With the federal government taking steps to reschedule cannabis to Schedule III, effectively creating a form of medical cannabis legalization, the future of cannabis stocks is under intense scrutiny. While cannabis stocks initially surged on the news, they quickly settled back to their previous levels. This response is due to the potential disruption a medical cannabis mandate might bring, creating uncertainty that has made investors cautious about committing to any particular cannabis stock right now.
Jordan Tritt, founder and CEO of The Panther Group, shared his insights via email, stating that he anticipates “medical cannabis to be a part of the overall existing medical supply chain” and believes “this will be advantageous to endemic players.” He also noted that recreational sellers stand to benefit in the long term, as they “will ultimately function like liquor stores and dispense more concentrated, non-medical, dosed cannabis products.”
Considering this, the following three cannabis stocks offer a strategic mix of established medical cannabis operations and top-tier recreational retailers, positioning them well to capitalize on both market segments.
Tilray Brands (TLRY)
Tilray Brands (NASDAQ:TLRY) has seen its stock drop by more than 25% from its January price, yet it still stands out as a top cannabis stock for long-term growth because of its inherent strength within its native market and increasing forays into sales diversification.
An often-overlooked strength of Tilray is its expanding craft beer business. Since acquiring several brands from Anheuser-Busch (NYSE:BUD) in 2023, Tilray has seen its alcohol sales double, providing essential diversification within the competitive cannabis market.
The craft beer sector holds significant potential that is frequently underestimated. As the push for broader recreational cannabis legalization advances through national legislative channels, Tilray’s well-established production, distribution, and operational network positions it uniquely to capitalize on this trend. Ultimately, this robust infrastructure could be instrumental in distributing cannabis products nationwide, giving Tilray a notable advantage over its competitors.
Tilray is currently pursuing an additional $250 million to fund strategic acquisitions and expand its business operations. While this move will result in share dilution, it also offers a compelling entry point for long-term investors seeking to benefit from the potential upside in undervalued cannabis stocks.
Innovative Industrial Properties (IIPR)
Cultivating high-end cannabis at scale is far more complex than simply planting seeds in unused rural farmland. It requires substantial amounts of electricity, water, infrastructure, and space. Innovative Industrial Properties(NYSE:IIPR) is a REIT specializing in the cannabis real estate market, providing a unique solution for producers facing financial challenges due to the ongoing federal legalization process. Innovative Industrial’s sale-leaseback programs offer a crucial financial bridge, enabling cannabis companies to start planting with fewer economic barriers.
The business of leasing land to cannabis producers has proven to be highly profitable. With a dividend yield of roughly 7%, Innovative Industrial outperforms fixed-income options and traditional dividend REITs like Realty Income(NYSE:O), which offers a 5.7% yield. Innovative Industrial’s first-quarter financial report underscores the sector’s stability, with funds from operations per share (the REIT equivalent of EPS) staying steady after marking end-of-year highs in 2024. Innovative Industrial is actively pursuing new opportunities, too, showing that management is dialed into the cannabis market and its players’ needs.
Jazz Pharmaceuticals (JAZZ)
Jazz Pharmaceuticals (NASDAQ:JAZZ) stands out as a top contender in the medical cannabis market and one of the few true blue-chip cannabis stocks around. As the only company approved by the FDA to produce and sell “plant-derived cannabinoid medicine,” Jazz holds a unique position. The company markets two key cannabis-based medications: Epidiolex, a CBD treatment for seizures, and Sativex, which addresses various symptoms of multiple sclerosis. Notably, Sativex is predominantly available in Europe but could potentially enter the U.S. market pending regulatory changes.
In its latest quarterly report, Jazz Pharmaceuticals reported a 5% increase in Epidiolex sales, accounting for 21% of its total $900 million revenue. While Sativex contributed a smaller portion, adding $2.7 million, the potential for growth in both products is substantial as the market evolves. Furthermore, Jazz’s diversified revenue streams provide a stable foundation, setting it apart from many cannabis-focused companies that often rely solely on cannabis sales. This stability allows Jazz to navigate regulatory uncertainties while expanding its market presence.
On the date of publication, Jeremy Flint held no positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
