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Marijuana companies are known to be risky investments. U.S.-based marijuana businesses operate in a quasi-legal environment where cannabis can be both illegal at the federal level but still legal in certain states. It can make for a confusing situation for investors who aren't familiar with the industry. The short answer is that the federal government effectively chooses to let the individual states do what they want with respect to marijuana, even though it could technically step in and shut marijuana companies down.

The problem, however, is that creates a really challenging environment for many marijuana companies. If they're operating in Washington State and Oregon, for instance, they are OK to do so within those bubbles. But they can't legally transport cannabis across state lines. This is just one example of the inefficiency and additional costs this brings to a marijuana company looking to be a dominant player; growth isn't easy as there's no logistical advantage to be operating in neighboring states.

This is why turning a profit can be particularly impressive in the industry. Two marijuana producers that recently posted profits, however, are Cresco Labs (OTC: CRLBF) and Green Thumb Industries (OTC: GTBIF). Here's a look at how they have been able to avoid staying out of the red.

Cresco Labs

On March 13, Cresco Labs reported a strong finish to 2023, highlighting improvements in both its bottom line and operating cash flow. For the last three months of the year, Cresco Labs's revenue wasn't all that exciting, however, with sales of $188 million falling 2% from the prior-year period.

But the big news was that the company reported a profit of $5 million. This wasn't an adjusted profit that cannabis investors are used to, this was a real net profit. The company's earnings improved as Cresco was able to reduce its selling, general, and administrative expenses by more than $23.4 million (29.2%). The company also benefited from a higher gross profit margin (51.1% versus 43.9%) and it didn't incur huge impairment charges as it did a year ago when they totaled $140.7 million.

As a result of its cost-cutting efforts, the company also generated positive operating cash flow of $58.6 million for the full year, up from just $18.7 million in 2022. And free cash flow for the year was a positive $5.8 million compared with a negative $60.1 million in the previous year.

Trading at a price-to-revenue multiple of about 1, Cresco Labs is one of the better-priced cannabis stocks to buy. And with big improvement in cash flow and earnings, the business looks to be on a promising path forward.

Green Thumb Industries

Posting a profit is less of a surprise for Green Thumb Industries, which has typically been one of the more reliable companies in the marijuana industry.

It reported its year-end results on Feb. 28 and not only did it turn a profit, but it was able to generate an increase in its top line. Revenue of $278.2 million for the last three months of 2023 rose 7.3%. During the period, the company opened six dispensaries in Florida and one in New York.

Green Thumb's quarterly net income was $3.2 million, which was an improvement from the $51.2 million loss it incurred a year ago. The company's expenses did actually increase this quarter but the key difference was that Green Thumb didn't incur any impairment charges; a year ago, they totaled $88.5 million and were easily enough to land the company in the red. The company's full-year net income of $36.3 million was triple the $12 million that Green Thumb reported for 2022.

Its strong and diversified brands have been a key part of Green Thumb's success, by allowing it to grab significant market share and revenue without having to incur excessive costs or be in the most states. The company is in 14 states and has 91 dispensaries.

At more than 3 times trailing revenue, Green Thumb is a more expensive stock to own than Cresco, but it can still be a good long-term buy for investors bullish on the cannabis industry.

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David Jagielski has positions in Cresco Labs. The Motley Fool has positions in and recommends Cresco Labs and Green Thumb Industries. The Motley Fool has a disclosure policy.

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