The Cannabis Market Is Reversing
With the Alternative Harvest ETF (NYSE:MJ) up more than 50% from its lows it is beginning to look like a major reversal is underway in the cannabis market. Not only are overcapacity and oversupply issues coming into alignment, but the Canadian cannabis producers are also in the best shape they’ve been in since pre-legalization. Add in the fact that Canada’s addressable market is slowly growing, and that expansion into the US is closer than ever, means the stage is set for a multi-year rally in this market. But I wouldn’t buy the Alternative Harvest ETF, I’d buy these instead.
Canopy Growth Is The Biggest, And Best
Canopy Growth Corp (NYSE:CGC) is Canada’s largest cannabis producer by revenue with operations in Canada, the US, and internationally. It is also the single largest holding of the Alternative Harvest ETF so you get a lot of the same exposure anyway. And more concentrated into the industry’s largest and most successful operator.
Two of Canopy Growth Corporation’s most recent moves are a partnership with Martha Stewart and the purchase of Sweetwater Brewing Company. The deal with Martha Stewart expands the company’s reach into the US with branded CBD products. The Sweetwater deal further expands the company’s reach into the US and its capacity to produce infused beverages.
Over the past two quarters, Canopy Growth Corporation’s metrics have improved along with revenue growth. The company has been trimming excesses within the operation and clearing up the balance sheet with the goal of profitability in mind. Based on the most recent report it looks like the company could deliver positive EBITDA margins in mid to late calendar 2021 and a full year ahead of schedule.
Cresco Labs For US Exposure
While Canopy Growth Corporation and other Canadian producers prepare for the passing of Federal legalization in the US, Cresco Labs (OTC:CRLBF) is quietly building an empire in the US Cresco Labs is a Chicago-based U.S. multi-state operator. The company has production, processing, and dispensaries in 8 states including the US largest market, California. Over the course of the past two quarters, this company has not only improved its operations via leveraging capacity, organic growth, and expanding footprint but it has turned a profit. That’s right, a cannabis company that makes money. Charles Bachtell, Co-founder and CEO of Cresco Labs said:
“Cresco Labs entered the third quarter firing on all cylinders achieving record levels of revenue, profitability, and cash flow. We remain the number one operator in the industry focused on, and delivering results in, the wholesale distribution of branded products. Our retail is outperforming, and we are generating substantial operating leverage.”
Innovative Industrial Properties (NYSE:IIPR), Cannabis Exposure, And A Dividend
Innovative Industrial Properties Inc (NYSE:IIPR) came on to my radar one day while screening for REITs and I am glad it did. The company is a real estate investment trust with a pure focus on the cannabis industry. Operations include the purchase and leaseback of cannabis facilities primarily on a triple-net basis. That means IIPR owns the buildings, makes money from rents, and pays nearly none of the costs of maintenance, licensing, or improvements. The benefit to the cannabis industry is a means of raising capital in a non-dilutive manner while preserving operations. The benefit for investors is cannabis exposure, a safety net in the form of property ownership (the cannabis company may go bankrupt but the property is forever), and a dividend. At today’s prices, the stock is yielding about 3.0% with an expectation for future growth.
