Strong Q1 Results Show U.S. Cannabis Stocks Virtually Unstoppable

U.S. Marijuana Stocks Break Out on Improving Financials

It wasn’t that long ago that U.S. pot stocks were languishing. In fact, 2019 was a terrible year for the broader cannabis industry, with stocks trending lower on the heels of scandals, higher spending, growing debt, and no signs of profitability. In 2019, the North American Marijuana Index collapsed by about 52%.

For many U.S. pot stocks, those red flags are in the rearview mirror.

That doesn’t mean there won’t be periods of volatility, but right now, U.S. marijuana stocks are stealing the headlines. And for all the right reasons. The companies are more efficient and effective, and they’ve been reporting strong revenue growth and profitability.

Here’s a summary:

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  • Curaleaf Holdings Inc (CNSX:CURA, OTCMKTS:CURLF): Record Q1 revenue up by 170% year-over-year and record adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) up by 213%
  • Acreage Holdings Inc (CNSX:ACRG.A.U, OTCMKTS:ACRHF): Q1 revenue up by 58% year-over-year and positive adjusted EBITDA
  • Charlotte’s Web Holdings Inc (TSE:CWEB, OTCMKTS:CWBHF): Q1 revenue up by 9.1%
  • GrowGeneration Corp (NASDAQ:GRWG): Record Q1 revenue up by 173% and record earnings of $0.10 per share
  • Green Thumb Industries Inc (CNSX:GTII, OTCMKTS:GTBIF): Q1 revenue up by 89% year-over-year, third consecutive quarter of positive net income, and fifth consecutive quarter of positive cash flow from operations
  • Harvest Health & Recreation Inc (CNSX:HARV, OTCMKTS:HRVSF): Q1 revenue doubled and adjusted EBITDA up by 196% quarter-over-quarter
  • Trulieve Cannabis Corp (CNSX:TRUL, OTCMKTS:TCNNF): Record Q1 revenue more than doubled and 13th consecutive quarter of profitability
  • Innovative Industrial Properties Inc (NYSE:IIPR): Q1 revenue up by 103% and net income up by 121%

As you can see in the chart below, high sales figures throughout 2020 and an impressive start to 2021 have resulted in market-trouncing gains from pot stocks.

Whereas the S&P 500 advanced by an impressive 40% over the last year, that pales in comparison to what has been going on with cannabis stocks. At first glance, it looks like the S&P 500 has flatlined over the last year. It hasn’t, of course, but it seems that way in comparison to marijuana stocks.

Chart courtesy of StockCharts.com

The outlook for the U.S. cannabis industry remains exceptionally strong. For starters, Americans are becoming more optimistic that recreational cannabis will become legal at the federal level.

That’s because more and more states have been legalizing recreational cannabis. In March, New York legalized recreational cannabis. In April, New Mexico followed suit. Virginia will be legalizing recreational cannabis on July 1.

Today, 16 states plus D.C have legal recreational cannabis. Virginia will be the 17th U.S. state to legalize cannabis. In addition to those states (and D.C.) with legal recreational weed (and, by extension, legal medical marijuana), a further 19 states (35 total) have legalized medical marijuana.

Other states could also legalize marijuana in 2021, including Connecticut, Rhode Island, Delaware, Maryland, Pennsylvania, and Texas. And they can do it with or without President Joe Biden’s blessing.

At the federal level, Senator Chuck Schumer has said that he wants to make his points to President Biden, but that, when it comes to cannabis legalization, “at some point we’re going to move forward, period.” (Source: “Schumer: Senate Will Act On Marijuana Legalization With or Without Biden,” Politico, April 3, 2021.)

2020 a Breakout Year for Cannabis in the U.S.

Another reason to be bullish on the U.S. cannabis industry is that more people are smoking pot. (Source: “BDSA Reports Global Cannabis Sales Exceeded $21 Billion in 2020; Forecasts $55.9 Billion by 2026,” GlobeNewswire, March 2, 2021.)

While the coronavirus pandemic has hobbled many industries, it has been a boon for weed. In 2020, legal sales of marijuana across the U.S (14 states for recreational and 36 for medical) hit a record $17.5 billion, up by 46% from 2019.

Most of the growth in 2020 came from recreational marijuana markets, especially mature markets. Sales in Oregon were up by 29%, at $1.1 billion. Sales in Colorado jumped by 26% to $2.2 billion. Emerging markets like Illinois, which only legalized recreational cannabis at the start of 2020, brought in $780.0 million in sales.

A number of other states experienced massive growth in legal marijuana sales. Sales in California grew by $586.0 million, sales in Florida grew by $473.0 million, sales in Colorado grew by $451.0 million, and sales in Oklahoma grew by $400.0 million.

In 2026, legal cannabis sales in the U.S. are projected to reach $41.3 billion, expanding at a compound annual growth rate of 15%.

Analyst Take

2020 was a breakout year for U.S. cannabis stocks, as legal marijuana sales soared by 46% year-over-year.

By all accounts, that performance has carried into 2021, with the vast majority of U.S. marijuana companies reporting excellent—even record—first-quarter financial results and providing impressive guidance.

The record pot sales are a result of greater acceptance and more states legalizing recreational weed. That trend is expected to continue. It could lead to a windfall from U.S. cannabis stocks over the coming years.