Cannabis stocks have been through an extended period of depression. Overcapacity, regulatory headwinds, competition, and cash burn have contributed to the decline in the cannabis industry. However, markets react to extremes and I believe that cannabis stocks are undervalued.
In addition to this, the regulatory environment is getting friendlier. Germany legalized recreational cannabis this year and I expect other European countries to follow suit. It’s also likely that cannabis will be reclassified as a Schedule III drug in the United States.
It’s therefore a good time to buy cannabis stocks for multibagger returns. I must add here that cannabis companies are on a recovery path from a fundamental perspective.
Several companies have achieved EBITDA breakeven and financial flexibility has improved. With ample scope for growth in a big addressable market, I expect revenue growth acceleration for some of the top cannabis companies. Let’s therefore talk about three cannabis stocks to buy and hold for the next few years.
Cronos Group (CRON)
Cronos Group (NASDAQ:CRON) is among the best cannabis stocks to buy for multibagger returns in the long term. In the last 12 months, CRON stock has trended higher by 23%. However, the stock remains massively undervalued considering the fundamentals and growth potential.
It’s worth noting that Cronos ended Q1 2024 with cash and equivalents of $855 million. The company has high flexibility to pursue aggressive organic and acquisition driven growth. Cronos seems to be active on the geographical expansion front in the last 12 to 18 months.
In early 2023, the cannabis company had a presence in Israel and Canada. Currently, Cronos has expanded into Germany, Australia, and the United Kingdom.
The company’s $51 million secured non-revolving credit facility to GrowCo is a part of the global expansion effort. The financing will help in addressing the increased global market demand for high-quality cannabis flower.
With these factors in consideration, revenue growth acceleration is likely coupled with an improvement in the EBITDA margin. CRON stock therefore has significant upside potential.
Tilray Brands (TLRY)
Tilray Brands (NASDAQ:TLRY) stock has remained subdued for an extended period. However, business developments are positive and I expect a strong rally from undervalued levels.
Recently, Tilray reported results for Q4 2024 and revenue increased by 25% on a year-on-year basis to $229.9 million. In my view, growth acceleration is likely in the next few years. My view is underscored by two factors.
First, Tilray has been expanding aggressively in Europe and other emerging markets. The company’s medicinal cannabis business is likely to boost growth. Recently, the company was granted approval for its third medicinal cannabis product in Portugal.
Further, Tilray has raised funds earlier this year. The objective is to pursue organic or acquisition-driven growth in the U.S. once cannabis is reclassified as a Schedule III drug. A potential entry in the U.S. can boost growth. Therefore, with a diversified business, aggressive expansion, and margin improvement, TLRY stock is attractive.
Curaleaf Holdings (CURLF)
Amidst volatility, Curaleaf Holdings (OTCMKTS:CURLF) stock has been sideways in the last 12 months. I see this as a good buying opportunity and I expect CURLF stock to trend higher as industry headwinds wane.
The first point to note is that Curaleaf has a presence in 17 states in the U.S. Even without federal-level legalization, the cannabis market is expected to be worth $71 billion by 2030. With a big addressable market, I expect steady growth for Curaleaf in the coming years.
Further, through organic growth and acquisitions, Curaleaf has been expanding its presence in Europe. The company believes that Europe’s addressable market is $248 billion. With investment in research-backed medicinal cannabis, Curaleaf is positioned to benefit.
I must add here that for Q1 2024, the cannabis company reported operating and free cash flow of $46 million and $33 million respectively. As cash flows increase, Curaleaf will have higher financial flexibility to pursue aggressive expansion.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.