Earlier this year, the U.S. Department of Health and Human Services said it recommends reclassifying marijuana from a Schedule 1 drug to Schedule 3, a development greeted with enthusiasm by the legal marijuana industry.
If the rescheduling happens, then the industry would be able to come out from under the shadow of Internal Revenue Service Code Section 280E, which prohibits marijuana companies from taking certain tax deductions and credits that federally legal businesses enjoy.
That would remove a huge impediment to profitability, and in September marijuana stocks rallied to the year’s high point on the news.
Now, they have resumed a years-long slump, with the New Cannabis Ventures Global Cannabis Stock Index hitting a record low this week.
The sell-off may be rooted in worries that upcoming earnings reports might not be as strong as hoped, fears about a new House speaker who has historically opposed bills that supported the cannabis industry, and general market malaise, New Cannabis Ventures said in a note to investors.
“While 280E might get wiped out, which would be a huge benefit for cannabis companies, the sector remains under pressure,” according to New Cannabis Ventures.
In addition to tax issues, oversupply and competition within the legal market have depressed prices, and the cheaper illegal market lures customers who would otherwise spend on legal products.
Meanwhile, in the U.S., marijuana companies have found it harder to secure loans after the regional banking crisis earlier this year, which brought a chill to an already difficult financing market. Banking laws are set federally, and most lenders don’t want to deal with the onerous paperwork that comes with lending to marijuana companies.
These factors have led to a broad pullback in cannabis shares, creating bargain opportunities for those who are willing to hold shares for a long time.
“With the prices so much lower over the past month, they are less risky than during the strong rally into early September,” the New Cannabis Ventures note said. “Like we said last week, though, they are still risky.”
With that in mind, here’s a look at seven top cannabis companies as ranked by New Cannabis Ventures by adjusted operating income for the most recent quarter through Oct. 4:
|Marijuana stock||Adjusted operating income|
|Innovative Industrial Properties Inc. (ticker: IIPR)||$43.4 million|
|Green Thumb Industries Inc. (OTC: GTBIF)||$41.1 million|
|Verano Holdings Corp. (OTC: VRNOF)||$30.4 million|
|Turning Point Brands Inc. (TPB)||$17 million|
|Medicine Man Technologies Inc. (OTC: SHWZ)||$5 million|
|Scotts Miracle-Gro Co. (SMG)||$4.1 million|
|WM Technology Inc. (MAPS)||$3.8 million|
Innovative Industrial Properties Inc. (IIPR)
New Cannabis Ventures uses adjusted operating income as a key metric for tracking and comparing the health of cannabis-related companies because it adjusts reported income for changes in the fair value of biological assets and often excludes one-time items.
Plenty of companies in the legal marijuana space fall into negative territory on this metric. Not Innovative Industrial Properties, though. The provider of real estate capital for medical-use cannabis companies comes out on top of the list, at $43.4 million in adjusted operating income for the most recent quarter.
The company leases specialized real estate to state-licensed cannabis operators. In addition to boasting more than 100 properties in 19 states, the company is also able to list on the New York Stock Exchange because it doesn’t have plant-touching operations itself.
Green Thumb Industries Inc. (OTC: GTBIF)
Coming in at No. 2 on New Cannabis Ventures’ ranking based on adjusted operating income is Green Thumb Industries, with $41.1 million in adjusted operating income.
Green Thumb Industries operates in more than 80 dispensaries in 15 U.S. markets and has 18 manufacturing facilities. The company is one of the few cannabis stocks that has been consistently profitable.
In the second quarter, the company’s cash flow from operations was $18 million, and it paid $52 million in taxes. It brought in slightly less revenue than it did in the second quarter of last year because of falling marijuana prices, but it was able to recoup some of that through growth in New Jersey, Virginia and Connecticut.
Verano Holdings Corp. (OTC: VRNOF)
This company is active in 13 states, with more than 130 operational retail locations, 14 production facilities and more than 1 million square feet of cultivation capacity.
In addition to growing its business organically, the company has also been quite acquisitive, completing 17 acquisitions since going public in early 2021. While buying other companies can be a quick way to grow, it can also be expensive, as the acquiring company generally has to pay a premium for the company it’s buying.
