Last Updated on by Aardvark
If you’re looking for a growth stock that is priced like a value stock, then it’s time to check out my #1 cannabis stock for 2022.
- This early industry leader is one of the fastest-growing companies in the U.S.
- Third-quarter sales more than doubled from last year
- Shares are trading more than 50% below the 52-week high – a rare discount for a growth stock like this
With shares trading at a deep discount to sales growth, this stock is in position for a big rebound in 2022. That’s why this is my #1 cannabis stock for 2022.
Verano Holdings, Inc. (CSE: VRNO, OTC: VRNOF) was founded in 2014 and has quickly grown into one of the five largest cannabis companies in the U.S. with a market value of around $3 billion.
Headquartered in Chicago, Illinois, Verano has an impressive portfolio of cannabis permits, production facilities, and dispensaries.
- Operates in 11 states
- 89 dispensaries
- 11 cultivation and processing facilities
- More than 1 million square feet of U.S. production capacity
With this impressive portfolio of cannabis assets, Verano has been delivering big-time sales growth.
Third-quarter results from mid-November showed huge revenue gains from last year. Verano also delivered a profit, another indicator of the company’s financial strength. Here are some more details from Verano.
- Revenues were $207 million compared to $199 million reported in the second quarter, and $101 million reported in the same period one year ago, representing 4% sequential growth and 106% year over year.
- Gross profit increased 33% sequentially on an unadjusted basis and excluding the impact of biological assets, to $133 million, or 64% of revenue, compared to $100 million or 50% of revenue reported in the second quarter of 2021.
- Third quarter adjusted EBITDA was $111 million or 54% of revenue compared to $81 million or 41% of revenues in the prior quarter. Third quarter EBITDA on an unadjusted basis was $107 million or 52% of revenues.
- SG&A expense was $32 million or 15% of revenue.
- Net income, including the impact of biological assets, was $104 million. Excluding the impact of biological assets, net income was $15 million in the third quarter of 2021, compared to $32 million reported in the second quarter of 2021.
- Cash flow from operations was $68 million and Free Cash Flow was $35 million.
Despite the impressive results, Verano shares have been crushed in 2021. Verano began trading on the Canadian Stock Exchange in February and shares are down 52% since then. Take a look at the 2021 chart below.
I see two reasons shares fell so much in 2021, and I view both to be temporary.
Cannabis stocks saw huge gains in 2021. However, shorter-term investors took profits in the first half of the year, triggering a sharp move lower.
In the second half of the year, investors became frustrated with a lack of progress on legalization after the Democrats took control of the presidency and Congress.
I view both of these conditions as temporary. Looking forward I expect Verano to rebound sharply in 2022 because of three powerful catalysts.
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Verano Should Benefit From Three Powerful Catalysts in 2022
Verano shares are on sale right now, trading 52% below the 52-week high. I also see a key level of support that has developed between $10 and $12 on the U.S. ticker VRNOF.
It looks like Verano is establishing a long-term bottom at this level and setting the foundation for a reversal and new trend higher. Take a look at the 2021 chart below.
#2 – Sales Should be Red-Hot in 2022
Verano probably won’t grow revenue by 106% again, but the company should see major sales growth in 2022.
Analysts are projecting full-year revenue of around $1.5 billion, which would be a 50% increase from projected full-year revenue of about $1 billion in 2021.
This revenue growth will be driven by a string of recent expansions and acquisitions that Verano has pulled off. Here are a few details from a Verano press release.
- In the third quarter, Verano further expanded its retail footprint with seven new dispensaries across its core markets in Florida, Ohio, and Pennsylvania, including the first Zen Leaf storefront in Philadelphia, and a flagship drive-through dispensary in Pittsburgh.
- The Company closed its acquisitions of Agri-Kind and Agronomed, which added active cultivation and production while expanding its retail footprint in Pennsylvania. Subsequently, the Company has 12 active dispensaries in Pennsylvania with the ability to open six additional storefronts and a second large-scale cultivation facility which is currently under construction.
- The Company maximized its retail footprint in Ohio at five dispensaries with the acquisition of Mad River Remedies in Dayton.
- The Company announced the acquisition of Sierra Well, which will expand distribution in Nevada with two high-volume dispensaries in Reno and Carson City, and an additional 10,000 square feet of cultivation and production capacity in Reno, which is expected to strengthen the Company’s supply chain in Northern Nevada.
- In November, the Company announced three accretive acquisitions in Connecticut, including two active dispensaries and one 217,000 square foot cultivation and production facility. The acquisitions will position the Company for sustainable growth by accelerating vertical integration ahead of the state’s transition to adult-use sales.
#3 – Verano is Grossly Undervalued Relative to Other Growth Stocks
Cannabis stocks and Verano are hard-core growth stocks that are priced like deep value stocks after steep declines in 2021.
Using 2022 projected revenue, Verano has a price-to-sales ratio of 2X. That is ridiculously low for a growth stock such as Verano and you can see that when comparing it to other growth stocks
For example, Tesla is projected to deliver $70 billion in revenue in 2022. With a market cap of $1 trillion, Tesla has a forward price-to-sales ratio of 14X, a 600% premium to Verano. That means if Verano had the same price-to-sales ratio as Tesla shares would be trading 600% higher. I expect this value to attract a lot of investors in 2022.
The Big Picture
After weakness in 2021, 2022 is setting up to be a rebound year for the cannabis sector.
With that backdrop in play, I expect Verano to be a top performer. The company should benefit from three powerful catalysts, including big-time sales growth.
In the meantime, shares are trading at a deep discount to the 52-week high. It’s a rare opportunity to buy a high-growth stock while it trades with deep value.
Author Michael Vodicka owns shares of Verano Holdings, Inc. (VRNO)