Top Cannabis Penny Stocks to Consider

By Duncan Ferris

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With weed legalization legislation introduced to the Senate earlier this summer, savvy investors might be keen to work out the best cannabis penny stocks to exploit this rapidly expanding market.

With decriminalization of cannabis for medical and recreational use appearing to spread significantly in North America and beyond, it might be an attractive time to back cannabis penny stocks.

Indeed, the proposed Cannabis Administration and Opportunity Act, which is backed by prominent US senators such as majority leader Chuck Schumer, pushes for nationwide legalization in the US. That's why some see these stocks as some of the most attractive long-term investments in the life sciences space.

Even so, that doesn’t mean cannabis stocks are a slam dunk. High competition and over-ambitious expansion has dogged the space, with many cannabis stocks seeing their share price fall significantly as excitement surrounding the sector has subsided somewhat.

With that in mind, here are some cannabis penny stocks we think are worth a look:

Cresco Labs

Cresco Labs (OTCMKTS: CRLBF) operates in 10 states through 51 owned Sunnyside brand dispensaries, which are supplied by its 21 production facilities. These production and distribution centres are also where the company runs its wholesale segment, which supplies almost 600 stores in California alone.

The company has a wide range of brands under its umbrella, from the straight up cannabis sold under its flagship Cresco brand to cannabis-infused foodstuffs from the Mindy’s Edibles brand and wellness-oriented products sold under the Remedi brand.

The company specifically targets limited license markets, allowing it to avoid some of the issues with high competition which have been seen in the cannabis market to date.

The company has also agreed to acquire fellow multi-state operator Columbia Care, with this transaction targeted for completion before the start of 2023. The deal will significantly expand the company’s footprint, adding more than 90 retail locations and operations in previously untouched states like New Jersey and Virginia. 

With so much focus on the US and so little on the international market, Cresco is a great cannabis stock for investors who anticipate US decriminalization of the drug in the near future.

With a large and growing footprint already in place, including a successful wholesale operation, the company’s dominant position means it is better placed than many to capitalize on a potential boom in demand for legal weed. As such, this is a cannabis penny stock you might want to learn more about.

Tilray Inc

Cannabis lifestyle and consumer goods specialist Tilray (NASDAQ: TLRY) have built an exceptionally wide-reaching business. The company’s operations touch on medical use, adult-use, wellness and beverage and alcohol markets across Canada, Europe, Australia and the US.

The company’s latest quarterly results, which cover the three-month period ended 31 May 2022, show that the company achieved revenue of $153.3m. This compares with $142.2m for the same period last year. 

However, this growth is not reflected in the company’s operating losses, which have spiralled from $73.7m to $460.7m in the same time frame. The company said this change was due to a non-cash impairment of $395.0m relating to changes in market opportunities causing a shift in Tilray’s strategic priorities, and market conditions inclusive of higher rates of borrowing and lower foreign exchange rates.

Through high spending the company has established itself as one of the leading lights in the cannabis market, but this spending needs to lead to some kind of payoff.

Most cannabis businesses would benefit significantly from further legalization or decriminalization progress. For Tilray, which already boasts that it is the largest cannabis company on the planet, this would be particularly good news as the company’s sizable expansion means it is well-placed to muscle in on new markets.

In the meantime, the business has significant issues such as a high cash burn, recent dilution of share price and very high competition. Even so, some investors might be attracted by the idea of investing in a company which could have the potential to quickly become the dominant force in new legal cannabis markets.

The company might turn out to be a strong long-term investment, but its current problems also make Tilray stock a risky proposition for investors. If you’re considering investing in cannabis penny stocks, Tilray is an important stock to keep track of even if you don’t opt to invest.

Cronos Group Inc

While Tilray might be the biggest cannabis company in the world, Cronos Group (NASDAQ: CRON) is a smaller operation.

The company released its second-quarter earnings this week, showing 48% revenue growth to $23.1m as international efforts made up for lagging sales in the United States. This growth helped the company achieve a gross profit of $4.1m for the period, compared with a loss of $14.8m in its second-quarter earnings in 2021. 

The powerhouse behind the company’s success overseas is its operation in the Israeli medical market, which saw revenue rocket by more than 200% in the period. Additionally, Cronos is confident it can exploit its leading position in the country to capitalize on pent-up demand.

The company is also keen to elbow into the German market in the coming years and has already established a distribution partnership in the country.

With success in Israel and adult use in Canada helping to drive the company’s strong showing outside of the US, Cronos is restructuring its American operations to target a similar market.

This means downsizing its US workforce and exiting the wholesale beauty segment at a total cost of $6.4m, though Cronos expects the move will yield considerable cost savings.

In short, sales in the company’s US operation have been suffering, but its performance overseas has been impressive. While the potential for American expansion is taking all the headlines when it comes to cannabis stocks, Cronos Group appears to be carving itself a niche further afield.

This could be appealing to investors, as the business might not be so vulnerable to the high levels of competition that we could see in the US and have already observed in Canada. For a smaller stock with an international footprint, dig into Cronos to decide if it's the cannabis penny stock for you.

Want to learn more about cannabis stocks? CLICK HERE to find out whether Aurora Cannabis is a good investment!

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In this article:

Topics:
Cannabis
Life Sciences Tools and Services
Industries:
Consumer Discretionary
Healthcare
Companies:
Cresco Labs Inc.
Tilray
Cronos Group

Author: Duncan Ferris

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

Duncan Ferris does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the above article.

Duncan Ferris has not been paid to produce this piece by the company or companies mentioned above.

Digitonic Ltd, the owner of ValueTheMarkets.com, does not hold a position or positions in the stock(s) and/or financial instrument(s) mentioned in the above article.

Digitonic Ltd, the owner of ValueTheMarkets.com, has not been paid for the production of this piece by the company or companies mentioned above.

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