Still, Verano clocked in at No. 3 for adjusted operating income, with $30.4 million under its belt based on the most recent financial data.
The company brought in $234.1 million in quarterly sales, behind only three other multistate operators, including Green Thumb Industries, according to data compiled by New Cannabis Ventures.
Turning Point Brands Inc. (TPB)
This is another company that’s able to list on the New York Stock Exchange because it doesn’t directly grow or otherwise touch the marijuana plant.
Rather, the company makes, markets and distributes alternative smoking accessories such as Zig-Zag rolling papers and Stoker’s brand of smokeless tobacco.
It’s not a far jump from rolling tobacco cigarettes to rolling marijuana cigarettes, and the latter has proved to be a lucrative selling point for the company’s rolling papers.
During the second quarter, its Zig-Zag segment net sales increased 1.1% to make up 44% of total net sales for the quarter. It pulled in $17 million in adjusted operating income as of its filings through Oct. 4, ranking fourth on the New Cannabis Ventures list.
“Our e-commerce business had another quarter of double-digit growth as we continue to build our omni-channel presence,” CEO Graham Purdy said of the Zig-Zag products segment in a press release accompanying second-quarter results. “We remain encouraged by our prospects, with secular cannabis consumption growth trends driving demand for our products.”
Medicine Man Technologies Inc. (OTC: SHWZ)
After Turning Point Brands, the adjusted operating income of the rest of these companies drops into single digits, but in the tough operating atmosphere of the legal marijuana industry, positivity in that metric is nothing to scoff at.
Based in Colorado, a pioneering state in the legal marijuana business, Medicine Man Technologies, doing business as Schwazze, is a retail operator with assets in high-traffic markets in Colorado and New Mexico. It has more than 60 retail dispensaries, seven cultivation facilities and two manufacturing facilities.
The company brought in $5 million in quarterly adjusted operating income based on the latest numbers, placing it at No. 5 on the New Cannabis Ventures list.
During the second quarter, the company’s revenues slipped year on year because of a 25% decline in wholesale pricing and increasing competition from newly licensed entities in New Mexico. That was partially offset by growth from new Schwazze stores.
Scotts Miracle-Gro Co. (SMG)
This name will be familiar with investors who are also into gardening and lawn care, but its Hawthorne Gardening Co. subsidiary targets marijuana growers with nutrients, lighting and other materials used in the indoor growing and hydroponic segment.
Because it doesn’t directly touch the plant, Scotts Miracle-Gro is able to trade on a major U.S. exchange.
The marijuana industry downturn hasn’t been kind to the Hawthorne subsidiary, with sales dropping 40% year on year to $93.4 million in Scotts Miracle-Gro’s results for its fiscal third quarter.
As sales have been slumping, Scotts Miracle-Gro is trying to turn the Hawthorne business around by reducing its operating footprint, overhead expenses and individual product offerings.
“In Hawthorne, we have line of sight to profitability and opportunities to leverage our leading positions in the multibillion-dollar cannabis space,” CEO Jim Hagedorn said in a press release accompanying the results.
Despite the struggles at Hawthorne, Scotts Miracle-Gro brought in $4.1 million in adjusted operating income, placing the company sixth on the New Cannabis Ventures list.
WM Technology Inc. (MAPS)
This company provides technology and software infrastructure for the cannabis industry, and as a marijuana-adjacent business it can also list on a major U.S. exchange.
Its Weedmaps platform provides consumers with information about cannabis products, online ordering and local retailers. The company also offers cloud-based software-as-a-service and data solutions to cannabis businesses, including point of sale, logistics, wholesales and ordering solutions.
The company swung to positive operating income in the second quarter from a loss in the second quarter last year even though revenue dropped to $50.9 million from $58.3 million. Its $3.8 million in adjusted operating income was enough to place the company seventh on the New Cannabis Ventures list.
“We continue to strengthen our financial position, and we’re seeing the strategic and operational changes we’ve implemented take hold, delivering increased value to our stakeholders, which in turn will generate long-term, sustainable growth and profitability for WM Technology,” executive chair Doug Francis said in a press release accompanying the company’s second-quarter results.