Cannabis stocks to buy are rallying after the U.S. Department of Justice proposed reclassifying marijuana as a less risky Schedule III drug. Following the DOJ’s proposal, President Biden came out on X, commending the move while signaling a rosier future for cannabis stocks.
DOJ’s move essentially validates the decades-long struggle for cannabis reform. More importantly, the reclassification will result in tangible business benefits, potentially altering their trajectory. For instance, the shift would result in a significantly lower tax burden, with companies currently paying a 70% effective tax rate Schedule I. Moreover, it will also stimulate greater market activity, with higher trading volumes and a potential influx of institutional investment. Here are three cannabis stocks to buy to capitalize on the trend, offering healthy long-term upside potential.
Cannabis Stocks to Buy: Green Thumb Industries (GTBIF)
Green Thumb Industries (OTCMKTS:GTBIF) is a leading Tier 1 multi-state operator (MSO) with robust operations and superior growth prospects. It’s been one of the most consistent players in its niche, with an excellent margin profile and healthy cash balance to boot. Moreover, Green Thumb exudes quality with over $222 million in its cash till and total assets, outweighing total liabilities by 3.16 times.
Another major positive about the company is its stellar profitability compared to its peers. Despite a significant decline in sales in recent quarters, the company has maintained its margins consistent with its historical metrics.
It recently released its first-quarter (Q1) results, which showed sales jumping to $275.8 million, an 11% increase from the prior-year period. The superb jump in sales was linked to higher retail and consumer packaged goods sales across its 15 newly opened RISE Dispensaries. Additionally, its EPS of 13 cents represented a 1,200% increase sequentially and roughly 225% on a year-over-year (YOY) basis. Hence, GTBIF is operating a quality business and is positioned for stellar upside in a Federal-level legalization scenario.
Advisor Shares Pure US Cannabis (MSOS)
Investing in a leading cannabis ETF, such as the Advisor Shares Pure US Cannabis ETF (NYSEARCA:MSOS), could be a strategic move, especially given the current bullishness in the cannabis sphere. The MSOS ETF effectively spreads the risk of betting on solo cannabis stocks. Hence, through effective diversification, you can capture the winners’ upside while mitigating the losers’ impact.
The ETF invests in 92 companies operating in the cannabis sector, including the biggest names in the space. Some of these include Curaleaf Holdings (OTCMKTS:CURLF), Trulieve Cannabis (OTCMKTS:TCNNF), and Cresco Labs (OTCMKTS:CRLBF). This broad exposure to the sector’s leaders positions the MSOS ETF for a robust upside.
Furthermore, we’ve witnessed a healthy run-up in MSOS stock in the past year, gaining more than 75%. Year-to-date (YTD) gains are also at an attractive 37%, with legalization tailwinds pushing the sector ahead.
Innovative Industrial Properties (IIPR)
Innovative Industrial Properties (NYSE:IIPR) is a top real estate investment trust (REIT) in the cannabis space. Focusing on real estate offers a strategic and relatively low-risk entry into the cannabis industry. Perhaps what sets the IIPR REIT apart is that it can sidestep industry regulations through its sale-leaseback model, offering cannabis operators stable income via long-term leases. It currently owns north of 108 properties across 19 states, with more than 95% of the portfolio under a triple-net lease.
Furthermore, it’s been arguably one of the most consistent players in the cannabis niche. This is shown by a stellar 47% growth in its 5-year average funds from operations (AFFO), outperforming the sector median by 2.11%. This powerful performance underscores its sublime business model and solid execution.
Additionally, it offers a dividend yield exceeding 6.4%, an annual payout of $7.24, and six consecutive years of payout growth. Therefore, IIPR presents a compelling investing option, efficiently combining stability with long-term growth prospects in a rapidly expanding industry.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
