Growing up during the anti-drug hysteria of the Reagan era, the “Just Say No” mantra was firmly planted in my psych. It wasn’t just the hard drugs that were vilified, but even the mild counter-cultural favorite of cannabis was believed to be destructive. Thought of as a “gateway drug” to life-ruining addiction, severe prison penalties were imposed for its use, possession, and sale.
Despite the aggressive anti-drug publicity campaign, William Buckley, the voice of noted conservatives, and others cried out for decriminalization of most recreational drugs. Even though I am not a recreational weed smoker, their rhetoric made sense to me. I started to see through the draconian national drug policy thus understanding the need for decriminalization.
As it turns out, Buckley and the rest of the early decriminalization advocates were way ahead of the curve. Today, the once evil substance of cannabis is legal in about a dozen states and decriminalized in more. Not only does legal marijuana boast many health benefits, but it has also turned into a very lucrative industry both nationally and globally.
In fact, cannabis is among the hottest growth stories of the 21st century. In 2013, cannabis was available via medical use only and was just around a $3 billion business. The figures from 2017 show aggressive growth to $9.5 billion. Out of this $9.5 billion, the United States accounts for 90%, while Canada boasts a $0.6 billion share, and the rest of the world makes up the other 4%.
While the growth has been outstanding, what has me most bullish on the industry is the future projections. In the next six years, the U.S. cannabis market is forecast to hit approximately $23 billion representing nearly 75% of the global market size.
Billions of dollars are pouring into this hyper-growth story. The good news is that regular stock investors can participate in the profits.
Since it is such a nascent industry, many of the traded companies are still pre-revenue and traded OTC. In fact, just 11 firms traded in U.S. dollars in the cannabis space.
This article will provide my two top cannabis-related stocks that are currently producing revenue:
Innovative Industrial Properties
This cannabis-focused real estate firm’s share price has soared over 130% in the last 52 weeks with a 45% gain this year alone.
Innovative (IIPR) is aptly named thanks to its genuinely unique strategy within the industry. The company targets medical-use cannabis properties for acquisition, including sale-leaseback transactions, with tenants that are licensed growers under long-term, triple-net leases. The company calls itself a creative capital provider of the long-term ownership of cultivators’ mission-critical facilities.
Structured as a real estate investment trust (REIT), the company is required to give back 90% of its pre-tax income to its shareholders via dividends. Currently, Innovative is paying 3% TTM yield.
The third quarter reflected the firm’s growth trajectory with total revenues of approximately $3.9 million in the quarter, representing an increase of more than 150% from the prior year.
Net income also soared to $1.5 million for the quarter, or $0.21 per diluted share, and adjusted funds from operations (AFFO) of approximately $2.6 million, or $0.38 per diluted share. AFFO for the quarter represented an increase of more than 250% from the prior year.
Income investors are pleased with Innovative paying its sixth consecutive quarterly dividend of $0.35 per share on Oct. 15, 2018, to stockholders of record as of Sept. 28, 2018, representing a 40% increase over the company’s second quarter 2018 dividend.
Getting long now in the $45.00 per share zone with a target price of $70.00 per share and initial stops set at $38.72 is the play.
Innovative is currently my favorite name in the cannabis space.
This Canadian company traded on the Nasdaq boasts around $8 million in quarterly revenue. Tilray (TLRY) is more directly involved with cannabis than the REIT above. It is a global pioneer in the research, cultivation, production, and distribution of medical cannabis and cannabinoids.
Although the company posted a net loss for the last quarter, the significant metrics are looking solid as revenue increased to $10.0(C$12.9) million, up 85.8% compared to the third quarter of last year. The increase in revenue was driven by increased patient demand, bulk sales to other licensed producers, and accelerated wholesale distribution in export markets.
I like buying this one in the $102.00 per share zone with a $125.00 per share target and initial stops at $94.92 per share.
Disclaimer: The author does not personally hold positions in any securities mentioned. The author does not receive compensation for this article. This article is intended for informational and entertainment use only, and should not be construed as professional investment advice.