If You Can Only Buy One Cannabis Stock in December, It Better Be One of These 3 Names
Rapper Snoop Dogg announced on Nov. 17 that he was giving up smoking cannabis. Cannabis stocks fell on the news.
“After much consideration & conversation with my family, I’ve decided to give up smoke. Please respect my privacy at this time,” Newsweek reported Snoop Dogg’s comments from X and Instagram.
As anyone who’s followed cannabis stocks over the past few years knows, while the entertainer is a big participant in the industry both as an entrepreneur and user, cannabis problems are far bigger than Snoop Dogg quitting weed.
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The Newsweek article also quoted Conotoxia Holding Group market analyst Grzegorz Drozdz about the bigger picture with cannabis stocks.
“Companies associated with the cannabis industry have experienced a difficult period over the past two years, recording an average decline of around 70 percent. This drop was largely due to the repeated unprofitability of these businesses,” stated Drozdz.
“In order to easily raise capital, due to the high popularity of these types of companies around 2018, many of them went public. The negative profitability prompted these companies to turn to debt financing to maintain liquidity.”
If you feel like cannabis stocks are ready to take off in December, here are the three names you ought to own.
Innovative Industrial Properties (IIPR)
Source: Shutterstock
About the only cannabis stock that I have any confidence in after the past two years is Innovative Industrial Properties (NYSE:IIPR), a San Diego-based real estate investment trust (REIT) that owns 108 properties in 19 states providing 29 licensed operators with 8.9 million square feet of leasable space to cultivate, process, and manufacture cannabis.
I know at one point in 2021 or maybe earlier, I argued that the REIT was one of the safest ways to play the cannabis market because should all else go to rat poop, at least you owned real estate that could be converted to general industrial use. It’s a lot more difficult to go the other way from general industrial use to cannabis production.
The REIT has been at this since December 2016, so it’s coming up on its seventh anniversary, a lifetime in the cannabis industry.
In early November, I included IIPR in a list of three cannabis stocks to buy, suggesting that the mere fact it’s up 60% over the past five years makes it the most sensible weed stock to own.
“It continues to boggle my mind that investors aren’t more enthusiastic about its business model. Unless all of its tenants go out of business, which is unlikely, it will continue to generate healthy cash flow from its rental income,” I wrote on Nov. 8.
Down 31% over the past year, the REIT’s $1.80 quarterly dividend payout — 79% of its adjusted funds from operations (AFFO) — provides a current yield of over 9%.
British American Tobacco (BTI)
Source: DutchMen / Shutterstock.com
After selecting Tilray Brands (NASDAQ:TLRY) and the AdvisorShares Pure US Cannabis ETF (NYSEARCA:MSOS) — both down more than IIPR over the past year, I thought I’d present a united front of three sensible cannabis stocks in this article.
On Nov. 6, British American Tobacco (NYSE:BTI) announced that it would deepen its relationship with Canadian cannabis company Organigram Holdings (NASDAQ:OGI) by investing an additional 124.6 million Canadian dollars ($92 million) in the company.
“This investment bolsters an already strong balance sheet and solidifies our position as a leading cannabis company. In addition, this deepens the strategic partnership between Organigram and BAT, and we look forward to continuing to leverage BAT’s global capabilities and scientific expertise,” said Beena Goldenberg, CEO of Organigram.
The move brings British American Tobacco’s equity position to 45% of Organigram’s stock and 30% of the votes, providing OGI shareholders with a better comfort level about the future.
Most of the investment will be allocated to investments in emerging cannabis opportunities outside Canada. The product development collaboration between BTI and OGI that started in March 2021 is close to commercializing its first products. Organigram can roll these products out to customers in other countries.
The future appears bright.
Altria Group (MO)
Source: Kristi Blokhin / Shutterstock.com
In July, Cronos Group (NASDAQ:CRON) confirmed that it was in talks to sell itself to several potential buyers, including Curaleaf Holdings (OTCMKTS:CURLF).
While early in the proceedings, a sale could be Altria’s opportunity to exit its investment in Cronos — Altria, which invested $1.8 billion in Cronos in 2019, owns 41% of the Canadian cannabis producer — or conversely, provide it with an even larger future platform through a stake in Curaleaf.
Cronos continues to cut costs at the company. Most recently, on Nov. 27, it announced the sale of its Peace Naturals campus in Stayner, Ontario, for 23 million Canadian dollars ($17 million). It plans to lease back a portion of the property for its continuing operations.
There’s been no recent news about the sale. However, this type of asset sale signals that it wants to eliminate as much of its non-core assets before closing a deal with a potential buyer. Clear the decks, if you will.
As for Altria itself, it continues to attract investors because of its 9.4% dividend yield. Get paid to wait for its share price to move higher.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.
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