If you’re looking for Wall Street’s favorite cannabis stocks, you’re most likely to find them amongst the holdings of the AdvisorShares Pure US Cannabis ETF (NYSEARCA:MSOS), the largest U.S.-listed cannabis exchange traded fund (ETF). MSOS is an actively managed ETF with just under $1 billion in net assets. Its net assets are more than four times those of the next largest fund, Amplify Alternative Harvest ETF (NYSEARCA:MJ), with $243 million in net assets.
If you’ve held MSOS since its launch in September 2020, you’ve got little to cheer about. In 2021, its total return was -29.7%, followed by a 2022 total return of -72.7% and 0.29% in 2023. The good news is that it’s up more than 32% in 2024, including 23% in the five trading days between March 13 and March 19. What is going on?
On March 15, Vice President Kamala Harris called on the U.S. Drug Enforcement Agency (DEA) to quickly decide the question of cannabis rescheduling from a Schedule 1 to a Schedule 3 drug, moving it one step closer to legalization.
Based on the good news, here are three of Wall Street’s favorite cannabis stocks to buy now. All three are holdings of the AdvisorShares Pure US Cannabis ETF.
Green Thumb Industries (GTBIF)
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Green Thumb Industries (OTCMKTS:GTBIF) is the largest holding of the ETF, with a portfolio weight of 25.6%. Of the 17 analysts covering its stock, 15 rate it a Buy, with a target price of $16.29, 23% higher than its current price. GTBIF stock is up nearly 23% year-to-date (YTD).
Green Thumb was founded in 2014 and its products include RYTHM flower, Dogwalkers pre-rolls, Incredibles edibles and others. In addition to 20 manufacturing facilities, it operates 92 RISE retail locations in 14 U.S. markets. In 2023, its sales grew by 4% to $1.1 billion, with adjusted EBITDA of $326 million. On a GAAP basis, it earned $36 million.
“We ended the year with a strong balance sheet including $162 million in cash, net of $65 million returned to shareholders via share buybacks and debt repurchases,” CEO and founder Ben Kovler said in its Q4 2023 press release.
Cash flow was so good in 2023 that it repurchased $39.9 million of its stock last year at an average price of $10.50, well below where it’s currently trading.
Curaleaf Holdings (CURLF)
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Curaleaf Holdings (OTCMKTS:CURLF) is the second-largest of MSOS’ holdings, with a portfolio weight of 19.93%. Fourteen analysts cover its stock, with 11 rating it a Buy and a target price of $5.91, 20% higher than its current price. CURLF stock is up nearly 23% YTD.
Curaleaf announced on March 19 that it would acquire licensed Canadian producer Northern Green Canada, primarily because of its EU-GMP certification for European markets. It currently sells high THC (tetrahydrocannabinol) in the German market, Australia and New Zealand. Terms of the deal weren’t disclosed.
Curaleaf finished the year with $1.35 billion in net revenue, 6% higher than in 2022. Its adjusted EBITDA was $304.5 million and its adjusted EBITDA margin was 23%. However, it lost money on a GAAP basis. It finished the year with 145 dispensaries and 21 cultivation sites across 17 states, and its cultivation capacity is approximately 1.45 million square feet.
Expect Curaleaf to be a consolidator once the U.S. federal government legalizes cannabis nationwide.
Truelieve Cannabis (TCNNF)
Florida licensed medical marijuana cannabis provider Trulieve
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Truelieve Cannabis (OTCMKTS:TCNNF) is MSOS’ third-largest holding with a portfolio weight of 18.46%. Of the 14 analysts covering its stock, 13 rate it a Buy, with a target price of $14.75, 31% higher than its current price. TCNNF stock is up 118% YTD.
As investors know, cannabis operators have had a challenging time making money in the industry. However, Trulieve caught a break in 2023, obtaining $113 million in tax refunds. It filed amended federal tax returns for 2019 through 2021, looking for $143 million federally and $31 million at the state level. It’s still to hear about nearly $60 million in additional refunds.
In 2023, its revenue was $1.13 billion, with an adjusted EBITDA of $322 million, a 29% margin. Its operating cash flow was $202 million. Truelieve expects that to increase to $225 million in 2024.
Most importantly, it generated a record free cash flow of $161 million in 2023, 214% higher than in 2022. Based on an enterprise value of $2.73 billion, its free cash flow yield is over 5%. Anything between 4% and 8% is fair value. With 192 dispensaries across nine states, it should remain one of the country’s biggest vertically integrated cannabis companies.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.
