Cannabis stocks have been experiencing remarkable gains in recent trading sessions. Last week, the U.S. Department of Health and Human Services (HHS) made headlines by announcing its intention to propose a significant change in the classification of marijuana. The HHS recommendation is to shift marijuana from Schedule I, a category for controlled substances with high abuse potential, to Schedule III, marking a pivotal development for the cannabis industry.
Should this reclassification come to fruition, it would signify a major shift in the U.S. government’s stance on marijuana, indicating reduced potential for abuse. Additionally, it could open doors for extensive clinical research into medical applications of cannabis and bring about more favorable tax regulations for cannabis companies.
While the final decision by the Drug Enforcement Agency (DEA) may take time, such a move would undoubtedly inject fresh momentum into the cannabis market. With the United States already being the world’s largest cannabis market, established cannabis producers could access conventional funding sources to support expansion plans and meet growing demand, along with the promise of more favorable tax legislation.
Considering these factors, here are three cannabis stocks worth considering for potential investment, as experts foresee substantial growth in these companies over the next 12 months.
1. OrganiGram Holdings
OrganiGram Holdings (TSE:OGI), a Canadian cannabis producer, faced challenges in recent years due to oversupply in the Canadian market. However, it aims to rebound by capitalizing on international growth opportunities. OrganiGram has been steadily expanding its roster of international business partners and actively pursuing opportunities in this segment. The company also invested $4 million in Green Tank Technologies, a U.S.-based company, granting it exclusive access to new vaporization technology for its products.
OrganiGram has committed to cost-cutting initiatives, which are projected to yield annualized savings of $7 million. These measures include internalizing testing requirements, streamlining drying processes, and automating SHRED packaging, all of which are expected to significantly reduce operating costs.
Among the four analysts covering OGI, three recommend a “strong buy,” while one suggests a “hold.” The average price target for the stock stands at $3.12, representing a potential increase of more than 106% from its current trading value.
2. Cronos Group
Cronos Group (NASDAQ:CRON), another Canadian cannabis producer, has focused on innovation, profit margin improvement, and cost reduction this year. It exited U.S. CBD operations in Q2, allowing it to cut costs and concentrate on recreational and cannabis markets. Cronos also plans to exit its Manitoba facility by the end of 2023, with expected cost savings of $20-25 million in 2023 and additional savings of $10-15 million in 2024.
Despite a 12% year-over-year decline in net sales to $19 million in Q2, Cronos has a strong cash position with $841 million on hand. The company is well-positioned to manage its cash flow, even with a reported operating loss of $12.3 million in Q2.
Among the 11 analysts tracking CRON, three recommend a “strong buy,” seven suggest a “hold,” and one recommends a “moderate sell.” The average price target for the stock is $2.76, indicating a potential 35% increase from its current trading value.
3. GrowGeneration
The third cannabis stock of interest is GrowGeneration (NASDAQ:GRWG), valued at $196 million by market capitalization. Despite a 15% drop in comparable store sales, the company achieved a 12% increase in net sales to $63.9 million in Q2. However, due to inflation, gross margins fell from 28.5% to 26.8% compared to the previous year. GrowGeneration reported adjusted EBITDA of $0.9 million and ended the quarter with $70.6 million in cash.
GrowGeneration projects sales in the range of $220 million to $225 million for 2023, with anticipated adjusted EBITDA losses between $4 million and $6 million. The company is on track to reduce its per-share losses from $2.69 in 2022 to $0.33 in 2024.
Out of the six analysts covering GrowGeneration stock, four recommend a “strong buy,” and two suggest a “hold.” The average price target for the stock is $4.84, indicating a potential increase of 50.7% from its current trading value.
These three cannabis stocks show promise in an evolving market, potentially benefiting from the shifting landscape of marijuana regulations in the United States. However, as with all investments, it’s crucial for investors to conduct thorough research and consider their risk tolerance before making any decisions.
Featured Image: Freepik @ jcomp
