Cannabis companies are experiencing record revenue growth, but the stock prices for these companies aren’t following in the same path. There’s a dark force keeping share prices down, and it’s not The Batman.
But one of these companies appears ready to lead the turnaround for investors while offering a strongly discounted share price after losing 64% of its value since its 52-week high.
Global turmoil is leading investors away from cannabis
Where there’s smoke, there’s fire. And there’s been a lot of smoke around cannabis investments for the past year. But Columbia Care ( CCHWF 7.15% ) stands out as one company that is ready to make a bull run once the smoke clears and the market stabilizes. Many of the fires being faced are not related directly to the cannabis market. The Biden administration promoted the decriminalization of cannabis but is spending its time, understandably, dealing with military conflicts, inflation, and supply chain constraints.
Those are all legitimate reasons to put cannabis decriminalization on the back burner. Unfortunately, investors are taking note, which is leading them away from cannabis as an investment, and more toward less risky and, in some cases, higher-dividend-paying companies.
Cannabis sales continue to grow year over year
Meanwhile, the cannabis market continues to flourish on a state-by-state basis. For example, Columbia Care is a multi-state operator (MSO) with growing operations spread across the U.S. and saw annual revenue increase 172% on a year-over-year basis as of March, helped along by a sequential quarterly growth rate of 29%. The annual growth rate is higher than 29 of 30 cannabis companies with quarterly revenue greater than $25 million, according to tracking data from New Cannabis Ventures. And its 29% quarterly growth is tops among all 30 of those companies. It doesn’t get much better than that.
During the past year, Columbia Care has been extremely busy expanding its footprint, including opening its 80th dispensary in the U.S., entering the medical market in Missouri, rebranding its dispensaries across Florida, becoming the first cannabis operator to offer whole flower in New York, and becoming and the first company to manufacture cannabis extract vaporizer pens in the U.K.
Columbia Care ended the third quarter with a year-over-year quarterly gross profit increase of 205%, to $64 million, and enjoyed a gross margin of 49%, crushing the 26% and 27% gross margins of competitors Tilray, and Grow Generation, and in line with top revenue generating MSO Curaleaf Holdings.
But investors have gotten nervous around lowered guidance from the company for full-year 2021 revenue — earnings release scheduled for March 25 — which got slashed by 7% due to pricing pressures and softening retail sales in larger markets, including California, Colorado, and Florida, as well as some unanticipated regulatory delays impacting store openings in new markets. These negative comments led to the continued slide in Columbia Care’s stock price. But they didn’t deter analysts such as Pablo Zuanic of Cantor Fitzgerald, who kept an overweight rating on the stock and a $5.20 price target, which reflects a premium of 111% over the current price.
Rising revenue and falling stock prices give investors an opportunity
The revenue growth rate for the quarter and the year may be easily shrugged off by some investors if it were a company with a lower revenue total, but the $132 million for Q3 ranks Columbia Care eighth among public cannabis companies for total quarterly revenue. Fortunately for investors with a long-term approach — which is kind of a must for cannabis investing — the drop in stock price while revenue continues to grow opens the door to opportunity for a piece of a top 10 revenue-producing MSO at a discounted price. That opportunity could be escalated by a global cannabis market that is projected to grow to as much as $128 billion by 2028, supported by a 26% compound annual growth rate.
The company’s growth going forward should be supported by an enlarged footprint extending into emerging markets including New Jersey, New York, and Virginia, which should help pad its revenue numbers as those states launch retail cannabis sales in the next two years. And if a new bill proposed in Virginia is passed, it could bring forward that state’s 2024 launch up by 16 months, making Columbia Care a buy-now candidate with the potential for a strong bull run.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.