VSannabis is federally illegal in the United States. This makes it difficult for Canadian companies to expand into the market. But that hasn’t stopped domestic players from extending their roots. Even with a limited legal market, U.S. cannabis companies are thriving as state legalization continues to intensify. Among them, based in Illinois Cresco Laboratories (OTC: CRLBF), with a market cap of $ 2.1 billion, is making its way into the list of top competitors in the cannabis business.
Although Canopy growth (NASDAQ: CGC) is a solid company and also a bigger one (with a market cap of $ 5.3 billion), there are other factors to consider before investing. Let’s take a look at which pot stock is the right one to put your money in right now.
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The case of Cresco Labs
With 40 dispensaries in 10 states, this jar stock is getting all the attention. This vertically integrated multi-state operator has steadily increased revenue by targeting key cannabis markets like Pennsylvania, Illinois and Ohio which offer limited licenses. These states cap the number of licenses they issue and the number of stores that can operate in a state. This allowed Cresco to build a loyal following for its popular brands like Mindy’s Edibles, High Supply, etc. which contributed to its $ 101 million just through retail revenue in its second year. quarter ended June 30. Illinois, a rather new recreational market (legalization in January 2020), is experiencing exceptional sales.
The company’s total revenue was $ 210 million, a whopping 123% year-over-year increase. Cresco also reported second quarter net profit of $ 2.7 million, compared to the huge loss of $ 41 million during the period last year. Cresco expects to generate total revenue of $ 1 billion by the end of 2021, with gross profit margins exceeding 50% in the next two quarters.
We’ll know more about Cresco’s plan for this year and beyond when it releases its third quarter results on November 11.
The case of Canopy Growth
Canopy Growth, a reputable name in the cannabis arena, is making investors skeptical due to its lag in profitability. The company is increasing its income, but the growth is not sufficient to generate profits. Net sales for its first quarter (ended June 30) were C $ 136 million, a 23% year-over-year increase. The company has experienced strong growth in the Canadian recreational and medical markets. Canopy’s wide array of cannabis derivatives (additional recreational products that Canada legalized in October 2019) has been a hit with consumers, driving recreational sales.
Financially, Canopy is in a secure position for now mainly because Constellation brands the support. The U.S. beverage giant partnered with the company in 2018 and owns a 39% stake in Canopy after exercising its warrants. He ended the second quarter with $ 2.1 billion in cash and short-term investments.
But unless Canopy starts making a profit, that backup might not be able to keep it any longer. The company’s international cannabis revenue fell 8% year-on-year to C $ 19 million in the first quarter due to coronavirus lockdowns in many countries. The US market is still a long shot for the company. Meanwhile, Canopy can use its global presence (Europe, Africa and South America) and its strength in Canadian markets to increase revenue and generate profits. Management affirmed in the first quarter results that the company is on track to accelerate revenue growth and achieve positive earnings before interest, taxes, depreciation and amortization (EBITDA) by the end of fiscal 2022. It succeeded in reducing its loss of EBITDA to C $ 64 million, compared to $ 92 million in Q1 2021.
Which pot to choose?
Between these two, Cresco Labs is the more secure option. Canopy offers many opportunities in the US market due to Constellation’s presence in the market, but when federal legalization takes place, domestic companies will be the first to benefit. In addition, Cresco Labs is already profitable, while Canopy is still struggling to achieve positive EBITDA. Cresco Labs is a safe option for investors who want to grow their money. Growth is not impossible for Canopy, but it could take some time. Considering all the positives of Cresco Labs, this is the best cannabis stock to buy right now for the long haul.
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Sushree Mohanty has no position in the stocks mentioned. The Motley Fool owns stock and recommends Constellation Brands and Cresco Labs Inc. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.