Three stocks to grow profits from the legal cannabis sector
With five more US states legalising cannabis, professional investor Greg Taylor of the Medical Cannabis and Wellness UCITS ETF picks three stocks that should flourish.
While the US election may still be disputed at the presidential level, there is no doubt that the medical cannabis sector was a winner. Ballot initiatives to legalise medical and/or recreational cannabis were passed in five states. Most significantly, New Jersey legalised cannabis for recreational use (it already permits the drug for medical purposes); this is expected to create a domino effect in neighbouring states on the heavily populated eastern seaboard.
As the sector gathers momentum in the US, the stage is set for the rest of the world to follow it on the path of legalising medical cannabis. Share prices have reacted positively to these developments but there is still tremendous upside.
Supplying the greenhouse
Hydroponics retailer GrowGeneration’s (Nasdaq: GRWG) expansion is directly tied to the proliferation of the US cannabis trade. The group’s products range from lighting fixtures and seeds to humidifiers. All large operators turn to GRWG to service their cultivation operations. The company exceeded revenue expectations in the third quarter of 2020 and has continually raised its sales guidance throughout the year as growth has been propelled by several tailwinds.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
![https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg](https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748-320-80.jpg)
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The industry is fragmented and GRWG has established itself as a reliable supplier for major operators across many regional markets in the US. We expect GRWG’s success to continue as the current environment of state-level cannabis legalisation supports long-term revenue growth trends.
Despite the challenges associated with Covid-19, Britain’s GW Pharmaceuticals (Nasdaq: GWPH) continues to enjoy increased adoption of its cannabis-derived drugs. Epidiolex meets a serious need in the field of epilepsy and the company expects strong growth for the treatment over the next few months.
The company has started advanced programmes for the treatment of multiple-sclerosis spasticity. It recently decided to accelerate several clinical-stage pipeline trials in this field. The current revenue base continues to grow thanks to the epilepsy treatment, but with its pace of research and development, GW Pharmaceuticals is well positioned to be a leader in several cannabis-derived drugs in the near future.
A saviour in the property sector
An interesting by-product of the current legal regime of cannabis in the US is the emergence of Real Estate Investment Trusts (Reits) as a source of financing in an industry hampered by regulations – the drug remains illegal at the federal level. With limited access to capital, the US cannabis industry has struggled to keep up with exponential demand; buying land and property for its production facilities has often proved problematic.
But it has found a saviour in the form of Industrial Innovative Properties (NYSE: IIPR). The group buys and then leases out properties to pot firms, helping them cut capital costs and make the most out of limited resources.
The current set of leases will be serviced at some of the highest rental rates for industrial properties in the country, reflecting the risk inherent in the tenants’ industry, but this also means investors are willing to ascribe a higher valuation to IIPR than to traditional Reits.
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Greg Taylor is portfolio manager of the Medical Cannabis and Wellness UCITS ETF
-
Revolut finally bags a UK banking licence – what's next for the fintech?
Revolut has finally been granted a UK banking licence following three years of negotiations with the regulator
By Kalpana Fitzpatrick Published
-
Could Labour impose a “double death tax” of more than 50%?
Speculation is mounting that capital gains tax will be reformed in the Budget - and one option is to charge bereaved families the tax on top of inheritance tax. We explain how it could work
By Ruth Emery Published
-
UK mid-caps: an improving outlook
UK mid-caps have perked up and the rally may run further, but long-term investors should remain selective
By Cris Sholto Heaton Published
-
The tobacco industry is going smoke-free - how to profit from it
Tobacco companies have realised their traditional products are on the wane. But new opportunities have opened up – and should prove lucrative
By Rupert Hargreaves Published
-
Is it time to invest in creative industries?
Any industrial strategy should not overlook the creative industries, one of our top national assets
By David C. Stevenson Published
-
Is Mercia Asset Management set for success?
Mercia Asset Management helps the government fund smaller companies in Britain’s regions. Should you invest?
By Rupert Hargreaves Published
-
British stocks set for a boost
British stocks are due for a bounce as the UK looks more stable compared to many economies
By Alex Rankine Published
-
Ocado shares jump by a fifth
Ocado takes a turn for the better after attractive profit forecasts were announced
By Dr Matthew Partridge Published
-
The AI boom is on borrowed time
The hype around the AI boom could be on its way out – but why?
By Alex Rankine Published
-
Diploma: a blue-chip set for strong growth
Diploma, whose niche products include seals and fasteners, serves an array of growth markets. Should you invest?
By Dr Mike Tubbs Published