The U.S. marijuana industry is enjoying some tailwinds. During the 2020 election, four states voted to legalize recreational pot use by adults — bringing the total number with such laws to 15 (plus the District of Columbia) — while two joined the group of states that have OK’d its use for medical purposes, bringing that total to 36…
Even before these developments, forecasts for the growth of this industry were impressive. Research firm New Frontier Data projects that the legal cannabis market in the U.S. will be worth $35 billion in 2025, up from $13.2 billion in 2019. And the trends have made many cannabis stocks into attractive investment opportunities.
Two companies that I believe could be major players and big winners in the long run are Cresco Labs (OTC:CRLBF) and Innovative Industrial Properties (NYSE:IIPR). Here’s why I think both could turn $200,000 investments into $1 million in 10 years.
The case for Innovative Industrial Properties
Innovative Industrial Properties is a real estate investment trust (REIT) focused entirely on the cannabis industry. But it does more than lease properties to pot growers. U.S. banks are largely unwilling to do business with cannabis companies because it would get them in trouble with the federal government. As a result, it has been difficult for these companies to access basic banking services or take out loans.
That’s where Innovative Industrial Properties comes in. By buying properties (such as production facilities) from cannabis companies and leasing them back to the sellers, it frees up vital capital for pot cultivators and retailers. The list of the company’s tenants includes some of the most notable multistate operators (MSOs) in the U.S., such as Cresco Labs and Trulieve Cannabis (OTC:TCNNF).
At the end of 2020, Innovative Industrial owned 66 properties in 17 states, with an average remaining lease term of about 16.6 years. Its business model has been highly successful thus far. For the first three quarters of 2020, it recorded revenue of $79.8 million, a whopping 195.6% year-over-year increase. The company’s earnings per share jumped by 94.2% to $2.33 during the same period.
It is worth noting that marijuana legalization at the federal level could pose problems for Innovative Industrial Properties since it would allow banks to do business with pot companies, thus creating competition for its lease-back program. However, there are at least two reasons why investors need not worry too much about this potential problem.
First, even though the more marijuana-friendly Democratic party currently occupies the White House and has control of Congress, President-elect Joseph Biden has made it clear that he does not support legalization at the federal level. Rather, he is in favor of decriminalizing and rescheduling the substance, which would not totally liberate pot companies.
Second, even if legalization were to happen, the U.S. cannabis market would…
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