If you think this is a tough time for Wall Street, take a closer look at the lackluster performance of marijuana stocks since February 2021. With federal cannabis reforms failing to materialize, pot stocks have quickly gone from the worst thing hottest on Wall Street to absolute buzzkills. But that may be about to change.
Last week, President Joe Biden gave a speech on marijuana that involved pardoning simple offenses of cannabis possession and encouraged Attorney General Merrick Garland and Health and Human Services Secretary Xavier Becerra to review the list. current marijuana under the Controlled Substances Act. In other words, the president has taken the first steps towards potentially legalizing marijuana at the federal level.
Cannabis is a huge global opportunity. Research firm BDSA has projected a compound annual growth rate of over 16% for the industry through 2026. If correct, the global weed market would be worth $61 billion in 2026, with the majority of these sales from the United States. In other words, the loss to pot stocks has rolled out the red carpet for opportunistic investors.
Here are two marijuana stocks investors can buy with confidence, along with two other pot stocks that might look like intriguing stocks but should be avoided like the plague.
#1 Marijuana Stock To Buy By Hand: Innovative Industrial Properties
The first weed stock that investors should have no problem hand-buying during the bear market pullback is the cannabis-focused real estate investment trust (REIT). Innovative industrial properties (NYSE: IIPR).
Like any REIT, IIP, as Innovative Industrial Properties is more commonly known, aims to buy properties that it can lease for a long period. The only difference is that IIP seeks to acquire and lease medical marijuana cultivation and processing facilities. Since marijuana is federally illegal, cannabis cannot be transported across state lines. This means that there is a great need for cultivation and processing facilities in all legalized states.
By early September, IIP owned 111 properties covering 8.7 million square feet of rental space in 19 legalized states. Since many of its leases are for 10 to 20 years, the cash flows generated are highly predictable. Until mid-2022, IIP collected 99% of its rents on time.
Interestingly, the lack of cannabis reform on Capitol Hill has actually been positive for innovative industrial properties. With weed being federally illegal, access to credit markets has been uneven for cannabis stocks. IIP stepped in with its sale-leaseback program to allay these concerns. IIP acquires facilities for cash and immediately leases them to the vendor. It’s a win-win that puts money in the pockets of Multi-State Operators (MSOs) while attracting long-term IIP tenants.
Innovative Industrial Properties has a forward P/E of 15 and a return of almost 8%. This makes it an incredible buy for growth, value and income investors.
Marijuana Stock #2 To Buy By Hand: Cresco Labs
A second marijuana stock to buy right now is US MSO Cresco Laboratories (OTC: CRLBF). Despite the lack of progress in cannabis reform in the United States, Cresco Labs has three catalysts that can send its stocks significantly higher.
First, Cresco’s retail expansion is primarily focused on limited license markets. Although it’s in a number of high-dollar states, entering the limited license markets is a strategically smart move. States where regulators limit the total number of dispensary licenses issued, as well as to a single company, ensure that (currently) small retail players like Cresco have the opportunity to grow their brands and build customer loyalty. .
The second big catalyst is the impending acquisition of MSO Care British Columbia (OTC: CCHWF). Assuming this all-stock buyout completes in the coming weeks, the combined company will have more than 130 operating dispensaries in 18 states. For context, Cresco currently has 51 dispensaries open in 10 states. A larger business footprint would definitely be a long-term benefit to the company.
Third, Cresco Labs has the industry’s leading wholesale cannabis segment. Wall Street is not a big fan of wholesale operations because of their lower spreads, compared to the retail side of the equation. But Cresco has volume on its side. It holds one of the few cannabis distribution licenses in California, which allows it to place its proprietary potted products in over 575 dispensaries across the Golden State.
Assuming its merger with Columbia Care goes well, Cresco Labs could quickly become a behemoth in the US MSO landscape.
Pot Stock #1 To Avoid Like The Plague: Aurora Cannabis
But just because marijuana is becoming one of the fastest growing industries of the decade doesn’t mean every pot stock is worth buying. Canadian Licensed Producer Aurora Cannabis (NASDAQ: ACB) is Exhibit 1A explaining why you shouldn’t blindly invest in a rapidly changing industry.
As recently as 2019, Aurora Cannabis was thought to have a shot at becoming the world’s biggest pot stock. It had 15 potential production facilities and had to rely on exports to move what could easily have been well over 600,000 kilos of annual production. Unfortunately, this utopian scenario did not even come close to materializing.
Over the past three years, Aurora Cannabis has closed its production facilities, fully written down billions of dollars of goodwill after making a dozen overpriced acquisitions, and cut selling, general and administrative expenses. Even with these actions, the company continues to lose money. A combination of Canadian consumers favoring low-margin dried cannabis flower and regulators slowing the rollout of dispensary licenses in Ontario ensured continued losses for Aurora.
To make matters worse for its shareholders, Aurora Cannabis’ only way to raise capital has been to constantly issue shares of its common stock. Between June 30, 2014 and June 30, 2022, the company’s reverse split-adjusted shares outstanding increased from approximately 1.3 million to approximately 297.8 million. The magnitude of this dilution, coupled with its chronic operational underperformance, has Aurora Cannabis stock poised to fall back below $1 per share.
Although once a very popular pot stock, Aurora Cannabis is absolutely one stock to avoid in the fast-paced weed industry.
Pot of broth n°2 to avoid like the plague: SNDL
The second broth to avoid like the plague is none other than SNDL (NASDAQ: SNDL), the company formerly known as Sundial Growers. Although SNDL is a favorite of retail traders and meme investors, there is very little that redeems the company.
When SNDL became a publicly traded company in 2019, it was relatively indecipherable compared to other Canadian pot stocks. He focused primarily on wholesale cannabis, with management making the decision soon after to shift to retail sales due to its higher margin potential.
What has made SNDL such a popular yet polarizing company is its capital raising activities. From October 1, 2020, SNDL started selling shares to raise funds and repay debt. But the company didn’t stop once it secured the capital to cover its outstanding debt. In less than two years, the number of SNDL shares has increased from 509 million before the split to approximately 2.33 billion. Unsurprisingly, SNDL spent a year in a range between $0.30 and $0.90 before adopting an inverted 1:10 split to remain listed in the market. Nasdaq Sotck exchange.
While it’s understandable that some investors appreciate SNDL’s ample cash position and desire to buy other marijuana businesses, management raised that capital with no particular plan in mind. After a few acquisitions, SNDL’s outlook remains cloudy. The company’s cash has shrunk as the losses continued, increasing the likelihood that SNDL may turn to additional equity issues to bolster its cash position.
With the risk of continued dilution being a constant threat, investors would be wise to keep their distance from SNDL.
This is the marijuana stock you’ve been waiting for
A little-known Canadian company has just unlocked what some experts believe is the key to profiting from the coming marijuana boom.
And make no mistake, it’s coming.
Cannabis legalization is sweeping North America – 19 states plus Washington, DC, have all legalized recreational marijuana in the past few years, and full legalization came to Canada in October 2018.
And an under-the-radar Canadian company is about to explode because of this upcoming marijuana revolution.
Because a game-changing deal has just been struck between the Ontario government and this mighty company…and you need to hear this story today if you’ve even considered investing in pot stocks .
Just click here to get the full story now.
Sean Williams holds positions at Columbia Care and Innovative Industrial Properties. The Motley Fool fills positions and recommends Cresco Labs Inc. and Innovative Industrial Properties. The Motley Fool recommends the Nasdaq. 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.