You will hear a lot about top stocks that can be exchanged for short-term gains. And if your timing is really good, you might be able to make money with such quick entries and exits. But if your timing isn’t that good, you can get burned too.
However, there is another way you can build wealth with cannabis stocks. Instead of short-term trading, find stocks in well-run companies with great growth prospects and stick with them for the long term. Here are three stocks of cannabis to buy and hold that should generate tremendous returns over the next few years.
1. Cresco Labs
Cresco Labs (OTC: CRLBF) The company operates retail stores in nine states that together make up 60% of the current addressable market. It is also the largest wholesaler of branded cannabis products in the country.
If you’ve thrown an arrow at a list of popular cannabis companies, chances are your arrow will land on an unprofitable one. It probably won’t even get positive adjusted earnings before interest, taxes, depreciation and amortization (EBITDA). However, Cresco is an exception. The company is already profitable, posting adjusted EBITDA of $ 46.4 million for the most recent quarter, up 182% from the previous quarter.
Cresco’s growth prospects are clear and compelling. Current markets continue to expand, even the relatively mature market in California. The company is also entering new markets and recently announced an acquisition that will make Cresco a competitor in Florida’s fast-growing medical cannabis market.
The stock could also face a big jump if marijuana is decriminalized in U.S. Cresco stocks. Cresco stock cannot be listed on major US stock exchanges while cannabis remains illegal at the federal level. This limitation holds back the company’s valuation compared to its Canadian counterparts.
GrowGeneration (NASDAQ: GRWG) is the largest specialist retailer focusing on hydroponics and organic horticulture. With the recently announced acquisition of San Diego Hydroponics & Organics, the company now operates 50 stores in 11 states.
The company expects sales of $ 192 million in 2020, an increase of 140% over the previous year. The company aims to achieve sales between $ 335 million and $ 350 million in 2021. The midpoint of this area reflects 78% growth. GrowGeneration also expects Adjusted EBITDA between $ 38 million and $ 40 million this year.
There are two main growth paths for the company. It can (and almost certainly will) grow organically. Some of the markets that GrowGeneration currently operates in are only at an early stage. As more cannabis producers enter these markets, it will increase the demand for hydroponic and organic gardening products available in the company’s stores.
However, an even bigger opportunity for GrowGeneration is to add more stores. There are over 1,000 hydroponics specialty stores in the United States. GrowGeneration should be able to further consolidate this highly fragmented market through acquisitions, which will give the company a significant growth path.
3. Innovative industrial real estate
Innovative industrial real estate (NYSE: IIPR) could be the best way for more conservative investors to capitalize on the cannabis boom. The company is the leading real estate investment trust (REIT) focused on the US medical cannabis industry. It currently owns and rents 67 properties in 17 states.
For the fourth quarter, IIP revenue was $ 37.1 million, an increase of 110% year over year. Profit increased 120% year over year to $ 21 million.
Unlike most cannabis stocks, IIP offers a dividend. The dividend yield is currently almost 2.3%. The company increased its dividend payout by 58% last year.
All IIP needs to do to continue its impressive growth is continue to lease real estate to medical cannabis operators. The company added 22 properties to its portfolio between January 1, 2020 and February 24, 2021. While the potential for federal cannabis reform could increase competition for IIP, it should continue to generate strong growth in the future.
This article represents the opinion of the author who may disagree with the “official” referral position of a Motley Fool Premium Consulting Service. We are colorful! Questioning one investment thesis – including one of our own – helps us all think critically about investing and make decisions that will help us get smarter, happier, and richer.