Marijuana might still be illegal at the federal level, but that may not last considering the expansion of legalization measures at the state level.
This week, four states voted on recreational and medical marijuana initiatives with three states passing their ballot measures with Michigan passing recreational legalization, Utah passing a medical marijuana proposition, and Missouri passing a medical marijuana measure along with a 4% sales tax on medical pot sales. These states join the thirty others nationwide that have passed medical marijuana laws, with nine of those states also passing recreational marijuana measures.
This wave of legalization in the U.S. comes on the heels of Canada’s recreational market opening last month. Canada’s market is anticipated to generate sales around $5 billion annually. But that pales in comparison to what the U.S. market is expected to generate. According to Arcview Market Research and BDS Analytics, of the $32 billion in global marijuana sales projected by 2022, the U.S. is expected to generate $23.4 billion in sales alone.
Considering the potential for such a massive market, investors wanting to have exposure to the marijuana sector should consider stocks in the space that have a strong presence in the U.S.
The following are three such stocks.
MariMed (OTC: MRMD)
With pot stocks, it has been difficult for many investors to filter hype from reality. But with MariMed (OTC: MRMD), you’re getting more than just hype. You’re getting a company with an interesting business model and great leadership.
MariMed was one of the only cannabis stocks to climb in October, and is 20% in the last month. And it’s little wonder why.
The U.S.-based company—which describes itself as a “multi-state cannabis organization that develops, owns and manages cannabis facilities and branded product lines”—announced early this past week that it had closed on its deal to purchase New Jersey-based BSC Group, a move that should help MariMed as New Jersey moves forward with a recreational pot initiative and will help the company’s branding and operations efforts in other markets.
MariMed currently has production facilities in Delaware, Illinois, Nevada, Maryland, and Massachusetts, states that are anticipated to total $2.8 billion in cannabis sales by 2022 with Massachusetts expected to exceed $1 billion alone in sales within the next four years.
And according to the company’s CFO, Jon Levine, MariMed is already building out its network in Pennsylvania, Michigan, Florida, and Ohio. Along with New Jersey, these states are expected to have a combined marijuana market of around $4 billion annually in the next four years. Michigan, which already has a robust medical marijuana market, has just passed a recreational legalization measure and could see sales climb to $1.4 billion by 2022.
The company has seen its sales explode in the states it already operates in as those states’ medical marijuana markets mature, and considering its existing and growing footprint, it’s clear that MariMed is one of the best-positioned companies in the U.S. cannabis market.
As the U.S. marijuana market continues to expand, MariMed looks poised to grow right along with it making this stock one to watch as it could become a very strong player over the long run.
Innovative Industrial Properties (NYSE: IIPR)
A lot of pot stocks have seen incredible gains over the last year, especially growers. But you don’t have to be a grower to make money in the marijuana space
Enter Innovative Industrial Properties (NYSE: IIPR), a San Diego-based company that touts itself as the leading real estate capital provider for the medical marijuana sector.
It’s organized like a real estate investment trust (REIT), and takes capital from investors and uses it to acquire real estate assets that it then leases to established medical marijuana growers in those states where production is legal.
The company already has an attractive portfolio of properties with 875,000 square feet of rentable production space, and with properties in seven states. It also boasts a 100% occupancy rate with a current blended yield on its portfolio of 15.7%.
According to IIPR, its average deal involves assets worth between $5 million and $30 million with lease terms of 10 to 20 years with rent starting at between 10% and 16% of the total investment in the property. Cash flow from these properties has been consistent and it’s expected that the company will continue to grow its real estate holdings as legalization spreads across the U.S.
What’s more, the REIT also offers a dividend and the current yield is 3.3%. You’d be hard pressed to find a major marijuana stock with a dividend at all, which sets IIPR apart from the crowd.
Analysts rate IIPR a Buy and their average twelve month price target for the stock is $49.00, suggesting possible upside of just over 10% from Thursday’s closing price.
KushCo (OTC: KSHB)
What’s most interesting to me about KushCo (OTC: KSHB) is its diverse businesses.
The company owns four distinct brands: Kush Supply, Kush Energy, The Hybrid Creative, and Koleto Packaging Solutions. And through these businesses, KushCo is exposed to personal-use products, cannabis marketing, hydrocarbon delivery, and retail distribution.
The company recently released preliminary sales results for FY2018, reporting expected sales of $51 million, or 171% higher than last year’s sales. But considering that the company is firmly positioned in several areas of the cannabis industry that are experiencing incredible growth, that 171% sales growth figure looks like just the start of the story for KushCo.
Planting itself in these growing markets hasn’t come cheap for KushCo, and the company is likely to see full-year losses in 2019 and maybe even in 2020. However, the company is reinvesting all of its positive cash flow back into building its business, making this stock an interesting play.
The average price target for KSHB is $8.75 – that suggests potential upside of 47.55% over the next twelve months.
This article was originally published on November 1, and has since been updated to reflect current information.