Shares of Canadian cannabis heavyweight Canopy Growth (TSX:WEED)(NYSE:CGC) have grossly underperformed the broader markets in the last two years. While most indexes are trading near record highs, Canopy Growth is down 66% from all-time highs.
Canadian marijuana producers have been impacted by multi-billion-dollar losses due to a thriving black market, increase in competition, slow rollout of retail stores, high inventory levels, and goodwill write-downs.
Canopy Growth is backed by beverage giant Constellation Brands, which provides it with enough financial flexibility to tide over near-term headwinds. However, analysts expect the company to report a net loss per share of $0.88 in fiscal 2022 and $0.46 in fiscal 2023 ending in March.
Given its total outstanding share count of 392 million, it suggests Canopy’s total losses will stand at $345 million in 2022 and $180 million in 2023.
Though Canopy has $2.32 billion in cash reserves, it also needs to service its debt of $1.72 billion which suggests the company will raise additional capital to fund its operations and dilute shareholder wealth in the process. Let’s see three pot stocks that are much better long-term bets than Canopy Growth.
A U.S.-based cannabis company, Curaleaf Holdings (CNSX:CURA) has a presence in 23 states and operates over 100 dispensaries. The company reported US$260 million in sales and US$63 million in adjusted EBITDA, which suggests it’s on track to reach US$1 billion in annual run rate, making it one of the best growth stocks in the cannabis sector.
Curaleaf recently raised US$300 million in order to expand its footprint in other growth markets including New Jersey and New York where recreational marijuana was recently legalized. It has also trained its guns in Europe and is looking to enter Germany’s medical marijuana market.
Unlike Canopy Growth, Curaleaf is already reporting an adjusted EBITDA and is close to generating consistent profits. In the last 12 months, it has reported an operating income of $92.4 million, indicating a margin of 11.7%.
Another top cannabis stock south of the border is Cresco Labs (CNSX:CL), a company that reported US$178.4 million in total sales in Q1. Its wholesale revenue surged 151% year over year to US$95.6 million and accounted for the majority of sales.
This gives Cresco an enviable opportunity as it may enjoy a leadership position in several states given the company’s products are already sold in 700 dispensaries all around the country.
While Cresco reported a net loss of US$24.1 million in Q1, its adjusted EBITDA was US$34.9 million and was the eighth consecutive quarter of positive EBITDA for the firm.
Cresco’s management forecasts to achieve an annualized run rate of over US$1 billion by the end of 2021 with an adjusted EBITDA margin run rate north of 30%.
The final stock on my list is Gage Growth, a company valued at a market cap of US$256 million. However, this pot stock has managed to increase its sales from US$1.92 million in 2019 to US$39.88 million in 2020. In the last 12-month period, its sales grew to US$52 million, which means the stock is valued at a trailing 12-month price to sales multiple of 4.92.
Gage Growth provides branding and support services to cannabis licensed operators in Michigan. It also sells medical and adult-use cannabis products and has three processing licenses as well as 13 provisioning centers in the U.S.
While Gage Growth reported a cumulative operating loss of US$26.6 million in the last 12-months, this figure is narrowing as a percentage of total sales.
Gage Growth will also have to raise additional capital given it ended Q1 with US$44 million in cash and US$19 million in debt but remains a top bet given its reasonable valuation and improving profit margins.
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Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Constellation Brands and Cresco Labs Inc.