Cannabis stocks may be one of the most controversial trades on the market. But it could also turn out to be one of the most profitable. Granted, we haven’t seen much in the way of legalization just yet, but that could soon change. We’re also waiting to see if cannabis is finally rescheduled from a Category 1 to a Category 3 by the U.S. Drug Enforcement Administration.
We also have to consider that eventually we will see legalization. And we have to consider that a majority of Americans want to see cannabis legalized at some point. Remember, according to Pew Research, about 88% 0f Americans say cannabis should be legal for medicinal and recreational purposes.
That being said, investors may want to invest in some of the most oversold cannabis stocks. That includes these seven beaten-down cannabis stocks that are still primed for eventual explosive growth — especially with many Americans and many in Congress pushing for reform and eventual legalization.
AFC Gamma (AFCG)
With AFC Gamma (NASDAQ:AFCG), you can get paid to wait for the cannabis stocks boom.
Not only does the commercial mortgage real estate investment trust carry a yield of 16.8%, but it’s also excessively oversold. Granted, recent earnings weren’t so hot.
The company’s EPS of 49 cents missed by four cents. Net interest income of $16.1 million, which was down just over 19% year over year missed by $1.01 million. However, if we see sweeping changes in Congress with regard to rescheduling and perhaps federal legalization, AFCG could see higher highs.
Innovative Industrial Properties (IIPR)
Another hot cannabis REIT with a yield of 9.45%, Innovative Industrial Properties (NYSE:IIPR) is worth looking into, as well. At the moment, IIPR owns about 108 properties across 19 states, which it leases using triple net leases, where the tenant agrees to pay all property expenses including taxes, building insurance, and maintenance.
Earnings have been impressive, and should only run higher on the potential cannabis boom. In its recent quarter, the REIT’s funds from operations (FFOs) came in at $2.07, beating by seven cents. Revenue of $76.46 million, up about 8% year over year, beat by $2.94 million.
IIPR is also oversold. After dropping from about $88 to $72, the REIT appears to have caught strong support. From its current price of $76.20, I’d like to see IIPR challenge $88 again.
NewLake Capital Partners (NLCP)
There’s also NewLake Capital Partners (OTCMKTS:NLCP), a REIT that provides capital to state-licensed cannabis operators through sale-leasebacks. It also carries a yield of 11.45% and could see higher highs, depending on what happens with cannabis in Congress.
Granted, the cannabis environment hasn’t been favorable. Capital raising did slow because of higher interest rates, and a tighter credit market. And Congress is still dragging its feet over legislation. However, don’t write off this opportunity. Buy, hold, collect the yield, and simply wait for the market to improve. We also have to consider that we’ll eventually see a decrease in interest rates, which should boost REITs like NLCP.
Global X Cannabis ETF (POTX)
Or, we can look at excessively oversold exchange-traded funds (ETFs), such as the Global X Cannabis ETF (NASDAQ:POTX). Over the last few weeks, POTX slipped from about $9.25 to $6.17. From here, depending on the future of legalization, I’d like to see the POTX ETF rally back to $9.25.
With an expense ratio of 0.51%, the POTX ETF holds companies involved in the production and distribution of cannabis, and companies involved in financial services, as well as CBD. Some of its top holdings include SNDL (NASDAQ:SNDL), Innovative Industrial, Tilray (NASDAQ:TLRY), Canopy Growth (NASDAQ:CGC), Cronos Group (NASDAQ:CRON), and AFC Gamma to name a few of the top names.
ETFMG Alternative Harvest (MJ)
There’s also the oversold ETFMG Alternative Harvest ETF (NYSEARCA:MJ). After dropping from about $4.70 to $3.20, the MJ ETF appears to have caught strong support and is just starting to pivot higher, too.
With an expense ratio of 0.75%, this ETF has positions in companies benefiting from global medicinal and recreational cannabis. Some of its top holdings include SNDL, Cronos Group, Tilray, Aurora Cannabis (NASDAQ:ACB), and High Tide Inc. (NASDAQ:HITI) to name a few.
Tilray is just as oversold as most other cannabis stocks. After dipping from about $3.40 to $2, the Tilray (NASDAQ:TLRY) stock appears to have also caught strong support. From a current price of $2.13, I’d like to see the stock again challenge resistance at $3.40. Analysts at Alliance Global Partners also just raised their price target on TLRY to $2.25 from $2.
As noted by TipRanks, “Following the close of the HEXO and Anheuser-Busch (ABI) brand acquisitions, Alliance Global Partners believes the company will be able to achieve cost synergies from the acquisitions and see the bigger question in driving sales growth.”
With TLRY, a lot is riding on rescheduling and the potential for federal legalization at some point. In the meantime, the company is also attempting to diversify with beer and beverage brands from Anheuser-Busch, which could hand TLRY a significant market share.
Green Thumb Industries (GTBIF)
Finally, there’s Green Thumb Industries (OTCMKTS:GTBIF). Severely oversold, the cannabis stock could run from its current price of $10 back to $16 initially. Helping, the company recently announced a $50 million share buyback plan to help create even more shareholder value.
In fact, as noted by the company, “As Warren Buffett taught us in this year’s Berkshire Hathaway annual letter to shareholders, ‘The math isn’t complicated: When the share count goes down, your interest in our [business] goes up. Every small bit helps if repurchases are made at value-accretive prices.’ We are excited about the future for Green Thumb and cannabis in America.”
Better, GTBIF is one of the only companies that’s generating cash flow and earnings, says Motley Fool contributor David Jagielski.
On the date of publication, Ian Cooper did not hold (either directly or indirectly) any positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.