Cannabis is becoming synonymous with big business, but that doesn’t mean it’s easy to make money as an investor. Where there’s an industry that’s growing rapidly, there’s sure to be inefficiency around every corner. And while that might be par for the course, it also means that it’s a challenge to find the right stock to buy, because so many of the contenders are still finding their footing for the first time…
All of the stocks I’ll discuss today have one big advantage: They can grow alongside the cannabis industry without being directly exposed to the risks of shifting consumer preferences or variations in the market price of marijuana. That means when direct-to-consumer (DTC) companies are busy competing with each other by futzing with their branding, their product offerings, and their retail footprints, it simply won’t matter to your portfolio. Plus, these three stocks stand to gain from the long-term maturing of the industry as a whole — and that makes them lucrative picks today.
1. AdvisorShares Pure US Cannabis ETF
When you’re not sure exactly what company to invest in within a given industry, sometimes it’s a good option to buy a bundle in an ETF. That’s where AdvisorShares Pure US Cannabis ETF (NYSEMKT:MSOS) could come in handy. The fund holds a basket of different cannabis stocks, which it defines as companies that earn a minimum of half their net revenue from cannabis or hemp in the U.S. Up to 25% of its holdings are targeted at the biotechnology segment of the cannabis market, leaving the majority invested in the medicinal and adult-use segments.
Especially as the federal legalization of marijuana becomes more likely in the U.S., it’s easy to see how this ETF has a strong tailwind driving its growth in the short term, not to mention longer-term expansion from the industry’s maturation. But investors should remember that they won’t get exposure to juicy Canadian marijuana companies with this ETF, so buying a few stocks on the side might be worthwhile too.
2. Innovative Industrial Properties
I’m a fan of Innovative Industrial Properties (NYSE:IIPR) because its business model is to perform sale-leasebacks to medicinal cannabis cultivators. In a nutshell, it buys marijuana growing facility space from smaller companies, then rents it back to them. So Innovative Industrial essentially trades cash to cash-starved marijuana businesses in exchange for a steady flow of income that it then uses to accumulate more cash and repeat the process somewhere else. And it pays a tidy dividend that currently yields around 2.65%.
As far as cannabis stocks go, Innovative Industrial Properties‘ performance metrics and financials look good at a glance. That’s in stark contrast to other companies in the industry, which are often more prone to make investors cringe than swoon. It’s assuredly in the black, with a profit margin of more than 56%, and its quarterly revenue is growing by almost 110% year over year. At the same time, its quarterly earnings are increasing by 115.4% year over year — and all of that without taking on much debt relative to its $126.01 million in cash on hand.
This year, the company has acquired…
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