Some marijuana stocks seem to have already passed their peaks; others are expected to come into their own in due time. Below are three cannabis stocks that not only have good long-term prospects, but should also…
do well (or continue doing well) for the next year or so.
Investors should always have a long time horizon for their portfolio, not investing money they’ll need within the next three to five years, and planning on holding onto stocks for a decade or more. But we all want to see the stocks we buy provide us a nice return much sooner than that. Three Fool contributors believe GrowGeneration (NASDAQ:GRWG), AFC Gamma (NASDAQ:AFCG), and Innovative Industrial Properties (NYSE:IIPR) are poised to make you richer through 2022 and beyond.
Picks, shovels, and profits
Eric Volkman (GrowGeneration): There aren’t many pick-and-shovel stocks associated with the marijuana industry, which is only one of several reasons to buy GrowGeneration. The company is a retailer of hydroponic goods, i.e., products that can be used to grow crops (like, say, marijuana) using a water-based system without the need for soil.
GrowGeneration stays true to its name by aggressively expanding through acquisitions of peer hydroponics retailers, which tend to be fairly small and not overly expensive. The company is a serial acquirer; on two successive days in August, for example, it announced purchases of two retailers, one based in Washington state and the other in Los Angeles.
The latter adds particular heft to the company, as shortly thereafter GrowGeneration opened two other facilities near that sunny Southern California metropolis. It described the pair as “the largest hydroponic garden centers in Los Angeles County,” and they’ll be well positioned to supply a strong and established regional marijuana market.
GrowGeneration’s growth-by-expansion strategy coincides with greater legalization the U.S., as more states flip the switch on either medical or recreational marijuana. Earlier this year both New York and New Jersey made recreational pot legal, and GrowGeneration is sure to target such newcomers for store locations — as it did recently in Massachusetts by acquiring a store called Aquarius Hydroponics.
The company’s expanding presence, combined with organic growth in a rising industry, has really juiced GrowGeneration’s results. In its second quarter revenue increased 190% on a year-over-year basis (to nearly $126 million), fueled by same-store sales that improved by 60%.
And like a good pick-and-shovel company, GrowGeneration is profitable (this, while many marijuana sector peers continue to post losses). That quarter’s net income was $6.7 million, a big improvement over the previous year’s result — which happened to be another profit, of almost $2.6 million. In fact, the company has landed in the black consistently for over a year.
Several months ago, GrowGeneration was a hot stock for these reasons. It’s since lost some of its luster, as decriminalization/legalization efforts on both the state and federal levels in the U.S. have stalled. What also didn’t help was the company’s relatively cautious guidance for full-year 2021.
But there is very wide public support for marijuana law liberalization. Also, the factors behind that muted guidance (inflation affecting build-out activities, slow-walk licensing in newly recreation-legal states) are only potential short-term drags on operations. Past this year, the view looks extremely…
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