The story of cannabis legalization and the public company valuations that accompanied it are reminiscent of the gold rush days in many ways. Early movers, both in Canada and the United States, were rewarded by abundant optimism. Market caps soared based on potential, rapid expansion of production capacity, and a good story. It soon became apparent, however, that actually making money in the new industry was easier said than done. Bills came due, investors wondered when the bottom line was going to improve, and the public markets stopped providing cheap capital.
The peak may have been reached in 2021 or so. Between 2021 and 2023 the industry went through a major correction. ETF valuations offer a fairly representative look at what is happening across the legal cannabis market. AdvisorShares Pure US Cannabis ETF (MSOS) is the largest cannabis-focused ETF with about $496 million in assets currently. In February 2021 it hit a high of $53.45/share. Two years later it was trading at $7.15.
The losses have leveled off some since 2023, but the market sector is still finding its footing. MSOS was down 49% for the calendar year 2024. The Amplify Alternative Harvest ETF (MJ), the second-largest fund with about $155 million in assets currently, declined about 31% over the same period.
As with any industry in a down cycle, there are still gems to be found. The promise of the very young legal cannabis market remains, and several public companies are showing they have what it takes to succeed.
Grown Rogue
Grown Rogue International Inc. (CSE: GRIN) (OTCQB: GRUSF) is a craft cannabis company based in Oregon. Grown Rogue focuses on cultivation of high-quality plants and cut its teeth in the highly competitive and mature Oregon legal cannabis market.
The company has been carefully expanding its business to other states and now operates in Michigan, Minnesota, New Jersey, and Maryland.
Current laws dictate that cannabis cannot be transported across state lines so Grown Rogue has developed cultivation capacity in each state individually. The company is poised to dive into interstate commerce from its home base in Oregon should federal laws change.
Grown Rogue reported revenue of $7 million for Q3 2024, an increase of about 7% from the previous year. The company’s stock started 2024 trading at $0.29/share and ended the year at $0.65, an increase of 124%. Grown Rogue is currently valued around $135 million.
LEEF Brands
LEEF Brands Inc. (CSE: LEEF) (OTCQB: LEEEF) is one of California’s leading cannabis extraction companies, providing high quality extracts for most of the biggest brands in the world’s largest legal cannabis market. LEEF has been generating about $30 million in annual revenue for the past three years and is now implementing plans that should improve that revenue number while also significantly boosting the company’s margins. With a market cap around $25 million, LEEF currently trades well below the revenue multipliers of some of the more successful public cannabis companies. That ratio could correct itself if the company performs as it hopes in 2025.
LEEF owns the Salisbury Canyon Ranch in Santa Barbara County and will be planting the first 65 acres (out of 187 total plantable acres) this year. LEEF currently buys raw cannabis stock from over 200 California growers to feed its extraction operations, and the move to create its own supply should reduce material costs, improve margins, supplement and even replace current supply sources, and ensure the highest quality throughout the operation.
LEEF stock started the year at $0.012/share but underwent a 10:1 consolidation in November. Adjusting for the consolidation results in a $0.12/share price to start the year, and the stock ended the year trading at $0.21, an increase of 75%.
Glass House Brands
Glass House Brands Inc. (“Glass House” or the “Company”) (CBOE CA: GLAS.A.U) (CBOE CA: GLAS.WT.U) (OTCQX: GLASF) (OTCQX: GHBWF) is one of the fastest-growing, vertically integrated cannabis companies in the United States. Glass House is focused on cannabis flower products, both wholesale and retail, for California’s legal cannabis market.
The company reported revenue of $63.8 million in Q3 2024. Glass House should easily surpass its FY 2023 record revenue number of $160.8 million when the final quarter is reported, anticipating somewhere in the neighborhood of $195 in total revenue for 2024.
Glass House revenues have been growing consistently and the market has noticed. The stock started 2024 trading at $4.71/share and closed at $5.80/share, an increase of about 23%. Since the beginning of 2023 Glass House stock has risen about 214%. The company is currently valued around $390 million.
The Big Picture
Investors looking for upside in the legal cannabis market, itself in the early stages of maturation, should be looking at businesses on high growth trajectories that have demonstrated the ability to successfully navigate the market’s difficult regulatory landscape. The three companies discussed here all qualify and seem poised for further expansion in the coming years. Take a look, do your research, and invest wisely.
