For investors seeking exposure to top cannabis stocks, the Canadian market is a great place to start. Whether it’s Canopy Growth (TSX:WEED) or Green Thumb Industries (TSXV:GII), a number of high-profile producers and related companies have seen surges (and massive declines) in recent years.
Of course, these growth stocks boomed following the announcement that the Trudeau government would legalize cannabis roughly seven years ago. However, for the past few years, most companies (including the two I’m going to feature here) haven’t performed well at all.
That said, for those looking to play this space, let’s compare and contrast these two companies, and see which is the better bet.
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Canopy Growth
In my view, Canopy Growth remains the preeminent cannabis company most investors think of when they look at this space. Once the largest producer by market capitalization, which saw its shares surge to an all-time high of more than $568 per share during the past bubble, shares have come down considerably. Now changing hands for around $7 per share, investors have the opportunity to consider this cannabis giant at a market capitalization of just $820 million, and a price-sales ratio under 2 times.
That’s historically low for any company in this sector, but Canopy Growth in particular. That’s despite the company pursuing entry into the U.S. market, with a number of partnership agreements including its JV with Acreage Holdings and the corresponding conditional acquisition agreement that has come as part of this deal.
It’s clear that Canopy Growth is positioning itself to be a top Canadian entrant into the U.S. market, once (or if?) legalization takes place. With many questions around this catalyst, most investors have been forced to look at the company’s financial picture, which hasn’t been great. Steady losses and high debt burdens have hurt this stock to a greater degree than many of its peers, and a period of deleveraging has led to share price declines that are considerable.
Green Thumb Industries
Green Thumb is a bit of a different story than Canopy. First off, this company is engaged in the retail space, with the company obtaining retail facilities in core states including Illinois, Pennsylvania, and New York. Thus, from a market penetration standpoint, Green Thumb is ahead of the game.
The company also leads Canopy growth in terms of its financials, reporting positive EBITDA in past quarters. This indicates the company is on track to profitability, and its superior cost controls and conservative approach to growth have positioned it as healthier than its peers.
While Canopy faces significant operational issues, Green Thumb has an almost debtless balance sheet and cost structure, allowing it to keep pace with growth without piling up excess debt. While the overall cannabis industry has been experiencing growing pains, Green Thumb’s prioritization of profitable growth and expansion into the US has kept investor appeal strong.
The price currently set on this stock reflects its superior financial health and position in the market. In addition, it may be less risky than Canopy Growth but remains susceptible to regulatory and market-type risks endemic to the industry.
Bottom line
Readers aren’t going to be surprised to see that my recommendation between the two companies would be Green Thumb. This is a company that has its fingers in the U.S. market already, is focused on what appears to be a more profitable piece of the sector (namely, retail) and has a path to profitability. In my view, this is the preferential way to play this sector, for those looking to do so in this current climate.
