Estimated read time: 3 minutes
Publication date: 3rd Feb 2021 11:30 GMT+1
Cannabis stocks have experienced a remarkable run after Joe Biden won the Presidential race in late 2020. Investors are optimistic about the decriminalization and eventual legalization of marijuana at the federal level in the U.S. which has driven stocks of several pot companies higher in the last two months.
While the legalization of cannabis in the U.S. might seem like a distant dream, we have identified three pot stocks that are fundamentally strong and which should continue to outpace the broader markets such as the S&P 500 this year.
Green Thumb Industries
The first stock on the list is Green Thumb Industries (OTC: GTBIF), a company that is firing on all cylinders. In the September quarter, Green Thumb sales soared 131% to $157.1 million.
This stellar growth in the top-line helped the company to improve its operating cash flow margin from -1% to a healthy 45% year over year. Green Thumb also managed to post a positive net income for the first time ever in Q3 of 2020.
Green Thumb is valued at a market cap of $6.4 billion which means its trading at a forward price to 2021 sales multiple of 7.7x and a price to earnings multiple of 70.1x which is reasonable given the company’s leadership position in the Land of Lincoln and a rapidly expanding addressable market.
Shares of Cresco Labs (OTC: CRLBF) were up 44% in 2020 and have already gained 25% year-to-date easily surpassing returns of the S&P 500. Cresco has a presence in nine states including six of the 10 most populated regions in the U.S.
It is a market leader in the state of Illinois which is one of the fastest-growing markets for recreational marijuana products. Cresco is also one of the largest wholesale distributors in California which is the biggest cannabis market in the U.S.
Cresco is now eyeing expansion into Florida’s medical marijuana market via its acquisition of Blume Wellness. Several other states like Arizona and New Jersey have recently legalized pot which indicates there are enough drivers for Cresco’s top-line growth.
Analysts covering Cresco expect the company to increase sales by 270.5% to $476.24 million in 2020 and by 69.2% to $805.7 million in 2021. This growth will also allow the company to turn profitable by the end of 2021.
Investors can also look at an ancillary pot company- Innovative Industrial Properties (NYSE: IIPR) which is a real estate investment trust. Shares of IIPR gained a mammoth 157% in 2020 and have risen over 6% year-to-date.
IIPR stock is also attractive to income investors, given its forward dividend yield of 2.5%. In the last year, IIPR increased its dividend payouts by 24% making it one of the top picks for investors seeking growth and dividends.
IIPR provides real estate capital to medical marijuana companies operating in the U.S. It basically purchases properties from these companies and leases them back to the operators via a triple-net-lease agreement.
Medical marijuana companies get access to capital while IIPR benefits from a predictable stream of cash flows. IIPR is focused on growth via acquisitions and now has 66 properties in 17 states.
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.
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