Investment Opportunities

Two Pot Stocks to Watch This Week

Trends Expert Matt Carr looks at two pot stocks to watch this week and details how recent months have relit the marijuana market.


A fresh round of earnings beats triggered new highs in Big Tech.

The Nasdaq is rapidly closing in on 11,000 and is up 21.5% year-to-date.

We’ve preached here again and again that, in 2020, “tech is king.”

But another hot sector is about to dive headlong into the heart of earnings this week. And that means investors should be prepared for a new wave of volatility.

In fact, we’ve already witnessed some big pops and drops…

A Double Dose of Double-Digit Moves

Cannabis is on a tear.

Last week, I wrote that pot stocks have been blazing higher since their March lows. And cannabis company shares as a whole have practically doubled, outpacing the moves of the broader indexes… including the high-flying Nasdaq!

Over the next two weeks, there are nearly two dozen cannabis companies scheduled to release quarterly results.

That’s more than double the number of pot stocks that reported earnings in the month of July.

And on deck are the marquee names of both the Canadian and U.S. marijuana industries.

Now, as a harbinger of what’s on the horizon, we’ve already seen some massive moves from the companies that have recently reported.

Shares of Canadian licensed producer Aphria (Nasdaq: APHA) tanked 19.2% on Wednesday last week after the company reported a fourth quarter loss of $0.29 per share. This was a big step down from the profit it had recorded the previous quarter.

It was the perfect storm of bad news for shares that had gotten overvalued, in my opinion.

Investors fled from the Canadian major. Aphria’s drop was so severe that it ended up weighing on the entire sector.

But on the flip side, Scotts Miracle-Gro (NYSE: SMG), a favorite ancillary play for cannabis investors, rocketed 11.8% to new all-time highs last Tuesday.

The gardening center and fertilizer company trounced expectations. Sales grew 28% as its Hawthorne Gardening segment blossomed 72%.

And there was plenty more to celebrate. Scotts also increased its quarterly dividend as well as announced a special dividend of $5.

I’ve been stressing here that investors looking for exposure to cannabis should consider pick-and-shovel plays, such as Scotts. They offer a lot of upside with less risk compared with a Canadian producer or U.S. multistate operator.

Well, this week, we could be in store for moves similar to those of Aphria and Scotts.

Two Pot Stocks to Watch

Cannabis legalization continues to expand across the U.S.

And in turn, that creates more opportunities for companies that either serve cannabis companies or lease space to them.

Innovative Industrial Properties (NYSE: IIPR), the first and largest cannabis-focused real estate investment trust (REIT), will report second quarter results after the closing bell on Wednesday.

The company operates 61 properties, totaling 4.5 million square feet of rentable space, across 16 states. Almost all of this square footage is currently leased. Even better, Innovative Industrial pays out a healthy 4.1% dividend yield and has increased its dividend more than 600% since going public!
Innovative Industrial Quarterly DividendFor the second quarter, Wall Street is looking for revenue to surge 181.8% to $24.28 million as the REIT’s earnings per share (EPS) more than double to $0.75.

For the year, expectations are for a 149% increase in revenue to $111.2 million as EPS climbs to a very enticing $3.34. Because Innovative Industrial is a REIT, the majority of its profits have to be returned to shareholders in the form of a dividend.

After first quarter results were announced, shares of the cannabis REIT dropped almost 3%. But they’ve fallen on first quarter results three of the past four years. And on second and third quarter results, shares have popped every year.

So this could be a good setup.

Shares of Innovative Industrial are up 37% in 2020 and are currently trading at their highest level since February. But they’re still roughly 10% below their 52-week high of $115.82.

The other cannabis company to watch this week is one of what I call the “Canadian majors.”

Cronos Group (Nasdaq: CRON) will report second quarter earnings on Thursday before the opening bell.

Analysts forecast that the Canadian licensed producer will see a 15.2% increase in revenue to $6.72 million (CA$9.01 million) with a loss of $0.037 (CA$0.05) per share. That’s down sharply from the $0.38 (CA$0.51) gain it reported a year ago.

Year to date, Cronos shares have been a drag. They’re down more than 11%, which lags the broader U.S. indexes. But that performance is better than the Canadian cannabis-focused Horizons Marijuana Life Sciences ETF (OTC: HMLSF).
Cronos Group vs Horizons Marijuana Life Sciences ETFCronos shares are more than 50% below their 52-week high of $15.58. But it’s worth keeping in mind that the cannabis company’s shares routinely tank on earnings. And their lone gain in recent years was a pop on second quarter earnings in 2018.

With Cronos’ year-over-year loss forecast, its investors are looking to be in for a swoon on Thursday.

We’ve got an extremely busy earnings schedule for cannabis over the next two weeks. And the largest players in the industry – Canopy Growth Corp. (NYSE: CGC), Green Thumb Industries (OTC: GTBIF), Tilray (Nasdaq: TLRY) and Trulieve Cannabis Corp. (OTC: TCNNF) – report next week.

But these are my two pot stocks to watch in the days ahead. They’ll give us an early glimpse of what to expect and how we should be positioned in cannabis for the months ahead.

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.

Articles by
Related Articles