Cannabis stocks have been struggling over the past six months, with the Horizons Marijuana Life Sciences ETF down more than 30% while the S&P 500 has risen by 17%. Though optimism was high when the Democrats took control of the…
Senate earlier this year, a lack of progress with respect to the federal legalization of marijuana may have led investors to look for other near-term growth opportunities instead. Although the majority of Americans are in favor of legalizing pot federally, it still could take years before that happens.
But there are some cannabis stocks that can do well even if the U.S. government doesn’t legalize marijuana anytime soon. Pick-and-shovel plays like Agrify (NASDAQ:AGFY) and Scotts Miracle-Gro (NYSE:SMG) aren’t plant-touching businesses, so they don’t need legalization to expand and grow throughout the country. And as more states legalize marijuana use, that will open up more opportunities for these companies, regardless of what happens with marijuana at the federal level.
Agrify provides premium grow solutions that can help cannabis producers improve efficiency and get the most out of their products. In an industry where many businesses are still incurring losses, those solutions could be in high demand. Specifically, the company’s vertical farming units (VFUs) allow a producer to grow plants in a vertical arrangement, which can save significant space that translates into cost savings. For cannabis businesses that may be intimidated by the need for large greenhouse operations, an efficient solution involving VFUs can make it easier to get started.
Today, Agrify is still a business in its early growth stages, but if its VFUs prove to be the real deal, this could be an incredibly promising growth stock to own. Agrify posted its second-quarter results Aug. 12, and sales of $11.8 million for the period ending June 30 were more than triple the revenue it generated in the prior-year period. Management anticipates that sales could top $50 million in 2021. That would be more than four times the $12 million in revenue it reported in 2020.
Although the company remains in the red and will likely continue to generate losses, the business is in good shape to continue growing regardless. As of the end of Q2, Agrify had $79.8 million in cash and cash equivalents — far in excess of the $13.8 million it burned through in its operating activities over the past six months.
There’s some risk with Agrify in how popular its VFUs will end up being with cannabis producers, but this is a stock that investors should certainly keep a close eye on.
2. Scotts Miracle-Gro
A safer pick-and-shovel play for cannabis investors is hydroponics and gardening company Scotts Miracle-Gro. Like Agrify, Scotts can help cannabis producers with their growing operations. Through the use of hydroponics, which involves a system of pumps and pipes that require no soil, companies can save on space and eliminate the need for a complex greenhouse to grow their crops. The cannabis part of Scotts’ business falls under its…
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