1 Top TSX Cannabis Stock to Play U.S. Legalization

Here’s why Curaleaf (TSXV:CURA) is, hands-down, the best way to play U.S. legalization right now.

| More on:
edit Powder of Cannabis (Drugs), Analysis of Cannabis in laboratory.

Image source: Getty Images

Biden’s win, in concert with a Democratic Senate majority, has cemented expectations that cannabis legalization in the U.S. could be on the horizon. Indeed, the potential for U.S. legalization is a massive catalyst. Investors in cannabis stocks today are really making long-term projections for how this sector will develop.

The U.S. cannabis market is absolutely massive, and legalization would be a game changer for the sector. That said, I think some Canadian-listed cannabis stocks will perform better than others. Here’s my top pick in this regard.

Curaleaf’s U.S. presence is impressive

Currently the largest U.S. cannabis producerCuraleaf (TSXV:CURA) is my top pick for investors looking to play this catalyst.

Curaleaf recently acquired Grassroots — a move that is expected to be highly accretive. This has made Curaleaf approximately 35% bigger in terms of U.S. revenue than its next biggest competitor. The company’s size, scale, and existing footprint is impressive and provides Curaleaf with an important head-start on its Canadian peers.

Curaleaf’s operations span from coast to coast. These include 23 cultivation facilities, more than 30 processing facilities, and a network of more than 1,150 wholesale dispensary accounts. Curaleaf is expanding its wholly owned dispensaries, with nearly 100 in operation right now.

Indeed, I think the company’s vertically integrated business model provides the potential for outsized margins compared to its peers. For example, the company’s processing facilities turn the raw commodity into value-added products such as vapes and oils. These products have the potential to provide outsized margins. Accordingly, Curaleaf’s pathway to profitability is much smoother than its peers right now, in my view.

Getting into the U.S. market isn’t easy

Curaleaf’s Canadian counterparts will have quite the task in terms of growing a U.S. presence. First of all, this is a highly competitive market already. These companies have to go head to head with Curaleaf, among others. American cannabis companies have been gobbling up market share in the states that have legalized use for much longer than cannabis has been federally legal in Canada. This is a crowded space now, with established companies wielding brands that consumers know and trust.

Secondly, entrance into the U.S. market isn’t free. Growing a large-scale U.S. business organically from the ground up is going to take a lot of capital. Yes, stock prices are soaring, but this means dilutive issuances or massive debt offerings.

Acquiring one’s way into the U.S. market is another route Curaleaf’s Canadian counterparts could take. Of course, this is going to be ultra-expensive right now, given how rapidly the stock prices of cannabis producers have appreciated recently. In either case, it’s going to be expensive.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Chris MacDonald has no position in any of the stocks mentioned.

More on Cannabis Stocks

Pot stocks are a riskier investment
Cannabis Stocks

Steer Clear: This Stock Spells Trouble

A newly listed cannabis stock is outperforming in 2024 but investors should stay clear to avoid trouble and losses.

Read more »

Cannabis stocks have fallen.
Cannabis Stocks

2 Best Marijuana Stocks to Buy This Month

Marijuana stocks in the U.S. such as Green Thumb and Curaleaf can help you deliver outsized gains to investors in…

Read more »

A cannabis plant grows.
Cannabis Stocks

Can Aurora Cannabis Stock Recover in 2024?

Aurora Cannabis stock is down 99% from all-time highs but remains a high-risk bet, despite its cheap valuation.

Read more »

A person holds a small glass jar of marijuana.
Cannabis Stocks

The Best Cannabis Stock to Buy Right Now

This cannabis stock has jumped 30% in the last few months, with even more growth on the way – all…

Read more »

Cannabis grows at a commercial farm.
Cannabis Stocks

Down 99% From All-Time Highs, Is Canopy Growth Stock a Good Buy Right Now?

Canopy Growth stock is a high-risk investment due to its negative profit margins and challenging liquidity position.

Read more »

Marijuana plant and cannabis oil bottles isolated
Stocks for Beginners

Aurora Cannabis’ Reverse Stock Split: Is the Stock a Buy Today?

Cannabis stock Aurora (TSX:ACB) is consolidating shares once again, but what does this mean for investors?

Read more »

Medicinal research is conducted on cannabis.
Cannabis Stocks

Where Will Cannabis Stocks Be in 10 Years?

Cannabis stocks could see a huge shift upwards should marijuana be rescheduled in the U.S., but you can still buy…

Read more »

Cannabis grows at a commercial farm.
Cannabis Stocks

Forget Canopy Growth: 1 Cannabis Stock With Far Less Risk

Cannabis stocks like Canopy Growth (TSX:WEED) haven't done well for quite some time, yet this one deserves a major boost!

Read more »