They might be locked out of the NYSE and Nasdaq (for now), but these U.S. MSOs can deliver you the biggest profits…
Many of you know my view that the top United States multistate operators (MSOs) offer the best profit opportunities in cannabis right now.
After all, these players – Curaleaf Holdings Inc. (OTC: CURLF), Trulieve Cannabis Corp. (OTC: TCNNF), and Jushi Holdings Inc. (OTC: JUSHF), to name a few – keep blowing the roof off sales quarter after quarter, routinely posting eye-popping annualized top-line revenue increases anywhere between 46% to over 80%.
And as states with massive potential cannabis markets keep opening the door to recreational sales, we can expect the legal cannabis market to continue this warp speed pace for years to come.
Simply put, no other sector consistently provides this magnitude of revenue growth. And with the leaps in profitability these market leaders deliver, more and more of those sales are finding their way to bottom-line profits.
Over the last year, these two factors – hyper-sales growth and profits – were enough to send Trulieve’s stock price up 181%, Curaleaf’s up 161%, and Jushi’s up a vertigo-inducing 458%.
But even with gains like that, and the tremendous increase in cannabis sales we can expect over the next five years, these – and other cannabis stocks just like them – remain undervalued.
There’s a reason their stock prices aren’t reflecting this incredible growth.
And it’s because companies that sell cannabis in the U.S. still can’t list their stocks on the New York Stock Exchange (NYSE) and Nasdaq.
They are locked out of the largest, most liquid markets in the world, which means the Big Money buyers have to wait it out on the sidelines.
But once that last barrier falls, and U.S. cannabis companies inevitably make the jump to a major exchange, those gains over the last year will look like chump change compared to what’s in store.
They Might Be Listed on the Big Board Now, But at a Steep Cost to Shareholders
I’ll start by giving you a look into one of our cannabis neighbors to the north – Hexo Corp. (NYSE: HEXO).
Like many other big Canadian licensed producers (LPs), Hexo decided to limit its sales to Canada so it could list on a major exchange. Recreational sales are legal there at the national level, so both the NYSE and Nasdaq allow shares of the Canadian LPs to list on their exchanges.
But cannabis market growth is massively limited in Canada compared to the U.S.
Heck, California‘s market alone is as big as the Canadian market. With massive markets like New York, New Jersey, Pennsylvania, and, ultimately Florida going recreational, the current U.S. market for legal weed is still but a fraction of what it will be in two to three years.
And given these Canadian companies’ insistence on maintaining their NYSE and Nasdaq listings, they are effectively locked out of the one market that provides all the growth – U.S. legal cannabis.
Not to mention the fact that every one of those Canadian players massively over-invested in growing capacity. They built in anticipation of a market that will never come.
Maintaining all that infrastructure is expensive. So, profitability is burdened by too much capital investment. And the one thing that reliably drives a stock price higher is a company that provides high returns on capital.
To justify its current stock price of around $7, Hexo must increase revenue by 1,459% over the next 5 years to even dream of delivering the return on capital that investors expect. That’s a 4X leap every single year.
But even with these poor prospects, the stock still trades at a much higher valuation than most U.S. MSOs – all because HEXO stock trades on NYSE.
When it comes to getting in on cannabis, the Big Money players are buying what they can, regardless of the price.
And to get a sense of just how much that desperate buying pressure can prop up a stock price, let’s compare Hexo to the most profitable MSO on the planet.
Why Canadian LPs Can’t Compete With the Profit Potential of MSOs
From day one, Trulieve has been delivering profits to its shareholders.
Kim Rivers, Trulieve’s CEO, has consistently increased those profits quarter after quarter, year after year. For the 12 months ending March 31, 2021, she managed to deliver $118 million in economic profits to shareholders. Or, in other words, she created $118 million in value for shareholders over that time frame.
That’s nearly 3X the profits of the next most profitable MSO and light-years ahead of what any Canadian LP can ever hope to produce.
Meanwhile, by the same measure, Hexo destroyed $72 million for its shareholders.
But that doesn’t keep investors desperate to own cannabis in any way they can get from paying a premium for Hexo.
Let me show you just how much that Big Board premium is worth.
Source: National Institute for Cannabis Investors
At $7 a share, anyone buying Hexo’s stock today is paying upfront for 203% growth in profits, while Trulieve shareholders need a mere 39% to justify the $38 price tag.
Now, were Trulieve trading on the NYSE and fetching the same premium, you’d have a $196 stock – or 5X its current $38 price.
That gives Trulieve shareholders a tremendous amount of room to run without paying for growth in advance. And were we to run the same analysis on several other top MSOs, we’d get similar results.
It’s incredible bargains like this that have me pounding the table on U.S. MSOs. They represent a tremendous opportunity for you to profit, but that window of opportunity will quickly slam shut once the NYSE and Nasdaq get the all-clear to list U.S. MSOs like Trulieve.
And that could happen at any time. Congress is hard at work breaking down barriers to cannabis – one of which will inevitably clear the path for MSOs trading on the Big Board.
Over the next week or two, I’ll show you exactly why Big Money needs the NYSE and Nasdaq, so keep an eye on your inbox.
Until then, you can find even more table-pounding MSOs whose stock prices will surge once they up-list to a major exchange in the NICI Membership model portfolio of profit plays.
To access those stock recommendations, simply go here now to find out how you can become a NICI Membership subscriber today.
Executive Director, National Institute for Cannabis Investors
June 11 2021