3 Marijuana Stocks to Consider Buying as Legalization Talks Heat Up

Last week, the House Judiciary Committee approved a bill that would decriminalize and deschedule marijuana. This is a major step in the right direction for those who support federal legalization.

In addition, the SAFE Banking Act was once again passed by the U.S. House of Representatives in September. This bill aims to allow cannabis companies to have access to the banking system.  Proponents of this bill hope it will now advance to the Senate.

Given these recent developments, cannabis investors’ optimism is growing.  Today I’ll look at three marijuana stocks that should significantly benefit as the path to legalization becomes clearer: Trulieve Cannabis Corp. (TCNNF), Curaleaf Holdings, Inc. (CURLF), and Zynerba Pharmaceuticals, Inc. (ZYNE). 

Trulieve Cannabis Corp.

Headquartered in Florida, Trulieve Cannabis Corp. is a vertically integrated cannabis company that cultivates, produces, and sells its medical-use cannabis in the United States. 

Recent developments

After hitting an all-time high of $53.73 in March of this year, shares of Trulieve have significantly fallen to the current price of $29.59.

On October 1st, Trulieve Cannabis Corp. announced the completion of its all-stock acquisition of Harvest Health & Recreation Inc., allowing it to become the largest U.S. cannabis operator. The company previously issued 8% senior secured notes for aggregate gross proceeds of $350 million to pay off debt held by Harvest Health & Recreation Inc.

Recent Quarterly Performance

In the quarter ended June 30th, 2021, Trulieve’s total revenue had risen 78% year-over-year to $215.1 million, beating Wall Street estimates by $5.19 million. The company’s net income came in at $40.88 million, up about 116% from its year-ago value of $18.94 million.

The company’s Adjusted EBITDA increased to $94.9 million, representing year-over-year growth of 55%.

Liquidity Position 

As of June 30th, 2021, the company had total cash of $289.24 million and total debt outstanding of $304.3 million. The company also posted a positive cash flow from operations, totaling $49.2 million year-to-date. Based on these metrics, the company’s liquidity position looks strong with no need for additional financing. 

Analysts’ Estimates & Valuation

Wall Street expects TCNNF’s earnings to grow about 6x in the third quarter of 2021 to $0.29 per share. Moreover, analysts forecast that its Q3 revenue would advance 65.38% to $225.42 million.

Let’s consider the company’s valuation multiples as well. When it comes to P/E Non-GAAP FWD, the stock’s 23.14x is slightly above the 21.97x sector median. However, its FWD EV/Sales multiple of 5.44x looks discounted compared to the sector’s median EV/Sales ratio of 6.80x.

Analysts have established a “Strong Buy” rating for TCNNF, with an average price target of $61.49.

Curaleaf Holdings, Inc.

Curaleaf Holdings, Inc., which is located in Wakefield, Massachusetts, produces and sells cannabis and offers a variety of cannabis-related professional services in the U.S. 

Year to date (YTD), shares of Curaleaf Holdings, Inc. have seen a decline of more than 5%.

Recent developments

On October 4th, Curaleaf announced that it had acquired Los Sueños Farms, the largest outdoor grower in Colorado. As a result, the company expanded its cultivation capacity to 66 acres in Colorado. The acquisition will help Curaleaf increase its market share in the second-largest U.S. cannabis market. 

Recent Quarterly Performance

On August 9th, Curaleaf Holdings, Inc. reported earnings for the second quarter of 2021. In Q2, total revenue has advanced 165.7% year-over-year to $312.2 million, topping Wall Street’s consensus by $4.38 million. Curaleaf’s EPS has been reported at ($0.01), which is $0.01 below the analysts’ projections. 

The company’s Adjusted EBITDA came in at $84 million, up 201% compared to the year-ago quarter.

In addition, the company’s Adjusted EBITDA margin increased by 400 bps on a quarter-over-quarter basis to 28% on core U.S. operations. 

Liquidity Position & Analysts’ Estimates

The company’s total cash position stood at $334 million in the second quarter of 2021. Its cash burn rate significantly increased to $79.13 million as of 2QFY2021 versus a positive cash flow from operations of $21.8 million in a year-ago quarter. However, the company plans to generate “substantial cash flow in the second half of this year“. Therefore, I would expect the cash on hand to be sufficient for at least 12 months.

For the third quarter, analysts expect CURLF’s EPS to stand at $0.01. Analysts also expect that CURLF’s Q3 revenue should increase 88.73% to $344 million, while sales for the full year of 2021 should advance about 106% to 1.29 billion.  

Wall Street analysts have rated CURLF as a “Strong Buy”, establishing an average price target of $22.77. 

Zynerba Pharmaceuticals, Inc.

Founded in 2007, Zynerba Pharmaceuticals is a clinical-stage pharmaceutical company that develops cannabinoid therapeutics to help patients with rare and near rare neuropsychiatric disorders.

ZYNE has been able to find solid footing in an industry and regulatory landscape where many of its competitors have not. YTD shares of Zynerba Pharmaceuticals, Inc. are up more than 23%.

Recent developments

On September 9th, the company posted longer-term tolerability and efficacy data from the Phase 2 BRIGHT trial of Zygel (ZYN002) in children and adolescents with autism spectrum disorder (ASD). ZYN002 proved its efficiency by achieving the primary and secondary endpoints of the trial. The company also initiated the Phase 3 trial to assess the safety and efficiency of Zygel in children with Fragile X Syndrome.

Financial Overview & Analysts’ Estimates

Zynerba hasn`t generated any revenues yet, which is common for a clinical-stage pharma company. Being that ZYNE is in clinical stages, it also burns significant amounts of cash on research and development (R&D) and general and administrative expenses (G&A).

As of June 30th, 2021, R&D expenses (before the impact of AOF) for Zynerba Pharmaceuticals stood at $5.45 million compared to $9.24 million in a year-ago period. The 41% year-over-year R&D decrease is primarily related to the decrease of trial and manufacturing costs of Zygel due to the end of CONNECT-FX and BRIGHT clinical trials.

ZYNE’s G&A expenses came in 2% lower at $4.4 million. The decrease was related to reductions in pre-commercialization cost for Zygel and a decline in legal expenditures.

Cash used to run the company’s operations during the first half of 2021 was roughly $15.6 million. However, with a net cash position of about 85 million as of 2Q2021, I would expect the cash on hand to be sufficient for the next 24 months. 

Wall Street analysts have established an average price target of $8.50 for ZYNE, representing an upside potential of 107% from the stock’s current level.