If you can handle the heat, these pot plays could deliver some green
On paper, cannabis stocks represent an incredibly viable investment opportunity, primarily because the marijuana industry practically didn’t exist before. Sure, people have grown and sold weed for a long time, but they’ve done so illicitly. Now with favorable social sentiment and political winds, though, legalization has gained momentum, turning the much-maligned plant into a taxable revenue stream.
Still, many challenges remain. For instance, Canada was the first G7 nation to legalize marijuana for adult recreational use. Theoretically, this should have sparked a mini-economic renaissance, with “weedpreneuers” coming out of hiding to participate in a legitimate commercial enterprise. However, administrative backlogs and other unforeseen hurdles have put a dent in marijuana stocks. If you’re willing to accept these big risks, though, this sector may yield significant profitability.
For one, these stocks should benefit from consumer demand due to rising relevance. As studies have shown, cannabis products — particularly those that are high in cannabidiol (CBD) and low in tetrahydrocannabinol (THC) — can reduce symptoms of depression and anxiety. Many folks suffer from these symptoms, especially in the wake of the novel coronavirus.
Secondly, the U.S. may be moving toward full federal legalization soon. While Canada is apparently much more tolerant, we’re catching up. According to an April report from the Pew Research Center, now “Americans overwhelmingly say marijuana should be legal for recreational or medical use.” This is great news for cannabis stocks.
Finally, there’s one more underappreciated argument that favors pot: decriminalization will open efficiencies in the economy. Currently, our labor force participation rate is at levels not seen since 1977 — and that’s not good. Part of the reason for this lack of participation may be that many people have criminal records for simple things like possession charges. Get some sensible criminal justice reform and we may see massive upswings in cannabis stocks.
Before we dive in, though, let me bring up one caveat: cannabis stocks are also terribly risky. Personally, I’ve been burnt on more than one occasion with this sector. So, you should practice due diligence and vigilant money management here, too.
- Curaleaf (OTCMKTS:CURLF)
- Green Thumb Industries (OTCMKTS:GTBIF)
- Trulieve Cannabis (OTCMKTS:TCNNF)
- Ayr Wellness (OTCMKTS:AYRWF)
- Cresco Labs (OTCMKTS:CRLBF)
- Innovative Industrial Properties (NYSE:IIPR)
- Scotts Miracle-Gro (NYSE:SMG)
Cannabis Stocks to Buy: Curaleaf (CURLF)
One of the reasons why cannabis stocks are difficult to trust is their volatility. You just never know where some of these names will end up — typically in the weeds if it’s speculative. With Curaleaf, though, you’re at least exposing yourself to an established organization. In this case, CURLF stock ties you into marijuana’s biggest U.S. multi-state operator (MSO).
So far, the results have panned out fairly well. On a year-to-date (YTD) basis, CURLF stock is up over 25%. At the time of writing, shares trade hands at $15, giving the underlying company a market capitalization of $10.45 billion.
This company’s 23-state footprint translates into “96 dispensaries, 23 cultivation sites and more than 30 processing sites.” Impressively, in 2020, Curaleaf also generated revenue of $626.6 million, up almost 184% from the prior year. Better yet, the company maintains excellent momentum, posting top-line sales of $260.3 million in the first quarter of 2021. That was up 170% year-over-year (YOY) as well as 13% sequentially from Q4 2020.
Green Thumb Industries (GTBIF)
During the March doldrums of last year, shares of Green Thumb Industries found themselves sliding sharply. At its lowest point, you could have bought GTBIF stock for under $5. Of course, many investors stayed away for fear that we were headed toward an apocalypse. In hindsight, though, that was probably a once-in-a-generation opportunity.
As you can see from its current price of over $30, GTBIF stock rewarded speculators for their nerves of steel. Nevertheless, if you’ve got a long-term time horizon, you may want to given Green Thumb a long look.
Like Curaleaf, Green Thumb is an MSO with a footprint in 13 states, including California, Florida and Nevada. Like other United States-based cannabis firms, Green Thumb also posted impressive sales growth recently. In 2020, the company improved revenue by 157% YOY to $556.6 million.
On top of that, Green Thumb delivered net income of $15 million in 2020 as well, with positive earnings in two of the last three quarters.
Cannabis Stocks to Buy: Trulieve Cannabis (TCNNF)
Trulieve Cannabis is another one of the cannabis stocks that will have you wishing you could go back in time. Back during the company’s March lows, TCNNF stock was trading hands around the $6 mark. Looking at the price now, you can clearly see the incredible profitability speculators have enjoyed here. Today, this stock changes hands at around $37.50. Additionally, a few months back, TCNNF closed a few cents shy of $53.
To the victor goes the spoils. But, to be fair, you really needed complete disregard for downside risk to have bought TCNNF back then. Nevertheless, it’s now possible that investors who buy it today may enjoy more profitability moving forward.
