Cannabis stocks have been hot in recent months, and as a result, the Horizons Marijuana Life Sciences ETF has nearly doubled since November. With a new president in charge in Washington and more states voting in favor of marijuana reforms, there’s growing optimism that federal legalization may not be too far away. But all that optimism has made pot stocks more expensive for investors who still want to buy them…
For growth investors worried that it may be too late to invest in cannabis stocks, there are a couple of new issues that should hit the markets later this year: Weedmaps and Verano Holdings. Let’s look at both companies and consider why they could be great investments once they go public.
What to expect from Weedmaps
WM Holding operates the popular online listing site Weedmaps, and last month, investors learned that it will go public via a merger with NASDAQ-based Silver Spike Acquisition Corp. The deal values Weedmaps at $1.5 billion.
Weedmaps helps consumers find places to buy cannabis and lets them review stores; it has more than 10 million monthly active users. It also sells cloud-based software to marijuana retailers that helps them manage their operations. For investors, it will present a great opportunity to diversify their cannabis industry holdings beyond companies that manufacture or sell pot and marijuana-derivative products.
Not only is Weedmaps a unique business in the space, but it will also offer a rare opportunity for investors to buy a U.S.-based pot stock that’s traded on a big exchange like the NASDAQ. The company’s shares can be listed there since Weedmaps isn’t technically making or selling marijuana. Shares of big multistate operators like Curaleaf and Trulieve Cannabis trade on the over-the-counter (OTC) market and through the Canadian Securities Exchange (CSE), which has looser rules than the Toronto Stock Exchange and mainstream U.S. exchanges. Other exceptions to the rule include GrowGeneration, which provides tools for growing cannabis and other crops, and real estate investment trust (REIT) Innovative Industrial Properties, which leases properties to growers. They list on the NASDAQ and NYSE, respectively. By listing on a larger exchange, Weedmaps can reach more investors and bigger buyers who might avoid the OTC markets.
But that’s not the only reason the stock might be a good buy. The company has projected 2020 revenue of $160 million, and it has remained profitable in each of the 12 years it has been in business. Over the past five years, its top line has grown at a compound annual rate of 40%. A profitable pot stock that’s also growing revenues at a great rate is another rarity in the industry. I believe that Weedmaps could stand out from the pack.
The case for Verano Holdings
If you’d prefer to invest in a more standard, up-and-coming multistate operator, then Verano could be the more attractive option. Its valuation will be nearly $3 billion out of the gate, and like many of its peers, it will go public on the CSE through a reverse takeover of a shell company — in this case, Majesta Minerals. For comparison, Trulieve’s market capitalization today is about $4.7 billion while Curaleaf’s is near $9 billion.
According to BNN Bloomberg, Verano estimated that its revenue for 2020 would come in as high as…
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