The cannabis industry has been making headlines, with several significant developments that have caught the attention of investors. In the U.S., 24 states and Washington, D.C., have now legalized recreational marijuana, with Ohio being the latest to join the ranks in 2023. The Biden administration is also taking steps to reclassify cannabis from a Schedule I to a Schedule III drug, which would bring major benefits to the industry in terms of regulation, taxation, and financing. The news sent shockwaves through the sector, with cannabis stocks like Tilray (TLRY) and Canopy Growth (CGC) among the names rallying on the news.
Amidst this backdrop, several cannabis stocks are well-positioned to benefit from upcoming catalysts that could further propel the industry's expansion. Curaleaf Holdings (CURLF), Verano Holdings (VRNOF), and AFC Gamma (AFCG) are three “Buy”-rated names that analysts believe have significant upside potential.
All three companies trade at attractive valuations compared to peers, with double-digit upside to consensus price targets. Potential catalysts that could boost their shares include federal rescheduling, adult-use legalization in states like Florida and Ohio, increased access to banking services, and growing international demand, particularly in Europe. While the industry still faces challenges, these three stocks are worth a look for their compelling long-term growth prospects and serious potential.
#1. Curaleaf Holdings Inc.
Curaleaf Holdings Inc. (CURLF) is a leading cannabis company that cultivates, processes, and sells cannabis and hemp-derived products in the United States. The company operates through two segments: Domestic Operations and International Operations. With a market cap of $2.71 billion and an enterprise value of $3.38 billion, CURLF is one of the biggest players in the game.
CURLF is trading up 3.2% on a YTD basis, adding to its 52-week gain of 45.5%.
Curaleaf's strong performance is reflected in its Q1 2024 earnings report, released on May 9. The company reported revenue of $339 million, a 2% increase year-over-year, with an adjusted gross margin of 48% and adjusted EBITDA of $77 million, or 23% of revenue. These numbers show that Curaleaf is not only growing its top line but also managing its costs effectively.
Looking ahead, analysts expect Curaleaf to report a loss of $0.05 per share for the current quarter, and a full-year loss of $0.20 per share for FY 2024.
In a move that could further boost its growth, Curaleaf International recently announced the acquisition of Can4Med, a prominent pharmaceutical wholesaler specializing in cannabinoid medications. This acquisition is expected to strengthen Curaleaf's foothold in the European market and provide access to new distribution channels.
Most analysts are feeling pretty good about CURLF, with the 11 experts in coverage giving the stock a "Moderate Buy" rating overall. Out of those, seven have a “Strong Buy” rating, one thinks it's a “Moderate Buy,” and three say “Hold.” The average price target is $7.26, a generous 73.3% jump from current prices.
#2. Verano Holdings Corp.
Verano Holdings Corp. (VRNOF) is a vertically integrated multi-state cannabis operator that cultivates, processes, and sells cannabis and cannabis products in the United States. With a market cap of $1.16 billion and an enterprise value of $1.38 billion, VRNOF is based out of Chicago.
VRNOF stock is down nearly 25% on a YTD basis, bringing its 52-week return to about 20%.
Last month, Verano celebrated the opening of its 75th Florida dispensary and 140th retail location nationwide with the launch of MÜV Haines City. With Florida potentially going recreational, that could be a major catalyst. The company also called out opportunities in New Jersey, Ohio, and Pennsylvania.
Verano reported its first quarter 2024 earnings on May 8, with revenue of $221 million down 3% year-over-year and 7% sequentially. The company booked a net loss of $5 million for the quarter, but its adjusted EBITDA was $60.26 million, representing a 27.2% margin. These numbers show that Verano is still in growth mode and investing in its future, even if it means taking a short-term hit to the bottom line.
Looking ahead, analysts expect Verano to report a loss of $0.05 per share for Q2 2024 and a loss of $0.14 per share for FY 2024.
Analysts are hyped about VRNOF, with 5 out of 7 calling it a "Strong Buy." The average price target is $8.27, which is an impressive 145% upside potential.
#3. AFC Gamma Inc.
AFC Gamma Inc. (AFCG) is a real estate investment trust (REIT) that provides financing to cannabis companies through senior secured loans and other debt securities. The company has been consistently paying out quarterly dividends, with the latest one being $0.48 per share on April 15. With a juicy dividend yield of nearly 16%, AFCG is definitely an attractive option for income investors.
The stock has been little changed over the past year, on balance, and is up just 3% on a YTD basis.
The company has a market cap of $256 million, making it a relatively small player in the cannabis lending space, but don't underestimate its potential. As far as valuations go, AFCG trades at 8.63x forward earnings, which seems reasonable.
AFC Gamma reported its first quarter 2024 earnings on May 9, with adjusted earnings of $0.49 per share beating expectations. Net interest income of $14.76 million was down more than 12% year over year, and fell short of estimates.
Analysts expect the company to report earnings of $0.49 per share for Q2 2024 and $1.92 per share for FY 2024.
Recently, AFCG provided $34 million in loans to Florida cannabis company Sunburn and a credit facility to edibles producer Grön Edibles to fund their expansion plans. Notably, the Executive Chairman recently bought over $1 million worth of shares, which could be seen as a positive signal.
Analysts are feeling bullish on AFCG, with a "Moderate Buy" consensus rating from 5 analysts, and a $15 average price target implying 21% upside potential. Three analysts suggest a “Strong Buy,” one suggests a “Hold,” and one votes a “Strong Sell.”
Conclusion
So there you have it - three cannabis stocks that could be ready to light up your portfolio. Curaleaf, Verano, and AFC Gamma all have some serious potential catalysts on the horizon.
Whether it's expanded legalization, banking reform, or just good ol' fashioned organic growth, these companies seem well-positioned to capitalize on the booming cannabis market. Of course, nothing's guaranteed in the wild world of weed stocks. But if you're looking to take a hit on some high-upside plays, these three might just be the ticket.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
