Karee Venema
Marijuana stocks have given cannabis investors nothing but false starts over the past few years. The industry has struggled with a plethora of issues, including inflation, overproduction, lack of capital, job losses and cratering stock prices.
But investors that hold the industry's best stocks to buy and the top exchange-traded funds (ETFs) — and perhaps a bit more patience — should be best-positioned for marijuana's eventual renaissance.
Amazingly, while marijuana stocks haven't delivered returns to match the their long-term promise, the cannabis industry in the U.S. is relatively healthy.
That's despite a continued delay in federal legalization and ongoing stalling by lawmakers on the SAFER Banking Act, legislation that aims to improve cannabis companies' access to finance.
You can thank a growing number of forward-thinking states, such as Ohio, which legalized recreational marijuana use in November 2023. And marijuana is on the ballot in Florida, Nebraska, North Dakota and South Dakota in November 2024.
Estimates from Whitney Economics, a cannabis and hemp consulting firm, suggest legal cannabis sales (adult-use and medical) could reach $31.4 billion this year, up 9.1% over 2023.
"Cannabis legal sales have been suppressed since the end of the pandemic, partly due to changes in consumer purchasing behavior, macro issues such as higher interest rates, declining cannabis business conditions and slower than normal regulatory implementations in new markets," the firm said in a press release. "Despite these headwinds, growth rates have remained positive in the U.S. overall."
In late April, news the Drug Enforcement Administration (DEA) will recommend reclassifying marijuana as a Schedule III drug vs its current Schedule I status gave cannabis stocks a big boost. The process is in the early stages, but once complete, it will clear a major regulatory hurdle for cannabis companies.
Ultimately, the following picks look like the best marijuana stocks (and fund) to benefit from this ongoing growth and maturation.
Data is as of November 1. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price.
Innovative Industrial Properties
- Market value: $3.6 billion
- Dividend yield: 6.0%
Innovative Industrial Properties (IIPR, $127.00) is a real estate investment trust (REIT) that invests in greenhouses and industrial facilities for the medical cannabis industry.
Founded in 2016 with just one property under its umbrella, IIPR's portfolio grew to 66 by the end of 2020 and now includes 108 properties.
The REIT's diversified portfolio of 9 million square feet of rentable space spans 19 states, including Illinois, California and Pennsylvania.
IIPR reported 2024 Q2 revenue growth of 4.3% to $79.8 million. Adjusted funds from operations (AFFO) — a key REIT earnings metric — grew 2.4% year over year to $65.5 million. AFFO per share inched up 1.3% to $2.29.
The company also raised its quarter divided to $1.90 per share from $1.82, a 4.4% increase that took its annual dividend to $7.60 per share from $7.28 per share. This marks the seventh straight year IIPR has raised its payout.
That's encouraging news for cannabis investors seeking out the best dividend stocks to buy.
Admittedly, Wall Street is sitting on the sidelines when it comes to IIPR. The consensus estimate of the seven analysts following the marijuana stock tracked by S&P Global Market Intelligence is Hold.
Piper Sandler analyst Alexander Goldfarb is one of those with a Neutral (Hold) rating on IIPR.
The outlook for the industry is improving based on expectations the Department of Health and Human Services (HHS) will reschedule cannabis, "which will allow operators to take advantage of normal course tax deductions," Goldfarb says. But "the reality for IIPR remains a still-cautious investment market where capital remains precious."
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Scotts Miracle-Gro
- Market value: $5.1 billion
- Dividend yield: 2.9%
Scotts Miracle-Gro (SMG, $89.66) stock has been on a six-year roller-coaster ride.
At the end of 2018, it traded south of $60. By April 2021, it reached an all-time high of $250, a cumulative total return of nearly 320%.
Some of the gains were attributable to its Hawthorne Gardening division, which provides nutrients, lighting and other materials used by indoor and hydroponic growers, including the cannabis industry.
In its fiscal Q1 2021, Scotts reported company-record first-quarter revenue of $749 million, with Hawthorne's sales up 71% year over year to $309.4 million.
Fast forward to SMG's fiscal 2024 third-quarter results: Hawthorne's revenue for the three months ended June 30 was $67.7 million, down 28% year over year and more than 78% from the peak.
Most of the decline in SMG's share price from its April 2021 all-time high (it traded as low as $39 in October 2022) are a result of the relative collapse of its Hawthorne business.
While revenue in Scotts' U.S. consumer business is down from the surge in sales caused by the pandemic, it's still significantly higher than it was pre-pandemic. Overall, Scotts' business is in good shape.
And CEO Jim Hagedorn is optimistic about the cannabis industry.
"The federal government is moving closer to rescheduling cannabis as a Schedule 3 drug to make [the] justice system more fair and reduce taxes on plant-touching business by over 50%," Hagedorn said in the company's fiscal Q1 earnings call.
"This can be a major catalyst to cultivators reinvesting in their operations. Adoption of the Safer Banking Act is on the table as well, which would give the industry access to normal bank capital."
SMG is one of the best marijuana stocks for valuation too. Shares are trading at 1.46 times sales, below its five-year average multiple of 1.55.
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Cresco Labs
- Market value: $526.7 million
- Dividend yield: N/A
Cresco Labs (CRLBF, $1.515) is a multi-state operator (MSO) with operations in eight states, sporting 64 retail licenses, 13 production facilities and 71 operational dispensaries. Its national brands include Cresco, Good News, Remedi and Mindy's (edibles).
