IIPR - 3 Smoking Hot Cannabis Stocks as Legalization Gains Momentum

2024-06-18 06:00:00 ET

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Cannabis stocks might seem an easy place to park your money for intense rewards. After all, President Joe Biden – who previously played coy with the idea of legalization – announced a move to reclassify marijuana to a lesser enforcement category. Per Politico , it was one of the biggest changes in federal drug law in decades. Still, the narrative isn’t quite so straightforward.

Let’s be clear on one thing. Despite the game-changing announcement, marijuana is not yet fully legal at the federal level. Therefore, much work remains to be done. In particular, significant uncertainties exist about state laws allowing cannabis-based products, which clash against federal mandates. However, the political trend is moving in the progressive direction, albeit very slowly.

On the positive side, marijuana will become a Schedule III drug. That means cannabis may offer medical benefits but with some potential for abuse, per Politico . In contrast, marijuana currently falls under a Schedule I classification, meaning no medical utility and a high potential for abuse.

Over time, you’ve got to imagine that full legalization is around the corner. Until then, investors can start speculating on these cannabis stocks.

Canopy Growth (CGC)

At first glance, Canopy Growth (NASDAQ: CGC ) doesn’t offer the most encouraging profile among cannabis stocks. Yes, shares are up over 51% since the beginning of this year. However, when you drill out to the trailing 52-week frame, the return only comes out to less than 12%. That’s a lot of choppiness for not a lot of net gain.

What’s worse is the analyst assessment. Presently, shares carry a consensus view of hold , breaking down as one buy, four holds and two sells. Conspicuously, the average price target sits at $6.74, implying downside risk of nearly 7%. Obviously, that’s not the most encouraging look. So, why mention CGC as a viable candidate for cannabis stocks?

Frankly, much of the narrative comes down to the technical framework. Following a surge between roughly mid-March to early April of this year, CGC entered into an extended consolidation phase. Traders are waiting to see if this trend eventually materializes into the spike-consolidation-spike pattern that forms the basis of the technical approach to the market.

It’s a speculative idea to be sure. However, it could be interesting if the stars align just right.

Tilray (TLRY)

Enticing for its focus on the therapeutic side of the “botanical” market, Tilray (NASDAQ: TLRY ) is also in a tricky position. On the surface, TLRY stock seems to have a leg up on Canopy Growth. Presently, the expert consensus comes in as a hold . However, the difference is that the assessment breaks down as one buy and seven holds – no sells. That’s significant.

However, the issue is volatility. Since the start of the year, TLRY stock lost more than 23% of equity value. In the past 52 weeks, it’s up less than 6%, hardly an inspiring performance. What’s more, in the trailing month, TLRY dipped nearly 18%. Shares continue to look downcast, which obviously isn’t doing any favors in the confidence department.

Still, it’s one of the speculative cannabis stocks because analysts do expect a recovery. For one thing, fiscal 2024’s loss per share could be mitigated sharply to 32 cents. Last year, the company lost $2.35 per share. On the top line, sales could land at $782.47 million, up 24.8% from 2023’s haul of $627.12 million.

Innovative Industrial Properties (IIPR)

While Innovative Industrial Properties (NYSE: IIPR ) might lack the excitement factor of pure-play cannabis stocks, IIPR is arguably the most reliable business in the sector. And that might be because it’s not technically part of the botanical space. Structured as a real estate investment trust or REIT, Innovative bills itself as the leading provider of real estate capital for the regulated cannabis industry.

Stated differently, the enterprise offers various administrative and legal support for cannabis players to do what they do. With the federal winds slowly but steadily moving in favor of full legalization, IIPR could be very intriguing. Indeed, analysts rate shares a consensus moderate buy with an average price target of $144.50. That implies an upside potential of almost 36%.

Having said that, investors should expect blistering growth from Innovative. For fiscal 2024, experts anticipate sales of $312.1 million. That’s less than 1% up from last year’s print of $309.51 million. There could be a modest hike to $325.98 million in fiscal 2025.

Still, speculators will want to keep close tabs on IIPR stock, especially because of its forward dividend yield of 7.13%.

On the date of publication, Josh Enomoto 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 .

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