The global marijuana industry hit a valuation of $13.2 billion in 2021. By the year 2030, this sector is on track to realize a stunning valuation of more than $102 billion. That's a compound annual growth rate of roughly 26%.
It's no secret that the marijuana industry has faced its fair share of headwinds in recent years as legalization has lagged behind where many thought it would be at this point. And in some markets that had first-mover advantage with earlier legalization, a surplus of cultivators hoping to capitalize on the the green wave has led to more available product than consumers are willing or able to currently buy.
All that being said, the scope of the marijuana industry, the gradual but meaningful efforts to make changes at the state level to marijuana legislation, and the possibility that even changes on the federal level could be on the table in the future, are all green flags for this space. If you want to invest in the future of the marijuana industry, here are two stocks to add to your watchlist and consider buying in the near future.
1. GrowGeneration
GrowGeneration (NASDAQ: GRWG) is the brand that cultivators around the country rely on to grow marijuana, harvest it, and get it to market. The company is the top hydroponics supplier in the U.S. and currently owns and operates dozens of stores and garden centers in key states including Florida, Michigan, Oregon, Massachusetts, and Washington. GrowGeneration's products include everything from grow lights to harvesting supplies.
The past few quarters of financials haven't been ones to write home about. I mentioned earlier how certain markets within the broader marijuana industry have been dealing with product oversupply and a dearth of buyers.
There are many factors behind these developments, from a saturated market to inflation, which has caused consumers to tighten their belts and scale back on marijuana spending. A recent survey by CBD Oracle found that 54% of cannabis users would buy less cannabis if prices were to go higher as inflation continues to soar across a wide variety of industries.
An oversupply not only causes some cultivators to reduce operations but to slash costs, as well. This inevitably affects a company like GrowGeneration, which is supplying the essential tools, equipment, and gardening products used to facilitate production.
Let's take a step back from the past few quarters, where net sales declined and the company slipped from profitability into net loss territory. We know the reasons behind that, and they're largely tied to industry-specific factors, not the business itself.
In 2021, the company reported net revenue growth of 119% and a 142% spike in net income, compared to the prior year. This followed a banner year in 2020, when the company reported 143% revenue growth, a 123% surge in e-commerce sales, and a 308% jump in net income.
GrowGeneration isn't the only company dealing with the realities of oversupply and inflation facing the marijuana industry at present, and I don't think these are reasons to stay away from the stock. Quite the opposite, in fact. These are factors investors should be aware of, in general, and in particular, in the case of companies with wider exposure to the industry's cultivation side.
These issues are short-term, not long-term, headwinds and don't negate the key role that GrowGeneration plays in the rapidly growing, multibillion-dollar marijuana industry. As a core supplier of hydroponics equipment to cannabis operators around the country, GrowGeneration could be well-positioned for recovery in the not-too-distant future, which makes it a stock worth considering for your portfolio.
2. Green Thumb Industries
Green Thumb Industries (OTC: GTBIF) is one of the few marijuana stocks that really checks all the boxes. Not only is the company highly profitable, but it has consistently clocked amazing revenue growth and boosted its cash position, all while continuing to expand its retail and brand footprint.
Green Thumb Industries owns and operates a range of premium brands featuring everything from vapes to pre-rolls to medicinal products. It also owns and operates several chains of dispensaries around the country.
Currently, Green Thumb Industries has 77 stores open nationwide. Its dispensaries are located in a variety of of both established and emerging markets, including Nevada, Illinois, Florida, Pennsylvania, Virginia, Connecticut, and Massachusetts.
In the first six months of 2022, Green Thumb Industries grew its revenue 20%, compared to the same period in 2021, to approximately $497 million. It's also worth noting that the most recent quarter was the eighth quarter in a row in which the company reported positive earnings.
The company's net income came to $24.4 million for the three-month period, a 10% increase from the same quarter in the year prior. The company also had about $145 million in cash on its balance sheet at the end of the quarter.
This strong quarter was preceded by an incredible year in 2021, during which Green Thumb Industries reported respective revenue and net income increase of 61% and 403%. As Green Thumb Industries diversifies its retail and brand portfolio, building upon a strong financial track record, it looks well-positioned to profit from the explosive growth the marijuana industry is on track to witness over the next decade.
Investors who have an appetite for risk could benefit from this growth trajectory and witness significant upside in the process. Wall Street analysts estimate that this stock could have an upside as high as 337% from its current share price.
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Rachel Warren has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Green Thumb Industries and GrowGeneration Corp. 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.