Like many of the larger marijuana stocks, Cresco is expanding its business through both organic and acquisitive growth.
In 2023, the company added 16 stores across Florida and Pennsylvania, two states where medical marijuana use is legal. In 2024, the company is focusing its efforts on Ohio, where voters last fall legalized recreational marijuana.
In the first quarter, CRLBF reported a 5% year-over-year decline in revenue to $184 million, though comparable sales were flat and adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was up 82% to $53 million. And Cresco Labs generated a 1,000% increase in operating cash flow to $36 million.
Cresco is one of Wall Street's favorite marijuana stocks. Of the eight analysts following the stock, six give it a Strong Buy and two have it at Buy.
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Curaleaf Holdings
- Market value: $2.2 billion
- Dividend yield: N/A
If you're looking for a pure-play cannabis company in the U.S., Massachusetts-based Curaleaf Holdings (CURLF, $2.96) is one way to go. The firm got its start in New Jersey in 2010, developing one of the first vaporizers to administer a single measured medical marijuana dose.
CURLF operates in 17 states, including Arizona, Florida, Illinois and Massachusetts. It owns and operates 145 dispensaries and 21 cultivation sites. And Curaleaf is becoming one of the world's leading cannabis companies by using science to enhance the customer experience.
A total of 38 states, Washington, D.C. and four of the five U.S. territories have legalized medical marijuana. Twenty-four states and D.C. have legalized adult-use cannabis. As more states legalize recreational weed, Curaleaf should be able to continue to grow its business organically and through acquisitions.
However, as investors in even the best marijuana stocks are aware, the industry's maturation process continues to be a long and winding road. That's true even for Curaleaf.
In early 2023, the company cut 10% of its payroll and closed its production and cultivation facilities in Oregon, California and Colorado to focus on its strongest markets.
These efforts appear to be bearing fruit.
In its second-quarter results, the company generated 2% revenue growth to $342 million, and the net loss per share narrowed from 9 cents a year ago to 6 cents.
Be careful with CURLF, however. Like many marijuana stocks, Curaleaf is traded over the counter, sometimes at very thin volumes. That means limit orders and stop-losses are a must when investing.
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Tilray Brands
- Market value: $1.5 billion
- Dividend yield: N/A
Since Tilray Brands' (TLRY, $1.64) merger with Aphria in May 2021, the cannabis industry has faced incredible headwinds, including the U.S. government dragging its heels on legalizing cannabis at the federal level.
The uncertainty has knocked down Tilray's share price by more than 90%. This has forced CEO Irwin Simon to develop a plan to make Tilray competitive no matter the regulatory environment for cannabis in the U.S.
As a result, the company pivoted to beer and premium spirits to fill the gap in revenues and profits, and in December 2021, Tilray acquired Breckenridge Distillery for $103 million.
Tilray acquired Montauk Brewing in late 2022 for $35 million in cash and stock. To further grow its beer business, in 2023 Tilray bought eight beer and beverage brands from Anheuser-Busch InBev (BUD).
And, more recently, it completed the acquisition of craft breweries Hop Valley Brewing Company, Terrapin Beer Co. and Revolver Brewing from Molson Coors (TAP).
Management reported that Tilray's beverage alcohol revenue in its fiscal first quarter, which ended August 31, 2024, was up 132% year over year to $56 million. That represents 28% of total net revenue of $200 million for the company in the quarter.
While Simon continues to pull different levers to add value for shareholders, Tilray remains, at the core, a cannabis business. In its most recent report, cannabis accounted for 31% of its quarterly revenue.
It'll take a while, so investors in one of Wall Street's best marijuana stocks can likely expect more non-cannabis acquisitions in 2025.
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AdvisorShares Pure US Cannabis ETF
- Assets under management: $893.8 million
- Expenses: 0.83%, or $83 annually on a $10,000 investment
The AdvisorShares Pure US Cannabis ETF (MSOS, $6.89) launched in September 2020. This fund stands out because of its U.S.-specific focus; it holds several multistate operators, such as Curaleaf and Cresco, the ETF's third- and fifth-largest holdings with 16% and 5.8% weightings, respectively.
The portfolio is managed by Dan Ahrens, who also happens to be AdvisorShares' chief operating officer. In addition to MSOS, Ahrens manages the AdvisorShares MSOS 2x Daily ETF (MSOX), a fund designed to deliver twice the daily performance of the AdvisorShares Pure US Cannabis ETF.
As pure-play, actively managed ETFs go, MSOS breaks the mold.
"U.S. MSOs possess an unusual set of attributes for such an early-stage industry in that they have among the highest growth rates of any sector, are generating substantial increases in EBITDA dollars, but have balance sheets capable of sustaining capex and funding M&A that we expect to fuel growth for the next few years," said Needham analysts Matt McGinley and Chad Britnell.
Kiplinger contributor Matt Hawkins discussed the pros and cons of investing in multi-state operators in September 2021. The biggest positive, in his view, is the fact they're building brand loyalty in the states where they operate while biding their time when they can go nationwide.
It's been a rough road for the ETF, which plunged 30% in 2021 and 73% in 2022 and was flat in 2023. The stock surged in the first half of 2024 but has drifted lower as the federal legalization question has lingered.
If you're an aggressive investor, believe federal legalization will happen in the future and have a bit of a value bent, you absolutely ought to be looking at MSOS.
Learn more about MSOS at the AdvisorShares provider site.
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