Investment Opportunities

Top Pot Stocks for This Uncertain World

Pot stocks have blazed higher from their 52-week lows in March.

The Horizons Marijuana Life Sciences Index ETF (OTC: HMLSF) has sprung 71% higher from its trough on March 16. And major licensed Canadian producers, as well as large U.S. multistate operators (MSOs), have gained 60% or more since then.

But for the most part, despite these face-ripping rallies over the last few months, pot stocks are underperforming the broader indexes by significant margins year to date.

Still, there’s one group of cannabis stocks shining bright.

Its members are flying under the radar, bucking the trend. However, that’s not the only reason they deserve a spot in every pot stock investor’s portfolio.

The New “Green Rush”

We have a “green rush” spreading across this country.

More than half of Americans currently live in a state where marijuana is legal in some form.

There are 11 states that have legalized adult-use cannabis. And 33 states, as well as the District of Columbia, have greenlit medical marijuana sales…
USA ChartThat’s a sizable opportunity.

Of course, this is an election year, so there’s potential for the number of U.S. markets to grow. Especially when confronted with the herculean effort of keeping the economy upright in the wake of the global pandemic.

Over the last several years, we’ve watched the legal cannabis industry be born and quickly learn to run.

Now, most of the attention is given to cannabis producers, both here in the U.S. and in Canada (where cannabis is legal nationwide).

And early investors in these stocks minted millions.

But shares of these companies have been extremely volatile.

Investors often overlook the less risky, ancillary players helping to get those in-demand products from the grow house to the dispensary and then to the consumer.

These aren’t Canadian licensed producers or American MSOs. But it’s a profitable set of companies every cannabis investor must know about. This group provides the necessary components, packaging, greenhouse space, lights and even soil for plant-touching businesses to survive and thrive.

And in 2020, these stocks have emerged as the cream of the crop.

“Green Rush” Pick-and-Shovel Plays

I’ve always been a fan of pick-and-shovel plays, particularly in cannabis.

There’s a lot of red tape, regulatory threats and missteps that could sink pot stocks. We don’t need to look any further than the demise of CannTrust Holdings (OTC: CNTTQ) to see that.

But those same issues don’t dog cannabis company suppliers, landlords or industry software platforms. And because these companies don’t touch the plants, they easily trade on major U.S. exchanges, demonstrating the reduced overall industry risk.

Two of my primo picks in this group – GrowGeneration (Nasdaq: GRWG) and Innovative Industrial Properties (NYSE: IIPR) – have been two of the biggest standouts in the cannabis space this year…
GrowGeneration is leading the pack – up more than 70% in 2020!

Earlier this year, I wrote how the country’s largest hydroponics and organic gardening retailer was in the perfect spot to succeed – especially as the medical market expands in the U.S.

The company’s revenue is projected to jump nearly 80% this year.

The cannabis real estate investment trust (REIT) Innovative Industrial has long been my favorite dividend-paying pot stock. It currently offers an annual yield of 4.28%, and its quarterly payout has been doubling.

Innovative Industrial has 57 properties in 15 states. And at the moment, 99.2% of its available square footage is leased. Newcomers like Power REIT (NYSE: PW) have started to move into this space. But Innovative Industrial has a significant lead.

These two, along with Scotts Miracle-Gro (NYSE: SMG), are providing essentials to cannabis grow operations. Their businesses – as well as their share prices – are booming because of this.

We can’t overlook how Scotts recently raised its 2020 guidance because of the strong demand it’s seen from its Hawthorne Gardening segment.

Meanwhile, Akerna (Nasdaq: KERN) is doing well with its regulated cannabis products tracking software, MJ Platform and Leaf Data Systems. And next week, the company will join the Russell 2000 and Russell 3000 indexes.

Then we have Greenlane (Nasdaq: GNLN), the largest seller of cannabis accessories and vape products. First quarter sales were hit because of the government crackdown on JUUL sales. But the company has been shifting away from those low-margin sales to focus on more high-margin products. And we’re seeing this pay off.

Now, the one serious underperformer in this segment is KushCo Holdings (OTC: KSHB). Shares of the packaging, solvents and gases supplier have struggled this year. But KushCo’s market cap is now lower than its annual revenue.

$200 Billion Forecast

As Mark Twain once said, “During the gold rush, it’s a good time to be in the pick-and-shovel business.”

Today, we’re witnessing a “green rush” spread across this country. It’s one I believe could be worth $80 billion by the end of the decade.

Globally, I think we’ll see this blossom into a $200 billion industry.

At the heart of this growth will be those often overlooked – but extremely profitable – ancillary plays like Akerna, GrowGeneration, Greenlane, Innovative Industrial and others. These stocks deserve a comfy spot in every cannabis investor’s portfolio.

Here’s to high returns,

Matthew


About

Matthew’s expertise ranges from classic industries such as oil and mining to cutting-edge markets like small cap tech, cannabis, 3D printing and cloud computing. With almost two decades of financial experience under his belt, Matthew’s knack for finding market trends never fails to surprise us, which is why we keep a close eye on his free e-letter, Profit Trends.

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