Cannabis stocks have recently seen a surge in value, driven by growing optimism surrounding potential regulatory changes. While there are not many marijuana-related stocks listed on the Nasdaq, this article will review and compare three prominent players in the industry: Tilray Brands (NASDAQ: TLRY), Canopy Growth (NASDAQ: CGC), and SNDL (NASDAQ: SNDL). We will analyze their strategies, current valuations, and future growth prospects to help you make an informed investment decision.
Overview of Their Strategies
The cannabis industry has attracted numerous growth investors due to its vast potential as the market continues to expand. However, it’s worth noting that the stocks under consideration are all Canadian-based cannabis companies, primarily because of the federal ban on marijuana in the U.S. This restriction makes it challenging for multi-state marijuana operators to trade on the Nasdaq.
Given the smaller and highly competitive Canadian pot market, these companies have been exploring alternative avenues for growth. Let’s examine their approaches:
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- Canopy Growth: Canopy Growth has been eyeing the U.S. market for years. In 2019, the company announced plans to acquire multi-state operator Acreage Holdings, though this deal has yet to close. This year, Canopy Growth introduced a special purpose vehicle, Canopy USA, to manage its U.S.-based investments. However, Nasdaq has raised concerns about this arrangement, requiring these investments to remain separate. Canopy Growth’s growth prospects continue to rely primarily on marijuana legalization in the U.S.
- Tilray Brands: Tilray Brands is in a similar situation, having acquired the senior convertible notes of MSO MedMen Enterprises, with plans for a merger when permitted. However, Tilray is actively expanding into the alcohol industry. In August, it announced the acquisition of eight brands from Anheuser-Busch InBev, positioning itself as one of the largest craft brewers in the U.S. This diversification allows Tilray to expand its operations in the U.S. without relying solely on marijuana.
- SNDL: SNDL has been expanding through acquisitions, primarily focusing on the Canadian market. Notable acquisitions include cannabis retailer Inner Spirit Holdings and alcohol retailer Alcanna, which also held a majority stake in cannabis retailer Nova Cannabis. SNDL also acquired cannabis extraction company Valens. These acquisitions played a significant role in SNDL’s impressive growth, with net sales reaching 712.2 million Canadian dollars ($525 million) in the previous year, a remarkable increase of 1,170% from the year before.
Current Valuations
In recent years, valuations for cannabis stocks have declined due to the slow progress towards federal marijuana legalization. Despite this, none of the three stocks in question are overly expensive right now, and they are all cheaper than in the past. Tilray, despite being the most expensive of the three, still trades at a relatively modest 3 times revenue. The key question is which of these businesses holds the most promise for the future.
Which Stock Is Poised for the Best Future?
All three stocks face challenges ahead but also possess growth opportunities. Here’s how they rank in terms of potential growth, from least to most promising:
- SNDL: While SNDL has benefited from acquisitions, its long-term growth potential appears limited due to its focus on the competitive Canadian cannabis market and the lack of a strong growth catalyst.
- Canopy Growth: Canopy Growth has scaled back its operations in Canada and is banking on expansion in the U.S. through Canopy USA. However, the uncertainty surrounding U.S. market access and ongoing cash burn are concerns.
- Tilray Brands: Tilray is the most intriguing option, thanks to its expansion into the U.S. alcohol market. This approach diversifies its business and positions it for potential future growth in the U.S. cannabis market.
Should You Invest in Any of These Stocks Today?
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Tilray Brands emerges as the top pick among these three, although it’s not without its challenges. While its growth has stalled recently, its expansion into the alcohol market provides a unique avenue for growth. However, investing in Tilray essentially means investing in the U.S. craft beer market, which might not be the most exciting prospect for all investors.
If you’re keen on investing in the cannabis industry, consider exploring opportunities beyond the Nasdaq. Multi-state operators (MSOs) already active in the U.S. pot market may offer better near-term growth prospects, making them a more compelling option for investors.
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