The next two years can be make-or-break for the cannabis sector.
The biggest speed bump to growth for cannabis companies is not competition, but regulations headwinds. And it’s highly probably those headwinds will wane. Therefore, now is a good time to buy cannabis penny stocks for multibagger returns with an investment horizon of 24 months.
First, Germany has set the tone with the legalization of cannabis. It’s likely that other European countries will follow suit. Further, cannabis will probably be classified as a Schedule III drug in the U.S. With Presidential elections round the corner, expect discussions related to federal level legalization of cannabis.
Also, remember when cannabis companies were struggling with massive cash burn a few years ago?
Well, that has changed for some of the top companies with cost control and operating leverage. As the addressable market swells, the best cannabis companies will continue to grow and cash flows will swell.
Therefore, let’s explore three cannabis penny stocks to buy for multibagger returns.
Cronos Group (CRON)
Deeply undervalued, Cronos Group (NASDAQ:CRON) witnessed a healthy rally of 35% in the last six months. This might just be the beginning of a sustained reversal considering multiple positive catalysts.
The first point to note is that Cronos was initially focused on Israel and Canada. Last year, the company entered Germany and Australia focusing on the medicinal cannabis segment. And, entry into Germany couldn’t have come at a better time with cannabis being legalized.
Also, Cronos can make aggressive entry in the U.S. The company ended Q4 2023 with a cash buffer of $862 million. Positive news on the regulatory front might translate into Cronos pursuing acquisition-driven growth.
Additionally, CRON guided for positive change in net cash position for the current financial year. Therefore, the growth outlook is positive coupled with EBITDA margin improvement.
Tilray Brands (TLRY)
New York City-based Tilray Brands (NASDAQ:TLRY) has slipped after the company reported Q3 2024 results. Some see this correction as a good buying opportunity. If regulatory catalysts play out, the reversal in TLRY stock is likely to be sharp.
But, while Tilray’s Q3 numbers missed estimates, the results aren’t necessarily disappointing. Tilray Brands reported 30% growth in net revenue to $188 million. Notably, cannabis revenue increased by 33% year over year (YOY). This was driven by healthy growth in international medicinal cannabis revenue.
At the same time, alcohol net revenue increased by 165% YOY. TLRY maintains its position as the fourth largest craft beer brewer in the U.S. With strong presence in the craft beer business, Tilray Brands also has a strategic infrastructure for cannabis expansion on potential federal level legalization.
Finally, the company ended Q3 2024 with a cash buffer of $226 million. On the flip-side, TLRY doesn’t expect to generate positive adjusted free cash flow for the financial year. However, this negative is likely to be offset by positive regulatory news in the coming quarters.
Curaleaf Holdings (CURLF)
Founded in 2010, Curaleaf Holdings (OTCMKTS:CURLF) is another quality cannabis penny stock to buy for multibagger returns. The stock has been trending higher by 83% during the last 12 months. However, it remains undervalued and with positive business developments likely, expect a bigger rally.
When Curaleaf Holdings reported Q4 2023 results, the management indicated that 2024 is likely to be a “catalyst year” for the company. Curaleaf Holdings is scheduled to report Q1 2024 numbers the second week of May. It may be a good time to consider exposure now. And if growth accelerates, CURLF stock is likely to skyrocket.
Importantly, Curaleaf Holdings reported health adjusted EBITDA margin of 23% for 2023. Further, operating cash flow for the period was $91.2 million. With healthy margin, financial flexibility is likely to remain strong for investment in research and development. Also, strong financial flexibility will ensure that Curaleaf Holdings continues to pursue aggressive medicinal cannabis expansion in Europe.
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Read More: Penny Stocks — How to Profit Without Getting Scammed
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.