Three U.S. Pot Stocks With Excellent Momentum
The U.S. cannabis sector experienced a lot of growing pains in 2019, but investors entered 2020 with a sense of optimism.
Unfortunately, that rosy outlook was hobbled by the coronavirus (COVID-19). But, just like the broader market, the cannabis sector has been rallying significantly higher since bottoming in mid-March, with many U.S. cannabis stocks leading the charge.
Between the start of the year and March 16, the New Cannabis Ventures Global Cannabis Stock Index, which tracks publicly traded medical and recreational marijuana stocks, cratered 59.6%. However, after bottoming, the index has been on a tear, up 93%.
Why have pot stocks, U.S. cannabis stocks in particular, been so bullish during the coronavirus pandemic?
First, the pandemic shut down most of the U.S. economy back in March. But, in eight of the 11 states where recreational marijuana is legal, cannabis dispensaries were declared “essential.”
Second, in May, the U.S. House of Representatives passed a $3.0-trillion coronavirus stimulus bill. In that bill was a provision that allows banks to work with and invest in legal U.S. marijuana businesses.
Now, this hardly means that recreational cannabis in the U.S. will become federally legal anytime soon, but it is a positive step that shows pot has gone mainstream–and that it is just a matter of time before it does become legal.
On top of these two developments, the U.S. cannabis sector got a massive boost after a raft of U.S. pot companies reported spectacular first-quarter results.
With the second quarter coming to a close, and many industries worried about how COVID-19 will impact their bottom line, it appears as though the U.S. marijuana industry is one of the few sectors that has done well during the pandemic. It is also expected to do well in a post-coronavirus economy.
Below are three U.S. cannabis stocks that have done exceptionally well since March, and are projected to perform well in the second half of 2020.
3 U.S. Cannabis Stocks to Focus on
|Green Thumb Industries Inc||OTCMKTS:GTBIF, CNSX:GTII|
|Innovative Industrial Properties Inc||NYSE:IIPR|
Green Thumb Industries Stock Overview
Chicago-based Green Thumb Industries Inc (OTCMKTS:GTBIF, CNSX:GTII) cultivates, produces, and dispenses cannabis in the United States. The company has 13 manufacturing facilities, licenses for 96 retail locations, and operations in 12 U.S. markets. (Source: “Investor Relations,” Green Thumb Industries Inc, last accessed June 16, 2020.)
Some of the company’s products include flower, concentrates, edibles, and topicals, sold under the “Rythm,” “Dogwalkers,” “The Feel Collection,” and “Beboe” brands. Green Thumb Industries also owns and operates a growing chain of national retail cannabis stores called “Rise” and “Essence.”
The company’s share price is up just two percent year-to-date, but has surged 155% since bottoming on March 16.
Q1 Revenue up 268%, With EBITDA of $25.5 Million
In May, Green Thumb announced that its first-quarter revenue, for the period ended March 31, 2020, increased 35% quarter-over-quarter and 268% year-over-year to $102.6 million. This trumps analyst estimates of $92.0 million. (Source: “Green Thumb Industries Reports First Quarter Revenue of $102.6 Million and Adjusted Operating EBITDA of $25.5 Million,” Green Thumb Industries Inc., May 15, 2020.)
The company significantly improved its net loss for the first quarter to $4.2 million, or $0.02 per share, compared to a net loss of $14.1 million, or $0.07 per share, in the fourth quarter of 2019.
Green Thumb reported first-quarter earnings before interest, tax, depreciation, and amortization (EBITDA) of $25.5 million, an 85% increase over the $13.8 million recorded in the fourth quarter and a 13-fold increase year-over-year. Analysts were projecting first-quarter EBITDA of $18.0 million.
The company ended the first quarter with total assets of $140.8 million, which includes cash and equivalents of $71.5 million.
“Our business model continues to prove out and we delivered outstanding first quarter results,” said Ben Kovler, CEO and co-founder.
We achieved a major milestone by breaking $100 million in quarterly revenue along with substantial EBITDA growth. We believe that our operational strength and resilience, supported by a strong balance sheet, continue to differentiate and position us for long-term success, especially during these challenging times.
Innovative Industrial Properties Inc Stock Overview
Innovative Industrial Properties Inc (NYSE:IIPR) provides real estate capital to the medical cannabis industry. The company essentially purchases land from experienced, licensed medical cannabis operators and leases the land back to them. (Source: “Our Business,” Innovative Industrial Properties Inc, last accessed June 16, 2020.)
This provides growers with an influx of cash, which they use to develop their core operations.
The company currently owns 57 properties located in Arizona, California, Colorado, Florida, Illinois, Maryland, Massachusetts, Michigan, Minnesota, New York, Nevada, North Dakota, Ohio, Pennsylvania, and Virginia.
