In the middle of a pandemic, it's hard to not be so near-sighted. Companies' revenue are declining, businesses are shutting down, families have reached record savings, and so much more is happening right now. Since the crash in March/April, lots of businesses have become much cheaper than they were. Small and mid caps got hit the worst and became especially cheap. One growing industry got hit hard during the shutdown. Cannabis has been struggling with legality in the US as well as the current pandemic that killed retailers in the industry. In a lot of investors' minds, it's only a matter of time before cannabis is legalized in the US to follow competition in full recreational and medicinal use in Canada. So, would getting in a couple of stocks now be a good idea? It's time to do some forward thinking. Here are some companies that I've been looking at:
Planet 13 Holdings (OTC: PLNHF)
These guys are a Canadian company operating and headquartered in Las Vegas, Nevada. They rely heavily on tourism which has become a substantial set back for the company. As most people are limited in traveling, Las Vegas hasn't seen many incomers, but with casinos beginning to open up, the strip is becoming more active. What makes Planet 13 so special is that they are more than a dispensary. They have a 112,000 square foot superstore where customers can come in and relax, go shopping, watch production/cultivation in progress, and so much more. The average amount a consumer spends have been around $100. Lately, foot-traffic has been slow, but as things pick up, this company looks promising, especially for just under $2.
Let's take a look at their financials. So far, the relatively new company has yet to have a positive net income, but that's not always the deciding factor in a growth stock or any company. One helpful thing to look at is how much their product are making, or how much they generate from operations and their revenues.
Annual revenues tripled last year comparing to 2018. Last quarter, they reported their highest amount of revenue of $16,793,000 with net income from continuing operations of -$1,409,000. Although that second number might look bad, it's an improvement from the previous quarters. This means the company is generating more money and losing less. This is what growth companies do, especially in their early stages.
What makes Planet 13 so intriguing is its location. I've already mentioned this, but considering how well the company performed before the pandemic shows that it will definitely start doing well again as the economy recovers over time. Now this could take years. If you are a patient investor, this stock looks like an attractive buy while it's in its early stages. In my opinion, cannabis is a long term play. When people talk about stocks to invest in your 20s, cannabis is always up there on my list. Whether your a fan of the green drug or not, it's always good to look at the potential of the industry. At the end of the day, we're here to make money. And as early companies come by and stick their feet in the door, it's not only a good sign for the stock, but for the industry itself as it grows. Sales took over 9% of Nevada's net sales which is tremendous for the small company.
Innovative Industrial Properties (NYSE: IIPR)
I have been in and out of this stock for a few years now, but this company has always been an attractive investment to me. IIPR operates as a REIT (Real Estate Investment Trust) that acquires property for medical marijuana companies and leases them out for a period of time. Many of their contracts last for 10-20 years, and they will be collecting an average interest of 13.7% per year on each investment, according to The Motley Fool. They also mentioned that IIPR has 52 properties already in 15 states which is impressive with all the limitations on cannabis in the US. The potential this company has if/when pot becomes totally legal is enormous. And unlike most cannabis stocks, IIPR provides a great dividend yield of 3.75%; a very attractive feature for investors.
After looking at IIPR's operating income, investors can tell that the company is turning some serious profit and is vastly better than it was 4 years ago. With the pandemic looming over investor sentiment, fears of a recession still linger. The company traded at its highest in 2019 which I think was justified, and quarterly revenues have been growing. Q1's operating income is at $10,430,000 and last March was $2,650,000, that's about an $8 million dollar difference in a matter of a year.
This chart is highlighting an important wedge created by the stock price over several months. IIPR is still trading within the general channel but is now reaching the top. The stock is already up 123% since March so it may look a little high, but they have been making money throughout. What investors are looking for now is Q2 earnings to see how IIPR performed during April, May and June now that GDP has been released. If the company can stay profitable or continue to grow their income, this stock will look like an amazing investment.
All in all, cannabis isn't going anywhere. As a matter of fact, it is going to be huge, and these stocks have great potential to become the top leaders in the industry, it's just a matter of time. If you are not comfortable with these speculative plays but like the industry as a whole, ETFs could be a great way to go. MJ is a popular one that holds many stocks including Canopy Growth, and is priced cheap right now. But in this emerging industry, any kind of investment is speculative.
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Please note that this email is my personal opinion only. I am not a licensed financial advisor, and any information shared or discussed is not to be construed as investment advice. Trading and investing involves a degree of risk, and is not suitable to all investors. Please consult with your financial advisor before making any sort of investment decisions.
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