Cannabis stocks have seen considerable shifts in investor sentiment in recent years. The main issue seems to be navigating the potential for further legalization against the sector’s fundamental realities. Initially, when the sector was just emerging, sentiment was extremely high. However, as profitability continues to be elusive, it has decreased.
Further legalization could bring about new avenues for revenue generation, drawing firms nearer to profitability. Ultimately, the ability to generate profit will be the main concern for investors.
Despite a legal framework that allows firms to operate in multiple states and Canada, very few cannabis stocks have achieved profitability. Yet, some companies have managed to navigate this difficult sector effectively. This article will focus on three cannabis stocks that could be sensible investments.
Green Thumb Industries (OTCMKTS:GTBIF) is a standout in the cannabis industry. It’s one of the few cannabis firms that has managed to turn a profit. The company reported a GAAP net income of $36 million in 2023 on $1.1 billion in revenues. Green Thumb Industries sells a variety of cannabis consumer packaged goods and runs dispensaries.
Green Thumb Industries also recently announced a $50 million increase in its share repurchase program, bringing the total value to $60 million. This indicates that the company’s shares are some of the best investments in the cannabis industry.
Another good choice is Innovative Industrial Properties (NYSE:IIPR), a commercial REIT stock. Despite the overall decline in commercial real estate, this stock is worth considering because it provides financing to the cannabis industry, which is expected to grow. Innovative Industrial Properties has not cut its dividend since 2017, unlike many other commercial REITs. The dividend currently yields 7.7%.
Investors might be wary of the stock’s associated payout ratio of 1.25. However, it’s important to remember that payout ratios above one are typical in REITs. The company’s funds from operations (FFO) were $2.07 during the most recent quarter, exceeding expectations of $2.02.
Cronos Group (NASDAQ:CRON) is another cannabis stock worth considering. The company seems to be moving in the right direction. Like many other cannabis firms, Cronos continues to produce losses. However, it’s clear that the company understands the importance of profitability. Net losses are decreasing, and gross profits are on the rise, suggesting a potential path to net income in the future.
Revenues across much of the cannabis sector are relatively flat, and Cronos has followed this trend with fourth-quarter revenues increasing by 1%. However, during the same period, both gross profit margins and overall gross profit increased, while net losses dropped from over $157 million to under $58 million. If the company maintains this path, it might eventually escape penny stock status.
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