In the ever-shifting landscape of cannabis legislation and societal acceptance, the long-awaited potential federal legalization wave beckons. The anticipated reclassification of cannabis to Schedule III instead of the stringent Schedule I could be a game-changer for multi-state operators within the cannabis industry.

With medical cannabis already greenlit in 38 states, the market is poised for substantial expansion in the near future. Projections from BDSA, a premier cannabis industry market intelligence platform, foretell U.S. cannabis sales hitting $32.4 billion this year and surging to a staggering $46 billion by 2028, mainly fueled by the flourishing adult-use sector.

The Tale of Two Titans

The year 2024 stirred fresh interest in cannabis equities following the U.S. Drug Enforcement Administration’s (DEA) review of the drug’s classification. This curiosity, combined with the sector’s growth outlook, has been advantageous for leading players like Cresco Labs Inc. (CRLBF) and Tilray Brands, Inc. (TLRY), both establishing strong footholds in the swiftly emerging market.

Let’s dissect these two heavyweight stocks to uncover the better investment option.

The Cresco Conundrum

Headquartered in Chicago, Cresco Labs Inc. (CRLBF) stands out as one of the premier multi-state marijuana operators (MSOs) in the U.S. Engaged in cultivation, manufacturing, and retailing of top-tier cannabis products, Cresco operates under various labels like Cresco, High Supply, Good News, Wonder Wellness Co., Remedi, FloraCal, Mindy’s Edibles, and Sunnyside. Its current market cap rests at $708.5 million.

Year-to-date, CRLBF has seen an impressive 53.7% surge, vastly outperforming the S&P 500 Index’s ($SPX) modest 10.2% uptick.

At an attractive valuation of 0.95 times forward sales, Cresco’s current trading price reflects over a 70% discount compared to its industry peers. Given the company’s favorable expansion outlook, entering positions at this valuation could prove lucrative.

Tilray: The Canadian Contender

Hailing from Canada, Tilray Brands, Inc. (TLRY) commands a global presence in medical cannabis R&D, cultivation, and distribution. Operating across continents, the company offers an array of cannabis, wellness, and alcoholic beverage products under brands like Tilray, Aphria, and Broken Coast. Its current market cap stands at $1.4 billion.

On a year-to-date basis, TLRY shares took a hefty 13.9% nosedive, significantly lagging behind both CRLBF and the S&P 500 returns.

Priced at 2.05 times forward sales, Tilray Brands trades at a premium compared to Cresco Labs. However, the company’s growth trajectory falls short in justifying this premium valuation.

Tilray’s growth narrative heavily reliant on acquisitions has faced skepticism from investors, with its stock plummeting over 90% since its splashy 2018 IPO. Following a mixed bag of fiscal 2024 second-quarter results, the share price descended even further.

Tilray’s Financial Rollercoaster: Earnings Soar, Yet Challenges Loom

Earnings at Tilray recently surpassed the expectations of Wall Street aficionados. However, there is a twist in this tale of fiscal fortitude – while the quarterly revenue scaled impressive heights, it regrettably fell short of forecasted figures. The revenue, bounding by 34.4%, surged to a record-breaking $193.7 million, nonetheless not quite touching the skies predicted by market seers.

Strategic Acquisitions and Income Streams

Tilray’s foray into the realm of beverage alcohol has not gone unnoticed. Their net revenue in this sector doubled during the quarter, peaking at a staggering $47 million. A bold move! The company strategically broadened its horizons through acquisitions like Montauk Brewing Co. and Anheuser-Busch’s eight esteemed beer brands. These bold steps aim to lessen Tilray’s dependency on the capricious cannabis market waves. Alas, hurdles persisted as the adjusted gross beverage alcohol margin took a dip from 52% to 38%. This descent could forebode potential skirmishes in the acquired craft beer arena.

Milestones and Market Growth Prospects

Amidst the trials and triumphs, Tilray recently achieved a significant milestone in Portugal’s medical cannabis domain. The green signal for Tilray Oral Solution THC 5 CBD 20 signifies advancement, promising enhanced patient care. Looking ahead, the company eagerly eyes promising prospects emanating from Germany’s revamped cannabis policies. With the German and European markets unveiling doors to a treasure trove of opportunities worth a whopping $48 billion, Tilray braces itself for substantial strides in growth.

Market Ratings and Price Targets

An analyst consensus of “Hold” hovers over Tilray’s stock on Wall Street. Among the 11 scrutinizing analysts, three chant “Strong Buy,” seven echo “Hold,” while one solemnly utters “Strong Sell.” The average analyst price target of $2.61 suggests a potential ascent of 31.8% over the forthcoming year. Nevertheless, a bullish price target of $4.25 dances on the streets of optimism, implying a possible ascent of a staggering 114.6% from the current perch.

Cresco Labs vs. Tilray: A Stock Saga

The buzz about potential federal legalization of cannabis has beckoned investors towards cannabis behemoths like Cresco Labs and Tilray. The winds of change in regulations could shower both companies with an avalanche of growth. Yet, amidst this stock storm, Cresco Labs emerges as a beacon of choice. Cannabis, a focal point, is steadily diminishing in importance in Tilray’s eclectic menu of investments. Furthermore, the company’s expansion primarily thrives on mergers and acquisitions instead of the organic growth of its cannabis core. Considering Cresco Labs’ modest valuation, robust growth, sturdy financial track record, and a stock performance that outshines Tilray, it seems that this may be the stock pick of the moment.

On the date of publication, Sristi Suman Jayaswal did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.