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

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 for MoneyWeek's newsletters
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
Greg Taylor is portfolio manager of the Medical Cannabis and Wellness UCITS ETF
-
UK-US trade deal announced: US cuts tariffs on UK car imports to 10%
Keir Starmer and Donald Trump have announced a UK-US trade deal, but the US president has refused to lift baseline tariffs on most UK goods. What does it mean for the UK?
-
How to use mid-caps to diversify from the US
Medium sized companies are overlooked by investors but could offer an attractive ‘sweet spot’. We consider the case for mid-caps amid market volatility.
-
Will Comstock crash – or soar?
Opinion The upside for Comstock, a solar panel-recycling and biomass-refining group, dwarfs the downside, says Dominic Frisby.
-
'As AGMs go digital, firms must offer a new form of scrutiny for shareholders'
Opinion Technology has rendered big AGM meet-ups obsolete, but the board still needs to be held to account, says Matthew Lynn
-
Unilever braces for inflation amid tariff uncertainty – what does it mean for investors?
Consumer-goods giant Unilever has made steady progress simplifying its operations. Will tariffs now cause turbulence?
-
'Technology will determine tomorrow’s top stocks in emerging markets'
Opinion John Citron, investment manager of the JPMorgan Emerging Markets Investment Trust, tells us where he’d put his money
-
Two ways to tap into monopoly profits from airports
Most investors can’t get their hands on airports. Here are two ways you can
-
Three British mid-caps that could make 'attractive' investments
Opinion Charles Luke, manager of the Murray Income Trust, highlights three UK-listed mid-cap companies, as he tells us where he'd put his money
-
Fat profits: should you invest in weight-loss drugs?
The latest weight-loss treatments could transform public health and the world economy. Should you invest?
-
How investors could profit from Ramsden Holdings' four-part growth strategy
Ramsdens Holdings offers a diversified set of financial and retail services and a juicy yield, says Dr Michael Tubbs