Top Cannabis Stocks for Q3 2023

Investing in cannabis stocks isn’t for everyone, but with the green-leafed drug now fully legalized in 23 states and Washington, D.C., the sector may be ripe for growth opportunities. Despite the industry’s facing ongoing legality, regulation, and banking challenges, the market is forecast to grow to $444.3 billion by 2030 from $57.2 billion in 2023 at a compound annual growth rate (CAGR) of 34%. 

Investors can track the cannabis sector by following the ETFMG Alternative Harvest ETF (MJ), which comprises a portfolio of leading publicly listed cannabis stocks. The fund has slumped more than 50% over the past year compared with the large-cap Russell 1000 Index, which has posted a gain of about 10% over the same period.

Below, we review top cannabis stocks based on best value, fastest growth and best 12-month stock performance. All data is as of late August 2023.

Best Value Cannabis Stocks

The cannabis stocks presented in the table below have the lowest 12-month trailing price-to-sales (P/S) ratio. As its name suggests, this ratio compares a company’s stock price to its revenue, indicating the value investors have placed on each dollar of its sales. Given many cannabis stocks are in the early stages of development, investors can use the P/S ratio to help determine what companies in the industry have the highest chance to become profitable.

Best Value Cannabis Stocks
  Price ($) Market Capitalization ($M) 12-Month Trailing P/S Ratio
Cresco Labs Inc. (CRLBF) 1.0 321.3 0.4
SNDL Inc. (SNDL) 1.6 411.6 0.6
Trulieve Cannabis Corp. (TCNNF) 3.8 710.5 0.6

Source: YCharts, Yahoo! Finance

  • Cresco Labs Inc.: Cultivates, manufactures, and sells retail and medical cannabis products throughout the U.S. Some of Cresco’s products include vape pens, pre-rolls, sublingual oils, and cannabis flowers. The company reported 1.3 million retail transactions in its latest quarter, representing an 11% increase year-over-year (YOY).
  • SNDL Inc.: A company engaging in the production, distribution, and sale of cannabis products in Canada. It operates through four key business segments: Liquor Retail, Cannabis Retail, Cannabis Operations, and Investments. In May, shareholders approved a December 2022 strategic partnership with Canadian cannabis retailer Nova Cannabis Inc. (NVACF) in which it would gain access to Nova’s intellectual property rights and store network in exchange for a percentage fee of profits on each store.
  • Trulieve Cannabis Corp.: Operates as a medical cannabis company. It cultivates and produces products in-house and distributes them through Trulieve-branded dispensaries in Florida, as well as through home delivery. The company reported that its Maryland dispensary traffic increased 200% in July following the launch of adult-use sales in that state.

Fastest-Growing Cannabis Stocks

The cannabis stocks presented in the table below have generated the highest YOY sales growth in the most recent quarter. Typically, a cannabis company with growing sales is expanding its customer base and market share, indicating that it’s in a position to increase earnings per share (EPS). Investors should look at sales growth along with other metrics when analyzing stocks in the cannabis industry.

Fastest-Growing Cannabis Stocks
  Price ($) Market Cap ($M) Revenue Growth (%)
Tilray Brands Inc. (TLRY) 2.5 1,772.2 20.1
TerrAscend Corp. (TSNDF) 1.7 482.4 12.8
Verano Holdings Corp. (VRNOF) 2.8 954.6 4.7

Source: YCharts

  • Tilray Brands Inc.: Researches, cultivates, processes, and distributes medical cannabis products in Canada, the U.S., Europe, Australia, New Zealand, and Latin America. It operates through four divisions: Cannabis Business, Distribution Business, Beverage Alcohol Business, and Wellness. In August, Tilray announced it had fully acquired Truss Beverage Co. from Molson Coors Canada (TAP) to position it as a leader in adult-use cannabis beverages in Canada.
  • TerrAscend Corp.: Cultivates, processes, and sells medical and adult-use cannabis in Canada and the U.S. More specifically, the company produces and distributes hemp-derived wellness products and manufactures cannabis-infused artisan edibles. In July, TerrAscend announced that it had closed its acquisition of Herbiculture Inc., a medical dispensary in Maryland, which it said will have an immediate impact on the company’s earnings before interest, taxes, depreciation, and amortization (EBITDA) and cash flow.
  • Verano Holdings Corp.: Cultivates, processes, and distributes cannabis in the U.S. The company primarily offers artisanal cannabis products under the Encore, Avexia, MUV, Savvy, BITS, and Verano brands for medical and adult-use markets. Earlier this year, the company announced the opening of Zen Leaf Norwich, its first social equity joint venture in Connecticut and third cannabis dispensary in the state.

Cannabis Stocks with the Best Performance

The cannabis stocks presented in the table below have generated the best 12-month return, although none of the stocks has gained in value. Momentum investors argue that stocks displaying relative strength to others within their industry are likely to continue outperforming in the future.

Cannabis Stocks with the Best Performance
  Price ($) Market Cap ($M) 12-Month Trailing Total Return (%) 
TerrAscend (TSNDF) 1.7  482.4 -12.9
Green Thumb Industries Inc. (GTBIF) 6.7  1,595.9 -39.5
Tilray Brands (TLRY) 2.5  1,772.2 -41.3
Russell 1000 Index N/A N/A 10.5
ETFMG Alternative Harvest ETF (MJ) N/A N/A -51

Source: YCharts

  • TerrAscend: See company description above.
  • Green Thumb Industries Inc.: Manufactures, distributes, and markets various cannabis products for medical and adult use in the U.S. Green Thumb’s product line includes pre-rolls, concentrates, vapes, capsules, tinctures, edibles, topicals, which are distributed through its own stores and third-party retail locations. The company opened six retail stores in the first half of 2023—two in Pennsylvania, two in Virginia, and one each in Minnesota and Nevada.
  • Tilray Brands: See company description above.

Advantages of Investing in Cannabis Stocks

Growth potential: Despite cannabis stocks significantly underperforming the broader stock market over the past year, the sector offers growth opportunities for risk-taking investors. According to leading industry publication MJBizDaily, U.S. cannabis sales are projected to top $33 billion in 2023 before reaching nearly $57 billion by 2028. Moreover, global cannabis sales are forecast to have a CAGR of 34% between 2023 and 2030. 

Increasing acceptance: As of August 2023, 47 states and Washington, D.C. have adopted partial or total legalization of cannabis and related products, indicating an increased acceptance by American consumers. As perceptions toward cannabis continue to change, more industry-friendly legislation and banking provisions have the potential to further accelerate the sector’s growth and provide investors with new opportunities. 

Limitations of Investing in Cannabis Stocks

Limited access to financial services: Many companies in the cannabis industry have limited access to traditional financial services, such as banking and advisory, due to the complex regulatory environment surrounding the sector. The Controlled Substances Act (CSA) stipulates that cannabis is illegal at a federal level, making financial institutions hesitant to work with cannabis-related businesses. This can prevent smaller cannabis companies from raising capital and expanding their operations, which can crimp growth opportunities and make it difficult to compete with larger, more established competitors.

Competition and oversupply: The cannabis industry remains highly competitive, with many companies vying for market share. This can result in oversupply and falling prices, which can hurt the profitability of cannabis companies. For example, Cannabis Benchmarks’ volume-weighted U.S. spot index for wholesale cannabis flower plummeted 27% in 2022 on the back of a supply glut. This level of increased competition and oversupply can make it difficult for investors to generate returns from their investments in cannabis stocks.

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As of the date this article was written, the author does not own any of the above stocks or ETFs.

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