smaller MSO, Ascend could be a buyout possibility, or it could go the other way by becoming active in acquisitions. It has canceled its proposed $88 million acquisition of MedMen in August, but that had more to do with concerns about MedMen’s assets than Ascend’s desire to grow through acquisitions. The company may also try to expand with smaller acquisitions, as it did in August when it began the process of buying three licensed dispensaries that were being built in Cincinnati, Piqua and Sandusky, Ohio, by Ohio. Patient Access, giving Ascend five dispensaries in the state.