In July, I shared my thinking about why cannabis stocks were primed to rally, pointing to booming product demand, more states legalizing in short order and the likelihood of a friendlier federal regulatory environment. Since then, the New Cannabis Ventures Global Cannabis Stock Index has rallied 13.5% to 34.40 from its July 10th close of 30.31.

A sub-sector delivering much stronger performance than the overall index has been the leading multi-state operators (MSOs). Here is the performance since then for the top 4 in terms of market cap, which includes Cresco Labs, Curaleaf Holdings, Green Thumb Industries and Trulieve:

This is how Cresco Labs, Curaleaf, Green Thumb Industries and Trulieve have performed since July 10th

Since the lows in March, the stocks are up 234-279%, far outpacing the index, which is up about 102% since March 18th.

Why are investors snapping up shares of these large operators? Quite simply, the growth prospects are extremely favorable, as I will discuss below, and the recent earnings reports reinforced this notion, with Curaleaf, GTI and Trulieve having already reported and Cresco set to report its Q2 on August 20th.

Trulieve kicked it off on August 12th, with its Q2 revenue ahead of expectations at $120.8 million, up 109% from a year ago. Its operating income excluding changes in the value of biological assets, soared to $54.3 million, or 45% of revenue. Later that day, GTI also beat expectations, with its $119.6 million Q2 revenue growing 168% from a year ago as the company reported operating profits of $14.1 million.

On the 17th, Curaleaf, which has just closed a large acquisition that will boost revenue substantially beginning in Q3, reported Q2 revenue of $117.5 million, up 142% from a year ago, with an operating income excluding changes in the value of biological assets at $1.1 million, a sharp improvement over the prior quarter as it scales its operations. Cresco Labs is expected to report revenue of about $76 million, which would represent growth of 155% from a year ago.

More exciting than the strong growth in revenue and the improvement in profitability is the outlook. Trulieve raised its full-year outlook when it reported for revenue to be $465-485 million, with adjusted EBITDA of $205-225 million. Previously it had been guiding (for a year) for revenue to be $380-400 million, with adjusted EBITDA of $140-160 million. Curaleaf, which reports a pro forma revenue number that includes what is now only deals that have closed as if they had closed at the end of 2019, expects its Q3 pro forma revenue to grow from $165 million to $205-215 million, up at least 24% sequentially. GTI didn’t provide a forecast, and Cresco Labs traditionally hasn’t done so either. In general, we are seeing a “beat and raise” environment.

All four of these stocks are covered by several analysts, and the consensus outlook, according to Sentieo, is for very strong growth ahead. In fact, these analysts expect each of these companies to surpass $1 billion in annual revenue in the coming years, with the first likely to be Curaleaf. For 2021, the consensus before its earnings report was $1.03 billion, but it looks like most of the analysts are raising their outlook. At present, the 2021 revenue forecasts for the others are $736 million for GTI, $645 million for Trulieve and $642 million for Cresco Labs. I would argue that each of these companies has good access to capital and the ability to consolidate the industry, where there are many assets currently for sale, something that could accelerate the time-line for achieving $1 billion in revenue. Even without any sort of acquisitions, the companies are well on their way to hitting that level by 2022 or 2023.

During the pandemic, finding robust growth stories has become challenging, but cannabis appears to be just that. The largest cannabis operators are benefiting from surging demand and are scaling up and expanding their operations. Several of the largest MSOs have exposure to Arizona and New Jersey, both of which will see ballot initiatives, that could expand that demand even further. Additionally, legalization in New Jersey could spur New York, Connecticut and Pennsylvania to legalize as well, and several of these MSOs have operations in those states already. Between organic growth, M&A and favorable outcomes in November, I am confident that the race to $1 billion for these companies will end more quickly than many currently expect.

One final point: The universe of cannabis operators extends far beyond these four leading companies, and many of the smaller operators may offer more value. Due to operations being restricted to state-by-state and the inability to scale easily consequently, there is no “winner-take-all” outcome with the current structure. There is a lot of room for many companies to benefit from the favorable industry trends. Additionally, as I discussed in May, there are many different sub-sectors in the space, and there are opportunities outside of direct cannabis companies. One that worked out substantially better than I would have expected is GrowGeneration, which I profiled many times here at Forbes, most recently in June, when I discussed several stocks that were up year-to-date at the time.

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