Mark Twain famously said, “During the gold rush, it’s a good time to be in the pick and shovel business.” He meant that the real, consistent money in such boom times was made by the ancillary businesses that supported the gold rush…
Back then, companies such as Levi’s jeans and real estate speculators profited greatly from the gold rush. Today, in the boom of cannabis sales, Scotts Miracle-Gro (NYSE:SMG), Grow Generation (NASDAQ:GRWG), and Innovative Industrial Properties (NYSE:IIPR) are benefiting from the growth in marijuana sales, even though they don’t touch the leaf.
All three stocks have something over the typical marijuana company — positive net income and stability. They provide opportunities to invest in marijuana with less risk.
1. Scotts Miracle-Gro sows the seeds for financial survival
Most people may be familiar with Scotts for its consumer lawn and garden products, but through its subsidiary, the Hawthorne Gardening Company, it is one of the leading producers of hydroponic and indoor growing products necessary to the marijuana industry. In the first quarter, Scotts reported revenue of $1.82 billion, up 32% year over year. The company also posted net income of $310.2 million, up from $252.4 in the same period the prior year.
Hawthorne had a big hand in that success with $673.2 million in sales, up 68% over the same period in the prior year. Scotts CEO Jim Hagedorn said Hawthorne’s sales should climb 30% to 40% this year. On top of that, the company offers a quarterly dividend that it increased last year by 7% to $0.62 a share, which works out to a yield of 1.08%. The company’s stock is up a little more than 13% this year.
2. Innovative Industrial Properties is crucial to marijuana companies
Innovative is a real estate investment trust (REIT) that specializes in leasebacks of facilities to marijuana companies. Federal banking laws regarding marijuana complicate financing for marijuana companies, but Innovative provides a solution that works out well. It buys properties from marijuana companies, then rents those properties back to the same companies with triple-net leases. In a triple-net lease, the lessee agrees to pay all property expenses including real estate taxes, insurance, and maintenance, in addition to rent and utilities. This scheme provides needed cash and space to marijuana businesses, but also a nice, steady income to Innovative Industrial.
The company’s stock is up more than 130% over the past year, though down slightly more than 5% this year. Like many REITs, which are required by law to pay at least 90% of their taxable earnings back to shareholders, Innovative has a nice dividend. In the fourth quarter of 2020, the company raised its quarterly dividend by…
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