Cannabis may be one of the most controversial topics on the market. But it could also prove to be among the most profitable.
While some states in the U.S. and worldwide countries legalize its use, we’re still waiting on federal legalization. A timeline is hard to pin down. Yet, we are seeing some signs of progress in the meantime, all of which are great news for beaten-down cannabis stocks.
“The federal government aims to finish its review of marijuana’s current legal status by the end of 2023,” according to Marijuana Moment, based on remarks from the head of the U.S. Department of Health of Human Services Secretary Xavier Becerra.
That could eventually lead to cannabis being de-scheduled, rescheduled, or deemed not to be well placed as a Schedule 1 drug. And this could have a positive impact on licensees, consumers, doctors, healthcare providers, and banks. Keep in mind that members of Congress are trying to push through supportive cannabis legislation. Plus, according to Pew Research, a significant number of U.S. adults says cannabis should be legal. Only 10% say it should not be legalized.
If we see further progress, some of the top cannabis stocks to consider are the following.
AFC Gamma (AFCG)
With a yield of just under 15%, AFC Gamma (NASDAQ:AFCG) is a commercial mortgage real estate investment trust that provides financing to the cannabis industry through loans. It’s not a landlord, but it does offer financing to help cannabis companies. While earnings haven’t been brag-worthy lately, don’t write off AFCG yet. Once the cannabis market regains its momentum, related stocks, including AFCG, will benefit immensely.
In its most recent quarter, AFCG’s non-GAAP EPS of 49 cents missed by four cents. Net interest income of $16.1 million was also a miss by $1.01 million. In addition, analysts rate AFCG as a moderate buy at the moment.
NewLake Capital Partners (NLCP)
Next pick for marijuana stocks is NewLake Capital Partners (OTCMKTS:NLCP). With a yield of 11.82%, NLCP is a REIT that provides real estate capital to licensed cannabis operators through sale-leaseback transactions. At the moment, it owns 32 cultivation facilities and dispensaries. While its chart is less than impressive, it shows promise. Not only is the REIT seeing respectable earnings, but once the cannabis market perks back up, so will NLCP.
In its second quarter, NLCP’s revenue came in at $11.4 million as compared to $10.5 million year over year. Net income attributable to common stockholders totaled $5.8 million, as compared to $3.8 million. Funds from operations (FFO) came in at $9.5 million, as compared to $6.6 million, with adjusted funds from operations (AFFO) totaling $9.9 million, as compared to the $8.8 million posted a year earlier.
Innovative Industrial Properties (IIPR)
With a yield of 8.75%, Innovative Industrial Properties (NYSE:IIPR) has been explosive. In fact, since bottoming out in June, the REIT popped from about $64 to $82.30 and could see higher highs. At the moment, the REIT’s portfolio holds 108 properties across 19 states, with 8.9 million rentable square feet. Earnings have also been solid for IIPR.
In fact, the company’s second quarter FFO per share came in at $2.07, which was seven cents better than expectations. Total revenue came in at $76.5 million, which was above expectations for $73.5 million. Rent collection stood at 97% for the quarter, as compared to 98% quarter over quarter. Even better, the company has increased its dividend every year since 2017. That dividend also appears to be safe and could rise with the cannabis sector likely to regain momentum.
On the date of publication, Ian Cooper did not hold (either directly or indirectly) any positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
