Investing in cannabis stocks comes with plenty of ups and downs, and it’s been heavy on the downswings over the last few months. However, there are some reasons to be more optimistic about the fourth quarter, with the launch of the cannabis derivatives market in Canada and progress on improving banking laws for the U.S. marijuana industry.
Which pot stocks are among the top picks to buy in Q4? Here’s why I like…
Constellation Brands (NYSE:STZ), Innovative Industrial Properties (NYSE:IIPR), Trulieve Cannabis (OTC:TCNNF), and Charlotte’s Web Holdings (OTC:CWBHF).
1. Constellation Brands
I like Constellation Brands because it has a strong core business and it gives investors solid exposure to the cannabis industry via the company’s major stake in Canopy Growth (NYSE:CGC), the largest marijuana producer based on market cap. Although it’s likely that Constellation’s position in Canopy will continue be a drag on its financial results for a while to come, Canopy’s long-term prospects in cannabis still look quite good.
My view is that Canopy Growth is in a better position than any other marijuana company to win in the “Cannabis 2.0” market that will soon open in Canada. Canopy checks off all of the boxes with the products that it plans to launch: cannabis-infused beverages, edibles, and vape products. And its market research should pave the way for the company to differentiate its products. I also think that Canopy is in arguably the best spot among Canadian marijuana producers to succeed in the U.S. hemp market and potentially the U.S. cannabis market should federal marijuana laws change.
In the meantime, Constellation’s core alcoholic beverage business is performing very well. The company’s premium beers, especially Corona and Modelo, absolutely dominate the U.S. market in terms of sales growth. Constellation has also taken steps to shore up its wine and spirits business. I think that Constellation’s beverage products will continue to drive solid growth while Canopy picks up momentum.
2. Innovative Industrial Properties
There’s no better alternative for income-seeking investors to profit from the cannabis boom than Innovative Industrial Properties (IIP), in my opinion. The marijuana-focused real estate investment trust (REIT) pays a dividend that currently yields nearly 3.3%. And IIP has been quite generous in increasing its dividend, most recently boosting the payout by 30% quarter over quarter in September.
But IIP isn’t just a great dividend stock. It’s also a terrific growth stock, with shares doubling so far in 2019. IIP’s strategy is to buy a property then lease it to a cannabis operator under a long-term agreement that frees up capital for the client and provides a steady revenue stream to IIP.
The company currently owns 31 properties in 12 states. All of the properties are leased, with a weighted-average remaining lease term of nearly 16 years. I think that IIP should be able to keep its impressive growth streak going by continuing to invest in new properties in the states where it’s already operating, as well as expanding into new states where either medical or recreational marijuana is legal…
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