As the cannabis industry evolves, its economic contributions could climb dramatically, offering ample growth opportunities for underappreciated cannabis stocks.
Cannabis stocks have skyrocketed on the U.S. Department of Justice’s plan to reschedule marijuana as a less risky Schedule III drug. This move, lauded by President Joe Biden, promises a bright future for cannabis stocks and confirms the decades-long campaign for cannabis reform. The reclassification could reduce the tax burden on companies, which is now stifled by over 70% effective tax rate under Schedule I.
Meanwhile, the cannabis sector has diligently worked to bounce back from previous downturns. In 2023, companies created thousands of new jobs, setting the stage for future development. This rebound is reflected in Vangst’s 2024 Cannabis Jobs Report, which shows over 440,000 new jobs added in cannabis-legalized states, marking a 5.4% annual bump.
Furthermore, as the 2024 elections approach, the issue of federal legalization is expected to gain traction. Thus, now is a good time to hop on these underappreciated cannabis stocks that could reap stellar returns.
Green Thumb Industries (GTBIF)
Green Thumb Industries (OTCMKTS:GTBIF), a prominent yet underappreciated American cannabis company, offers a wide range of marijuana products. It’s a preferred investment option for capitalizing on the cannabis rescheduling, given its best-in-class margin profile and modest valuation.
Building on this foundation, Green Thumb’s performance in the first quarter of 2024 was notable, with a revenue of $276 million, marking an 11% year-over-year (YoY) increase. The company also reported a mind-boggling net income of $31 million, reflecting a jaw-dropping 240% uptick from the prior year. This superb growth was driven by booming retail and packaged goods sales, stretching into 15 new RISE dispensaries and launching adult-use sales in Maryland.
Moreover, Green Thumb is an excellent vehicle to ride the cannabis surge, trading just under three times forward sales estimates. This sturdy performance is complemented by TipRanks analysts, who assign it a ‘strong buy’ rating and project a whopping 74% upside potential.
Trulieve Cannabis (TCNNF)
Trulieve Cannabis (OTCMKTS:TCNNF), a robust multi-state operator, has established one of the biggest retail networks in the U.S. with 195 outlets. The company targets high-end customers by concentrating on luxury items throughout its brand portfolio.
Moreover, Trulieve’s Q1 2024 financials were outstanding. Its overall revenue soared by 4% to $298 million, while its gross margin significantly increased to 58% compared to 54% in Q4 2023. The launch of three new dispensaries in Florida and a rise in retail traffic are credited with this growth.
Additionally, the Florida Supreme Court’s adoption of a ballot measure legalizing recreational cannabis in November 2024 may catapult Trulieve’s earnings. The corporation could see enhanced annual earnings with a commanding 21% market share in Florida.
Furthermore, Trulieve’s balance sheet is quite impressive, with $320 million cash reserves and $468 million working capital. Even with these solid fundamentals, Trulieve trades at forward sales and book multiples of 1.64 and 1.51, respectively.
Innovative Industrial Properties (IIPR)
Innovative Industrial Properties (NYSE:IIPR) stands as a top-tier real estate investment trust (REIT) in the rapidly growing cannabis industry. IIPR holds over 100 properties across 19 states, with an astounding 95% under triple-net leases. This allows the company to enjoy a stable and predictable rental income without bearing the burden of ongoing property costs.
IIPR’s performance metrics are equally exceptional, with its five-year average growth in funds from operations (AFFO) hitting 47%, surpassing the sector’s median by 2.22%. Additionally, IIPR offers a robust dividend yield of 6.63%, an annual payout of $7.24 for the trailing twelve months, and has consistently increased its dividends for six years. This thriving performance underscores its strong financial foundation, supporting both stability and aggressive growth.
Lastly, IIPR’s projected non-GAAP price-to-earnings (P/E) ratio of 18.99 considerably dips below the industry median by 42%. This notable undervaluation indicates the company’s significant profitability potential, further highlighted by an 11% upside by TipRanks analysts.
On the date of publication, Nabeel Bukhari 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.
