The Motley Fool
U.S. cannabis companies can’t easily secure capital from banks or financial institutions since marijuana remains illegal at the federal level. Innovative Industrial Properties (NYSE:IIPR) helps to solve that cash shortage for growing marijuana companies by buying properties owned by U.S. medical cannabis operators and leasing those same properties back to them. The property sale to IIP provides the cannabis operator with much-needed cash, and the lease agreements create a steady revenue stream for IIP.
The COVID-19 pandemic disrupted IIP’s business somewhat, with three tenants receiving temporary rent deferrals. The ancillary company has still grown phenomenally during the pandemic and is highly profitable. Because the company is organized as a real estate investment trust (REIT), IIP returns at least 90% of its taxable income to shareholders.
A brief overview of the marijuana industry
With the legal recreational marijuana market in Illinois opening for business at the beginning of 2020, this company is benefiting from tremendous growth in its home state. Along with the opportunity to expand into additional states such as New York and New Jersey, the company has significant growth potential.
Healthcare is a growing industry, and cannabis investors may benefit from getting acquainted with it.
Jazz Pharmaceuticals (NASDAQ:JAZZ) acquired the cannabis-focused biotech company GW Pharmaceuticals in May 2021. GW’s drug Epidiolex is the first cannabis-based medicine to be approved by the U.S. Food and Drug Administration (FDA). Epidiolex, which treats two rare forms of childhood epilepsy, is generating sales that are routinely surpassing expectations. While new patient starts for Epidiolex slowed slightly with the COVID-19 pandemic, the company has continued to deliver strong revenue growth.
Scientific advances are opening up new possibilities for the treatment and prevention of diseases.
• ETFMG Alternative Harvest ETF (MJ). Providing a YTD return of 45% as of early May 2020, this ETF that tracks the Alternative Harvest Index is no slouch. With an at-present highly accessible cost-per-share under $30, investors wanting to try the cannabis industry on for size can do so at a low price of entry. Shares come with a steep expense ratio for a passively managed ETF, though: 0.75%.
• Cara Therapeutics (CARA). How can you ignore a cannabis company posting quarter-over-quarter sales up a whopping 2,384%? No, there’s no decimal missing in that. This biotech company’s goal is better pain management, offering a quality of cannabis and CBD that advocates swear by. Cara has the smallest market cap of the stocks profiled in this article, and it boasts the largest returns. Investors might find a bargain buy here as shares currently trade near a 52-week low in the $12 per share range, down from the April 5, 2021, high of over $28 per share after news came out that one of its leading offerings showed poorer results in testing than expected.
• Cronos Group (CRON). As a global brand that makes a wide variety of adult-use cannabis and CBD products, quarter-over-quarter sales are up a respectable 133%. Maybe it’s the pandemic. Maybe it’s a carefully cultivated reputation for high-quality cannabinoids. Either way, Cronos displays controlled growth, but investors need to have a sense of adventure, with its 52-week price fluctuation between $4.62 and $15.83 per share.
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• Scotts Miracle-Gro Co. (SMG). Where does a company best known for plant fertilizers come into the cannabis mix? If you can make backyard plants grow, odds are you can make cannabis grow. For investors looking for the proven track record of a large cap stock with a leg in the growing cannabis industry, Scotts could be a fit. It’s acquired multiple cannabis-adjacent and pure cannabis companies and even built a brand new 50,000 square foot facility for R&D to explore how their fertilizer products impact cannabis growth. With a P/E ratio around 25 and a 1.03% dividend yield, Scotts stands as a respectable choice for investors exploring cannabis in their portfolios.
• AdvisorShares Pure US Cannabis ETF (MSOS). Actively managed ETFs are hard to come by, but here’s one for the cannabis sector. If you’re looking to dip a toe into cannabis, this ETF can help you get all the benefits of an actively managed mutual fund with the real-time liquidity of an ETF. A relatively new fund, it’s showing returns in excess of 17% YTD as of early May 2021. The expense ratio is high for ETFs, however, clocking in at 0.74%.
• Constellation Brands, Inc. Class A (STZ). Spirits are Constellation’s main game, but like Altria, this company is diversifying into cannabis via investment in Canopy Growth (CGC), a Canadian cannabis producer. Holding a 38.6% share of the company, Constellation saw a substantial return on investment in 2020. While not a pure cannabis play, this analyst-favorite stock is having a heyday with a YTD return of almost 10% and a dividend yield of 1.27%. Again, likely not a consideration for ESG-minded investors but with a P/E ratio over 23, investors could see modest growth ahead with this company with a long history.