The cannabis investing fad of the year has no doubt been Sundial Growers (NASDAQ:SNDL). A beaten-down cannabis player with a low share price — which is not to be confused with low valuation — Sundial recently caught the attention of the Reddit army, who came together and pushed the penny stock up as much as 500% at one point. Today, Sundial shares are still up 223% on the year…
To Sundial’s credit, management quickly capitalized on the opportunity, going out and selling equity shares to raise capital, and now sports a whopping $610 million of balance sheet cash as of the most recent disclosure on Feb. 4.
Despite the nice cash infusion, the increase in shares gives Sundial and market cap of $2.4 billion – not exactly small. In addition, Sundial really needed the cash; its operating performance in the most recently reported third quarter was dismal, with declining revenue and negative gross margins.
However, there’s no doubt the global cannabis market is exciting, and primed for heady long-term growth. In an emerging industry, the biggest gains can also come from small-cap companies like Sundial, should they find a way to out-execute competitors or get bought out by a larger company.
Yet instead of the struggling Sundial, investors may want to gravitate toward the following small U.S. cannabis players that are, by contrast, showing very strong growth and profit expansion.
TerrAscend (OTC:TRSSF) is roughly a $4.4 billion market cap company in the U.S., and has the backing of large Canadian company Canopy Growth (NASDAQ:CGC). TerrAscend has operations in Pennsylvania, New Jersey, and California, concentrated in the San Francisco Bay Area. Pennsylvania and New Jersey are highly attractive markets, as they limited-license states. While California is a bit more difficult with unlimited licenses and high regulations, its massive size could make it worth the bet.
TerrAscend actually just preannounced its fourth quarter 2020 results on Friday, which came in well ahead of expectations, sending the stock soaring over 13%. Q4 Revenue grew 152% year-on-year, with adjusted EBITDA margins expanding a whopping five percentage points over the prior Q3 and 16 percentage points over Q2. Management expects the strength to continue in 2021, forecasting near-100% growth, continued EBITDA margin expansion, and profits up about 1.5x over 2020.
As we’ll see with TerrAscend and the others below, triple-digit growth and profit expansion is a huge contrast with Sundial’s struggling business up in Canada.
Jushi Holdings (OTC:JUSHF) is a $1.8 billion company, which, despite being a smaller company than TerrAscend, has a wider footprint across seven states: New York, Pennsylvania, Ohio, Illinois, Virginia, Nevada and California.
Jushi has a very clear process of being opportunistic and targeting limited-license states and jurisdictions. Aside from the strong core positions in Pennsylvania and Illinois, two limited-license states with large populations and strong growth, Jushi is also one of the first to enter Virginia, and plans an aggressive rollout in the densely populated Northern Virginia region. Currently, it looks as though adult-use legalization will happen soon in…
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