A not-so-long time ago, cannabis stocks were sizzling hot. Many of them were also overhyped. This led to the inevitable industrywide decline as cannabis stocks fell out of favor. Investors realized that the sky-high sales and profits they expected could take longer to be achieved than they hoped.
But the current malaise that is afflicting cannabis stocks could be…
lifted in the not-too-distant future. Although too much of the allure of these stocks in the past stemmed from hype, the reality is that the global cannabis industry will almost certainly grow tremendously. And this growth will create some big winners. Three beaten-down cannabis stocks that I think are likely to bounce back in a big way are Charlotte’s Web Holdings (OTC:CWBHF), Innovative Industrial Properties (NYSE:IIPR), and Trulieve Cannabis (OTC:TCNNF).
1. Charlotte’s Web
Charlotte’s Web stock is down more than 40% from the highs set earlier this year. The hemp-derived cannabidiol (CBD) pioneer announced disappointing second-quarter results in August. There’s also some uncertainty about what the U.S. Food and Drug Administration (FDA) might do concerning regulating CBD products. But there are reasons to believe that the future should be very bright for Charlotte’s Web.
The company has more than doubled the number of retail locations that carry its CBD products so far this year. More than 2,000 stores were added between May and August. This huge expansion of its retail distribution network should result in significantly higher sales for Charlotte’s Web in the coming quarters.
Charlotte’s Web’s earnings should improve dramatically as well. The company has boosted spending in recent quarters in anticipation of future growth. But its spending shouldn’t rise nearly as much as revenue will in the second half of 2019, leading to faster earnings growth.
It remains to be seen what the FDA will decide on CBD regulations. The final CBD regulations could provide a big boost for Charlotte’s Web. Whatever the agency ultimately does, though, having clear parameters for the U.S. CBD market should be better for Charlotte’s Web than the current uncertainty.
2. Innovative Industrial Properties
Innovative Industrial Properties’ market cap has nearly been cut in half since early July. The stock sank after the cannabis-focused real estate investment trust (REIT) announced a stock offering to raise cash. In addition, the overall weakness among cannabis stocks weighed on IIP.
A sell-off after a dilution-causing stock offering makes sense. However, IIP is arguably now in a better position than it’s ever been in to profit from growth in the U.S. cannabis market. The company has more cash to invest in properties. It also has more properties generating reliable cash flow than ever before — 32 and counting.
The legal cannabis markets in several of the states where IIP currently operates are only in their infancy. IIP also only owns properties in 12 states, but 33 states have legalized medical cannabis so far. The cannabis-focused REIT has plenty of opportunities for growth.
In the meantime, IIP continues to rake in profits — something most cannabis companies can only dream of doing. It also pays a dividend that currently yields north of 4%. Solid growth prospects, a strong financial position, and a fantastic dividend make Innovative Industrial Properties one of the most attractive cannabis stocks on the market, in my view…
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