We recently published a list of 7 Best CBD Stocks To Invest In Right Now. In this article, we are going to take a look at where SNDL Inc. (NASDAQ:SNDL) stands against other best CBD stocks to invest in right now.

An essential component of medical marijuana, CBD is the legal, non-psychoactive compound that is used to treat chronic pain, anxiety, and other ailments. Though initially met with skepticism, medical cannabis is rapidly gaining traction in the United States and as of the writing of this article, the use of marijuana for medical purposes is legal in 39 states, in addition to the District of Columbia. The latest state to join the growing list was Nebraska, which voted to legalize and regulate medical cannabis in November 2024.

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Despite the growth, 2024 was overall a very turbulent year for the American cannabis sector. The decriminalization process is going slower than expected and legalization ballot measures in Florida, and South and North Dakota failed to pass. Wholesale prices are also at record lows and despite all the efforts, the legal industry still faces stiff competition from the unregulated black market. As a result, the American Cannabis Operator Index, which tracks the market value of firms in the industry, has fallen by over 50% since a year ago, and more than 90% since its peak in April 2019. A recent survey by Whitney Economics revealed that only 27.3% of cannabis operators nationwide are profitable. According to the US Chamber of Commerce, 65.3% of all small businesses in the US are profitable, so the cannabis sector is trailing far behind the national average.

A recent encouraging development came when President-elect Donald Trump publicly expressed support for recreational cannabis legalization efforts in his home state of Florida. He also backed up the industry’s access to the banking system and the ongoing federal cannabis rescheduling process. Whether this support will actually translate into wide-reaching cannabis reform remains to be seen. However, it puts to rest any previous concerns that Donald Trump could actually cancel the rescheduling process altogether if he gets re-elected since the process is under the purview of the US Department of Justice.

The US Cannabis Council, expressing its optimism for the sector under Trump’s presidency, stated:

“The cannabis community has every reason to be optimistic with President Trump returning  to the White House. He has endorsed the SAFE Banking Act and reclassification of cannabis. We look forward to working with his administration to advance meaningful federal reform.”

That said, the withdrawal of Matt Gaetz, a vocal proponent of federal legalization, as Trump’s nominee for attorney-general after allegations of sexual misconduct was highly discouraging for the country’s cannabis advocates. Moreover, a great deal of reforms will still have to get through both the House and the Senate, which will require some level of bipartisan cooperation.

As for the federal cannabis rescheduling process, the Drug Enforcement Administration held preliminary hearings on the matter in December and these are expected to conclude in March. Perhaps the most significant relief from the change will come in the form of tax reform. Currently, companies selling cannabis cannot deduct normal business expenses from their tax bill, costing them more than $2.2 billion in extra taxes than what would be paid if they were treated as mainstream businesses. If federal rescheduling happens, it is expected to improve the overall cash flow of the industry by $3.1 billion in 2026, helping improve the profitability of cannabis companies and giving their investors some much-needed optimism, even if Trump’s other promises go up in smoke.

Methodology

To collect data for this article, we scanned Insider Monkey’s database of 900 hedge funds and picked the top 7 companies operating in the cannabis sector with the highest number of hedge fund investors. When two or more companies had the same number of hedge funds investing in them, we ranked them by the revenue of their last financial year instead. Following are the Best CBD Stocks According to Hedge Funds.

At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

SNDL Inc. (NASDAQ:SNDL)

Number of Hedge Fund Holders: 10

Next on our list of the Best Marijuana Stocks is SNDL Inc. (NASDAQ:SNDL), the largest private-sector liquor and cannabis retailer in Canada. The company also operates as a licensed cannabis producer, focusing on premium indoor cultivation, cutting-edge product development, and cost-effective manufacturing.

Like many of its peers in the cannabis business, SNDL Inc. (NASDAQ:SNDL) has been focused on sales growth instead of profits, increasing its revenue from $60.9 million in 2020 to just over $909 million in 2023. However, the Calgary-based company still hasn’t turned a profit in its last four financial years. This strategy seems to be changing now as SNDL announced a restructuring plan last year to help reduce its annual expenses by CA$20 million ($13.9 million) and finally improve its profitability. While the initiative will cost over $8 million, it is expected to leave the company in a much better position once it is all wrapped up by the end of this year.

In a positive development, SNDL’s free cash flow was finally positive in Q3 2024, supported by ongoing operational gains in gross margin and efficient working capital management. The company is on track to deliver positive free cash flow for the 2024 calendar year, meeting or even exceeding its guidance. It must be noted that SNDL is delivering this positive cash flow during a time when the Canadian cannabis sector is anything but vibrant.

SNDL Inc. (NASDAQ:SNDL) has plenty of cash in hand compared to its competitors and ended Q3 2024 with a cash balance of $263 million, up from $183 million in Q2, with no outstanding debt. To return value to its shareholders, the company also announced a share repurchase program of around $70.3 million in November.

SNDL Inc. (NASDAQ:SNDL) also has a good track record of utilizing its significant cash reserves smartly. A great example is its $320 million acquisition of Alcanna, the largest private liquor retailer in Canada, in 2022. The purchase seems to be paying off and SNDL’s Liquor Retail segment brought in $144.6 million in revenue in Q3 2024 with a gross margin of 25.6%, up 100 basis points YoY. The company still remains focused on strategic expansion and recently announced the acquisition of all outstanding shares of Nova Cannabis Inc., marking a major milestone. Moreover, it has also won a bid to acquire Indiva Limited, a leading producer of cannabis edibles in Canada.

SNDL Inc. (NASDAQ:SNDL) is also well-positioned in the US cannabis market. The company, through its subsidiary SunStream USA, holds a two-thirds economic interest in Surterra Wellness, a notable medical cannabis operator in Florida with a 10% market share.

Overall, SNDL ranks 4th on our list of best CBD stocks to invest in right now. While we acknowledge the potential for SNDL to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than SNDL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.