Combined, these properties cover approximately 4.3 million of rentable square feet, of which 99.2% is leased (based on square footage), with a weighted-average remaining lease term of approximately 16 years. (Source: “Company Profile,” Innovative Industrial Properties Inc, last accessed June 16, 2020
As a real estate investment trust (REIT), IIPR is legally obligated to return the majority of its earnings back to investors in the form of dividends.
On June 15, IIPR declared a second-quarter dividend of $1.06 per share, representing a six-percent increase over the first-quarter dividend of $1.00 per stock and a 77% increase over the second-quarter 2019 dividend of $0.60 per share. (Source: “Innovative Industrial Properties Declares Second Quarter 2020 Dividends,” Innovative Industrial Properties Inc, June 15, 2020.)
The dividend is the seventh dividend increase since IIPR completed its initial public offering in December 2016.
IIPR stock has advanced 30.5% year-to-date, up 116% since mid-March.
Q1 Revenue up 210%, AFFO Increased 236%
On May 6, IIPR announced that its revenue, for the first quarter ended March 31, increased 210% year-over-year to $21.1 million. Innovative Industrial Properties reported net income of $11.5 million, or $0.72 per share, a 248% increase over the $3.3 million, or $0.33 per share, recorded in the same prior-year period. (Source: “Innovative Industrial Properties Reports First Quarter 2020 Results,” Innovative Industrial Properties Inc, May 6, 2020.)
Adjusted funds from operations (AFFO), a non-generally accepted accounting principles (GAAP) measure used in real estate, were $17.8 million, or $1.12 per share, a 236% increase over first-quarter 2019 AFFO of $5.3 million, or $0.54 per share.
IIPR ended the first quarter with $108.3 million in cash and cash equivalents and $272.9 million in short-term investments.
Alan Gold, Executive Chairman commented,
One of the pillars of our business strategy has consistently been a conservative, flexible balance sheet, and we believe we are exceptionally well positioned to not only weather this unprecedented health crisis and economic disruption, but to continue to make real estate investments on a long-term basis with best-in-class tenant operators.
GrowGeneration Stock Overview
GrowGeneration Corp (NASDAQ:GRWG) owns and operates the largest chain of specialty hydroponic and organic gardening centers, with 27 locations in 10 states.
It is currently targeting six new markets for expansion: Missouri, Illinois, Arizona, Pennsylvania, New York, and New Jersey.
It also operates an online superstore, HeavyGardens.com. (Source: “Investor Presentation May 2020,” GrowGeneration Corp, last accessed June 15, 2020.)
In-store and online, customers can browse over 10,000 products; everything they need to grow pot indoors and outdoors, including soil, nutrients, lighting, and equipment.
GrowGeneration’s private-label brand hit store shelves in the fourth quarter of 2019. If the products are as popular as the company hopes, GRWG will sell them through other retailers.
GrowGeneration stock has been rewarding buy-and-hold investors in 2020. Its stock is currently up 64% since the start of 2020 and it has soared 134% since March 19.
Record Q1 Revenue and Record Adjusted EBITDA
In May, GrowGeneration announced that its revenue for the first quarter of 2020 increased 152% year-over-year to a record $33.0 million. This was the company’s 10th consecutive quarter of record revenue. (Source: “GrowGeneration Reports Record Q1 2020 Revenues of $33.0 Million and Record Adjusted EBITDA of $2.7 Million,” GrowGeneration Corp, May 14, 2020.)
Same-store sales were up 58% year-over-year. The company’s online business is picking up, generating over $1.0 million in online sales for the first time ever in April.
The Denver-based company reported a first-quarter net loss of $2.1 million, compared to first-quarter 2019 net income of $229,000.
The swing to a net loss is primarily being attributed to $4.1 million in non-cash share-based compensation. Had the share-based awards been vested, and not front-end vested, first-quarter net income would have been $332,000.
Thanks to strong first-quarter results, GrowGeneration has increased its full-year revenue guidance to $135.0 to $140.0 million and its adjusted EBITDA guidance to $12.0 to $14.0 million.
For the second quarter, GrowGeneration expects to report revenue of $36.0 to $37.0 million and adjusted EBITDA of $3.6 million.
While the coronavirus took the wind out of the sails of the global market, stocks have rebounded on growing optimism that the economy will recover quickly.
One sector that has performed well has been the cannabis industry. Thanks to a number of new developments, the U.S. marijuana industry is expected to do well over the coming quarters.
As explained above, three U.S. pot stocks with excellent momentum worth keeping an eye on are Green Thumb Industries Inc, Innovative Industrial Properties Inc, and GrowGeneration Corp.