First, Trulieve delivered encouraging results in the pandemic-impacted year of 2020, ringing up $521.5 million in revenue. That’s more than double its top-line sales of $252.8 million in 2019.
Second, TCNNF is one of the few cannabis stocks that’s tied to a business posting consecutive earnings growth. In 2018, Trulieve brought in $10.9 million of net income, which increased to $53.1 million and then $63 million in 2019 and 2020, respectively.
As such, you should keep this one in your pocket. Its management seems to be more fiscally responsible than most others in this space.
Ayr Wellness (AYRWF)
One of the recent movers and shakers among cannabis stocks, shares at Ayr Wellness jumped 3.5% on its May 26 session. Using this date as the reference point, over the trailing five sessions, AYRWF stock gained 10.5%. That’s not a bad way to head into the Memorial Day weekend. Today, the stock trades for a little over the $30 mark.
Last week, investors were probably anticipating good news from Ayr’s Q1 2021 earnings results. From what I can tell, the stats are promising, with revenue coming in at $58.4 million, up 74% YOY. This revenue also compares favorably to Ayr’s top-line sales in Q4 2020, which came in at $47.8 million. In the report, management noted the following:
“Q1 2021 represents the early innings of our 2021 strategic transformation, as we successfully closed on our announced acquisitions as scheduled, starting with the February 25th closing of our acquisition of Liberty Health Sciences, adding the fourth largest retail footprint in Florida.”
Prospective buyers will want to keep in mind that Ayr’s net income losses have widened significantly between 2018 and 2020. That said, if you believe in this company’s growth narrative, AYRWF stock is worth consideration for your speculation-geared portfolio.
Cannabis Stocks to Buy: Cresco Labs (CRLBF)
Another one of the major MSOs in the arena of cannabis stocks, Cresco Labs features a sizable footprint in the U.S. market. This includes coverage in 10 states, with 18 production facilities, 44 retail licenses and 32 owned dispensaries.
In addition, Cresco offers premium national brands that focus on addressing specific consumer needs. From edibles to vaping products and more, the company has a product for everyone. This also gives Cresco an edge in terms of organic product evangelization. Basically, it’s much easier to convince someone about the benefits of cannabis through infused gummies rather than a bong.
Reassuringly, this extensive product pipeline also has a positive impact on CRLBF stock. Despite some sharp rumblings this year, CRLBF has gained 24% YTD. Over the trailing year, shares are up almost 149%, reflecting growing demand for premium marijuana products.
Granted, CRLBF stock is riskier than other cannabis stocks because Cresco eschews profitability for growth. That said, the aforementioned growth is very impressive. In 2020, the company rang up $476.3 million in top-line sales, up almost four times 2019 sales.
Innovative Industrial Properties (IIPR)
When cannabis stocks started hitting the markets, many investors had big dreams in mind. Naturally, they went after individual names on the promise that they could make the most of an increasingly favorable legal environment. But, as I mentioned earlier, administrative issues and other factors have contributed to this sector’s volatility.
However, one name that has consistently risen above the muck is Innovative Industrial Properties. Structured as a real estate investment trust (REIT), Innovative Industrial isn’t a direct player per se. Rather, it specializes in financial products for the regulated medical-use cannabis industry. Solutions such as sale-leaseback packages are especially useful for cannabis operators, who may have limited access to traditional financing alternatives.
So far, Innovative Industrial’s business has translated very well into market performance. Over the trailing six months, IIPR stock is up over 17%. Plus, over the trailing year, shares are staring at a 121% return. With capital access remaining a challenge for cannabis operators, I expect IIPR stock to be a shining light of (relative) stability when it comes to cannabis stocks.
Cannabis Stocks to Buy: Scotts Miracle-Gro (SMG)
Last up on this list, Scotts Miracle-Gro is not directly tied to cannabis stocks per se. Instead, the company specializes in various gardening products through its diverse set of brands, including its namesake Scotts and Miracle-Gro products. However, you can’t avoid the fact that cannabis is a plant. Therefore, as interest in the marijuana sector grows, so should demand for premium gardening products and solutions.
Best of all, this isn’t just a theoretical proposition. Although tame compared to the volatility of cannabis stocks, SMG stock has delivered the goods when it comes to its charts. On a YTD basis, shares are up over 7%. Over the trailing year, they’ve gained nearly 50%. No, these figures don’t quite stack up to high-flying cannabis players, but the weed stuff is mostly gravy on top of what is a boring-yet-stable business.
Moving forward, Scotts’ hydroponics division could also see increased demand, especially if U.S. marijuana regulations ease up. With the Democrats now having a small window of opportunity to push policies, this might not be such a far-fetched idea.
Note: This article originally appeared at InvestorPlace.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.