If we look at the price action for cannabis stocks in the last five years, it’s largely been disappointing. However, there have been two instances where cannabis stocks have skyrocketed in hopes of legalization. During these euphoric surges, returns from cannabis stocks have been five to ten folds.
There is again an air of optimism with the possibility of federal-level legalization in the U.S. It’s a good time to consider some of the top cannabis stocks to buy for multibagger returns. It’s also worth noting that Germany recently legalized the possession of 30 grams of cannabis for recreational use. Other European countries are likely to follow.
While the wait has been prolonged, the light finally seems to be at the end of the tunnel. Senate leader Chuck Schumer recently opined that Congress is very close to passing the cannabis bill.
Cannabis companies are possibly at the point of growth inflection. Investors still need to be very selective, with several companies suffering from sustained cash burn.
Let’s discuss three of the best cannabis stocks to buy before legalization sends them skyrocketing.
Tilray Brands (TLRY)
Tilray Brands (NASDAQ:TLRY) stock is possibly the best bet among cannabis stocks. When Joe Biden was elected as President, TLRY stock had gone ballistic and surged to $63.9. A deep correction, however, followed regulatory headwinds.
However, business development has been positive, and Tilray seems well-positioned to benefit from legalization. Currently, the company has a leading market position in medicinal cannabis in Germany. Tilray is also a market leader in Canada.
It’s also worth noting that Tilray already has a strategic infrastructure in the U.S. after the acquisition of SweetWater Brewing Company. In November, the company also acquired Montauk Brewing, which is expected to deliver strong revenue and adjusted EBITDA.
Tilray has guided for positive free cash flow from all operating business units in the current financial year. With most cannabis companies struggling with cash burn, this is another reason to like TLRY stock.
The company’s management has set an ambitious target to achieve $4 billion in revenue by 2024. This seems realistic in a federal-level legalization scenario.
Curaleaf Holdings (CURLF)
The price action for Curaleaf Holdings (OTCMKTS:CURLF) stock has been positive in the last six months. It’s another cannabis company with decent fundamentals worth holding for the long term.
A big reason to like Curaleaf is that the company already has a presence in 22 states. The company has also been expanding internationally, focusing on the medicinal cannabis segment. Curaleaf already has a presence in eight European countries and Israel.
Another reason to like Curaleaf is that the company has consistently reported positive adjusted EBITDA. For Q3 2022, the company’s adjusted EBITDA margin was 25%. Further, operating cash flows were $60 million. In a legalization scenario, cash flows are likely to swell meaningfully.
Curaleaf has also maintained a competitive edge with investment in research and development. Currently, the company has approximately 180 products in experimental development. The launch of new products will continue to boost growth.
Cronos Group (CRON)
Amidst the volatility, Cronos Group (NASDAQ:CRON) stock has been sideways in the last six months. A breakout after consolidation seems likely, with legalization being the catalyst.
In the United States, Cronos already has hemp-derived consumer products and cosmetics under two brands. Additionally, In June 2021, Cronos acquired a 10.5% stake in PharmaCann for a consideration of $110.4 million. The latter has a presence in eight states. In the wellness segment, the company has a presence in Australia, Canada, Germany, and Israel.
For the first nine months of 2022, Cronos reported 42% revenue growth on a year-on-year basis to $48.6 million. Adjusted EBITDA losses have also narrowed. I also like that Cronos ended Q3 2022 with cash and equivalents of $633 million. This provides ample financial flexibility for organic and acquisition-driven growth.
In March 2019, Altria (NYSE:MO) acquired a 45% stake in Cronos. Even during a phase of business transformation, Altria continues to report robust cash flows. Cronos, therefore, has strong financial backing.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.