In the next few years, the global legal marijuana market is expected to grow at a robust pace. As regulatory headwinds wane, the market size is expected to reach $70.6 billion in 2028. This would imply growth at a CAGR of 26.7%. It’s not surprising that investors have started looking at major marijuana stocks like Tilray (NASDAQ:TLRY) with renewed interest. At the same time, marijuana penny stocks provide an opportunity for some high-risk bets.
At a time when penny stocks are on the radar of the Reddit army, marijuana penny stocks can surprise on the upside. Importantly, not all penny stocks are purely speculative. There are dozens of early-stage marijuana companies that seem to have a promising future.
Considering the point that industry tailwinds can possibly sustain beyond the current decade, few marijuana penny stocks are worth considering. This column will talk about seven marijuana penny stocks that can deliver multi-fold returns.
Let’s look at the business factors that make these marijuana penny stocks attractive.
- Sundial Growers (NASDAQ:SNDL)
- Hexo Corp (NYSE:HEXO)
- OrganiGram Holdings (NASDAQ:OGI)
- Greenlane Holdings (NASDAQ:GNLN)
- Nextleaf Solutions (OTCMKTS:OILFF)
- Namaste Technologies (OTCMKTS:NXTTF)
- The Valens Company (OTCMKTS:VLNCF)
Now, let’s dive in and take a closer look at each one.
Marijuana Penny Stocks to Buy: Sundial Growers (SNDL)
At 79 cents, SNDL stock is among the most attractive marijuana penny stocks. After a flurry of fund raising, Sundial reported a cash buffer of $873 million. This is likely to be utilized for organic growth and acquisitions over the next few quarters.
An interesting development is the company’s partnership with SAF Group. The partnership intends to invest in debt, equity and hybrid cannabis opportunities globally. Initially, Sundial had committed $188 million towards the joint venture. Recently, the company increased the commitment to $350 million. Once the partnership has quality investments, it’s likely to translate into recurring cash flows.
Sundial also has a comprehensive portfolio of brands with a focus on inhalables. The company has been accelerating sales and marketing efforts. If growth is branded cannabis products is robust, it’s likely to deliver healthy EBITDA margin.
In the recent past, Sundial also acquired Inner Spirit Holdings. The latter has 86 recreational cannabis stores across Canada. For Q4 2020, Inner Spirit reported an adjusted EBITDA margin of 19%. The company can possibly leverage on the retail store network to boost its own brand visibility.
Overall, Sundial seems to be at a growth inflection point. This makes SNDL stock attractive for the medium to long-term.
Hexo Corp (HEXO)
Earlier this year, HEXO stock had surged to a high of $11. The stock has been in a correction zone and currently trades at $4.16. This seems like a good accumulation zone.
Hexo is already among the top cannabis players in Canada. The company is also pursuing growth opportunities in U.S. and Europe. With a big addressable market, Hexo is well positioned for sustained growth.
In terms of the product portfolio, Hexo is diversified with offerings that include pre-rolls, oils- capsules and vapes. An important point to note is that the company reported cash used in operations of $93 million for the first nine months of 2020. For the current financial year, the cash used in operations declined to $16.8 million.
As revenue accelerates, the company is well positioned to generate positive cash flows. The company has a quality portfolio of brands. As an example, Redecan is among the most profitable Canadian licensed producers.
Hexo has remained active in terms of acquisition driven growth. The company has two pending acquisitions of Zenabis and 48North. The acquisition of Zenabis will give the company inroads in the European market. Further, 48North will strengthen the company’s position in Canada’s market.
Clearly, HEXO stock looks attractive at a time when U.S. Federal legalization of cannabis seems likely. The company’s growth is expected to accelerate in the next few years.
Marijuana Penny Stocks to Buy: OrganiGram Holdings (OGI)
OGI stock is another name among marijuana penny stocks that surged in February 2021. However, the stock has sharply corrected from highs of $6 to current levels of $2.46.
There are several factors that point to accelerated growth for OrganiGram in the coming quarters.
First and foremost, the company reported gross revenue growth of 31% for Q3 2021 year-over-year. The company has launched 84 new SKUs since July 2020. Product revitalization is the first reason for growth acceleration.
Further, OrganiGram reported cash and short-term investments of $222 million as of July 2021. With strong financial flexibility, the company is well positioned to pursue investments in research and development. It’s worth noting that OrganiGram is focused on recreational as well as medicinal cannabis.
