The 3 Marijuana Stocks You’ll Want To Own For The Second Half Of 2020
For years, marijuana stocks were the hottest thing since sliced bread on Wall Street. All it took was the promise of expanding capabilities and, eventually, international aspirations to send cannabis stocks soaring to the skies.
But that all changed in April 2019. Over the past 15 months, the vast majority of pot stocks have lost at least 50% of their value, if not much more. With the legalization of weed for adult use in Canada, and with two-thirds of US states having given the green light to weed to some extent, the time for promises is over. Real results are demanded by investors, and the early-stage growth hiccups in the marijuana industry did not allow that to happen.
However, a small number of cannabis stocks are able to succeed much sooner than many of their peers. While all industries of the “next big thing” need time to mature (and cannabis is no different), the three marijuana stocks are the names you’ll want to own for the second half of 2020.
Green thumb industries
The US multi-state operator (MSO) is one of the most exciting pot stocks for the second half of this year (and beyond). Green thumb industries (OTC: GTBIF). While the U.S. cannabis industry has not been without its obstacles, Green Thumb has the tools to thriveeven in times of recession.
Currently, Green Thumb has 46 operational dispensaries in some legal states, with licenses to open up to 96 outlets in 12 states. Green Thumb has been particularly aggressive in its expansion efforts in Illinois and Nevada. Illinois opened for recreational marijuana sales on January 1, 2020 and appears to be on track to generate $ 1 billion in annual weed sales by 2024. Meanwhile, Nevada, dependent on tourists, has a chance to become the state with the highest per capita cannabis spending in the country by the middle of the decade.
The secret sauce to Green Thumb’s initial plot is the company’s product portfolio. Although the dried cannabis flower is the most widely used cannabis product in the United States, Green Thumb has been generating around two-thirds of its turnover from derivatives. Derivatives are non-floral products, such as vapes, edibles, and topicals. Derivatives not only have a higher price per gram than dried flowers, but they also offer top-notch margins. This is one of the main reasons why Green Thumb seems to be on the verge of being profitable.
As a final note, Green Thumb does not have the same fundraising concerns as many of its peers. It was able to access traditional forms of financing and turned to sale-leaseback arrangements to raise additional capital.
Innovative industrial properties
Perhaps the most logical name you’ll find on this list is Cannabis-focused Real Estate Investment Trust (REIT). Innovative industrial properties (NYSE: IIPR). I say logical because IIP, as the company is known, is the most profitable pure-play pot stock on a per share basis.
As of June 27, Innovative Industrial Properties owned 57 growing and processing assets in 15 US states. For context, the company opened 2019 with just 11 assets on its books, so it has been a busy bee for the past 18 months. The beauty of this portfolio is that the weighted average duration of IIP’s leases on these assets is 16.1 years, which means there is a lot of very predictable cash flow ahead. And since REITs are a low-cost business model, with the exception of the significant upfront costs associated with acquiring a property, much of this rental income will sink straight to his bottom line.
The IIP has also been a major beneficiary of sale-leaseback agreements. Keep in mind that we may see a White House and Congressional reshuffle in November, which could lead to cannabis banking reform legislation in 2021. But until the Cannabis banking reform is becoming a reality, the fact remains that IIP has benefited greatly – the time to provide initial liquidity to MSOs in exchange for the immediate acquisition and lease of assets to the seller.
And did I mention that IIP recently increased its quarterly payment by 6% to $ 1.06? That’s right – you’re earning 4.8% per annum right now just by owning a stake in Innovative Industrial Properties.
Scotts Miracle Gro
Finally, but continuing to stick with the more fundamentally healthy US cannabis market, consider buying Scotts Miracle Gro (NYSE: SMG) for the second half of 2020.
Scotts is what we call an auxiliary player. Like the IIP above, it is not directly involved in the cultivation, processing, distribution or sale of marijuana. Instead, it plays a vital role in the supply chain that allows direct actors to cultivate, produce, distribute and sell cannabis to the public.
What you probably know Scotts best is the corporate lawn and garden care segment. To date, consumer, farm and business products represents the lion’s share of the company’s sales. With coronavirus disease 2019 (COVID-19) forcing consumers to stay at home for their own good, we’ve seen an increase in home renovations and other home projects. This included an additional emphasis on the maintenance of lawns and gardens. Scotts Miracle-Gro recently announced that its U.S. consumer segment is expected to grow 9% to 11% in fiscal 2020, up from its previous forecast, released less than two months earlier, of just 1% to 3% sales growth.
But the most exciting aspect of growth is the Hawthorne Gardening subsidiary. Hawthorne primarily provides indoor growing solutions for the cannabis industry including hydroponics, lighting equipment, soil and nutrients. In June 2018, Scotts acquired Ohio’s Sunlight Supply, which further increased the diversity of Hawthorne products and gave Scott’s the opportunity to secure even more small and mid-sized customers. The result has been an unusually rapid growth for Hawthorne. Fiscal 2020 sales are expected to increase 45% to 50%, with Hawthorne now accounting for nearly 17% of total Scotts Miracle-Gro sales.
At this point, it’s not out of the question that Hawthorne is responsible for the consistent single-digit growth of Scotts Miracle-Gro.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.