If you're worried that you've missed the boat on the cannabis industry, fear not -- the sector is still in its early growth stages, and as more states and countries legalize marijuana, more opportunities will open up. This also means that more companies will go public, giving investors the ability to buy early and potentially secure some great returns later on. The key, then, is finding the right business to invest in.
One company investors will want to keep an eye on is Parallel, which owns Florida dispensary line Surterra Wellness. And one thing that makes its business stand out from other cannabis companies is the big name behind it: Wrigley.
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Billionaire believes his cannabis company could be bigger than his family's business
William ("Beau") Wrigley is the CEO of Parallel. His family built a fortune making chewing gum, including brands like Juicy Fruit and Doublemint. The company is now part of Mars Inc., and Wrigley has set his sights on another business venture: cannabis. In a recent interview with Forbes magazine, he admits that marijuana isn't something his family company might seem likely to be associated with. However, he is drawn to the opportunities there, saying cannabis "can be bigger than the Wrigley company."
He's right -- the market potential for marijuana is a lot bigger than for chewing gum. It's not that gum is a bad choice; one analysis estimates that the global chewing gum market will be worth $22.2 billion in 2024, growing at a rate of 4.3% between now and then. That's a good, steady growth rate -- except when you compare it to marijuana. For that, the U.S. market alone could be worth $34.5 billion in 2025, marking a growth rate of more than 18%. On a global scale, its value may top $47.2 billion by that time, an even higher growth rate of 22%.
Parallel is going public via SPAC
On Feb. 22, Parallel announced that it will go public by combining with Ceres Acquisition Corp, which is a special purpose acquisition corporation (SPAC) that currently trades over the counter and on Canada's NEO Exchange. The deal values Parallel at roughly $1.9 billion and could potentially put it at a higher valuation than industry giant Aurora Cannabis, which has a market cap of $1.8 billion. Once the deal is complete, the combined company should have $430 million in cash on hand, and Wrigley will stay on as the CEO.
The business will continue to focus on growing its operations via mergers and acquisitions. One of the companies it is looking to partner with is Cookies, a popular Las Vegas-based cannabis company that plans to expand its reach in Nevada. Parallel currently has 42 dispensaries in the U.S., with operations in five states: Florida, Pennsylvania, Massachusetts, Texas, and Nevada.
Should you invest?
The deal is expected to close sometime this summer, so investors don't have too much time to decide whether to buy shares before Parallel goes public. For 2021, the company projects that its net revenue will hit $447 million. Based on its anticipated valuation, that would put the stock at a forward price-to-sales multiple of about 4.3. Here is how that compares against other multistate operators, including Curaleaf, Green Thumb Industries, and Trulieve (OTC:TCNNF):
CURLF PS Ratio (Forward) data by YCharts
Based on those comparables, Parallel looks to be an attractive buy. Like Trulieve, the company has strong exposure to the Florida market. As of the week ending March 25, the Surterra Wellness line had 39 dispensary locations in the state, just ahead of Curaleaf's tally of 37 but nowhere near Trulieve's 79.
Although investors may be concerned about diversity, given that only three of Parallel's 42 locations are outside Florida, Trulieve is a good example of why that isn't a problem. Despite all the competition in its home state, Trulieve still reported impressive numbers in its year-end results earlier this month. Sales in 2020 totaled $521.5 million -- more than double what the company generated in the previous year. And of its 83 dispensaries, 78 are located in the Sunshine State. In 2020, only Washington, Colorado, and California generated more legal cannabis sales than Florida's $1.3 billion. But those markets have an advantage, as marijuana is legal for recreational use in those states, while Florida's government has only approved medicinal use thus far.
With some deep pockets, a strong base in Florida, and many opportunities still to come, Parallel could become one of the hottest new pot stocks to buy this year.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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