In another important development, OrganiGram signed an agreement with British American Tobacco. The latter has also acquired 19.99% equity interest in the company. The agreement will focus on developing next generation derivative cannabis products.
Focus in research and innovation is likely to deliver long-term results. In particular, the medicinal cannabis market has lack of evidence backed medicines. The company can make inroads in a potentially big medicinal cannabis market.
Greenlane Holdings (GNLN)
GNLN stock is another name among marijuana penny stocks that seems to be flying under the radar. However, the stock has significant upside potential in the next few years.
Recently, Greenlane and Kushco agreed to merge to create an ancillary cannabis products and services company. For the combined entity, the pro-forma 2020 revenue is estimated at $250 million.
Once the acquisition is closed by Q3 2021, the focus will shift to cost synergies and accelerated growth. This is likely to take GNLN stock higher. Another important point to note is that the combined entity is likely to have a positive EBITDA (excluding synergies).
Prior to the merger agreement with Kushco, Greenlane also acquired Eyce. The latter has a leading brand of silicone smoking products. An innovative product portfolio is likely to drive growth.
It’s also worth noting that the company’s products will be sold across 8,000 retailers (pro-forma) globally. The company already has presence in the U.S. through the retail channel.
Overall, GNLN stock looks good for accumulation. I would not be surprised if returns are multi-fold from current levels.
Marijuana Penny Stocks to Buy: Nextleaf Solutions (OILFF)
At 17 cents, OILFF stock is among the marijuana penny stocks that‘s worth taking a plunge. If the company’s business does gain traction, the upside potential is significant.
As an overview, Nextleaf Solutions is a cannabis technology company. The company develops and licenses technology for the extraction and distillation of cannabinoids.
The point that I like about the company is focus on innovation. Currently, the company has a portfolio of 80 patents. This includes 15 patents in the United States.
The company already has extraction agreements with several white label cannabis producers in U.S. and Canada. Further, the long-term plan is direct sale of consumer products. Recently, the company signed an agreement with BC Liquor Distribution Branch for sale and distribution of branded consumer products.
Overall, Nextleaf solutions is an early-stage company that’s focused on increasing bulk sales and expanding the patent portfolio. Furthermore, focus on innovation and consumer products is likely to be the catalyst for the coming years.
I would not consider a big exposure, but a small position in the OILFF stock can deliver multi-fold returns.
Namaste Technologies (NXTTF)
As a marketplace platform for cannabis and wellness products, Namaste Technologies has a differentiating factor. The recreational and medicinal cannabis segment is getting increasingly competitive and industry consolidation seems likely.
However, there is ample opportunity for growth in the e-commerce segment. Namaste already has presence in nine countries. Besides expansion of the marketplace and entry into new geographies, Namaste is also looking at contract manufacturing and wholesale distribution agreements for growth.
For the second half of 2021, Namaste Technologies also plans the launch of nutraceuticals in North America. For 2022, the company intends to launch the nutraceuticals products in Europe and Europe. This is likely to support margin expansion.
It’s worth noting that for 2020, the company’s gross sales increased by 65%. For the same period, the increase in operating expense was 7%. If this trend sustains, a strong improvement in EBITDA margin is likely.
NXTTF stock had touched an all-time high of 35 cents in January 2021. After correction to current levels of 15 cents, the stock looks attractive.
Marijuana Penny Stocks to Buy: The Valens Company (VLNCF)
Valens seems like another interesting company in the marijuana space. For the current year, VLNCF stock has trended higher by 49%. However, further upside seems likely with several positive business developments.
As an overview, Valens is in the business of extraction, purification, formulation and product manufacturing. The company also helps brands in sales and distribution.
A factor that sets Valens apart is the manufacturing capability for a wide range of products. This includes capsules, vapes, beverages, edibles, concentrates, among others. Recently, the company entered into an agreement to manufacture beverages and edibles for Gallery Brand.
In another important development, Valens announced the acquisition of Green Roads and its manufacturing subsidiary in the U.S. Once marijuana is legalized at Federal Level, the company’s U.S. operation can gain significant traction.
From a financial perspective, Valens reported revenue growth of 24.7% for Q1 2021 YOY. The company also ended the quarter with a strong cash position of $49.3 million. This is likely to support organic and acquisition driven growth.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.