Marijuana stocks have been through their highs and lows so far this year. Despite being a fast-growing industry, supply issues in Canada have affected legal marijuana purchases of late.
High tax rates in some of the U.S. states as well as increase in black-market producers, especially in North America, have hurt sales. As a result, marijuana companies have been seeing a drop in operating margins across the board and have significantly lost value.
Demand and supply issues have also affected the marijuana industry. Vaping-related health issues have been a headache as well though no one can be certain that the hazards are mostly related to marijuana. And this means legalization of marijuana at the federal level is of utmost importance as it could drive legal marijuana sales.
Yet, the year 2020 could bring significant changes in the volatile marijuana industry. Market pundits are now hopeful about the industry next year. After all, the marijuana industry’s success is dependent on regulatory procedures.
Needless to say, marijuana legalization has started to ramp-up in several U.S. states. What’s more, legalization of marijuana in the state of Illinois in January could bring positive tidings for the marijuana industry. President Trump’s initiative toward full-scale marijuana legalization, in the meantime, might lead to the legalization of marijuana in more states.
Passing of the SAFE Banking Act is also a blessing in disguise. Per Rishi Malkani, cannabis expert and partner at Deloitte, “the SAFE Banking Act would allow marijuana companies to list on senior exchanges in the US, shifting the financial center of marijuana away from Canada and fueling American firms with financing.”
Despite all the hiccups this year, the marijuana industry is projected to be one of the fastest-growing industries over the next decade. Wall Street analysts forecast worldwide marijuana sales growth between $50 billion and $200 billion by 2030. Hence, looking at some of the stocks from this fast-growing industry for the next year doesn’t seem like a bad proposition.
Innovative Industrial Properties
Innovative Industrial Properties, Inc. IIPR focuses on the acquisition, ownership and management of specialized properties leased to experienced, state-licensed operators for their regulated medical-use marijuana facilities. In this process, Innovative Industrial Properties is reaping the reward of rental income.
Innovative Industrial Properties is also improving its net operating margins through acquisitions. To top it, the company has a current yield on invested capital of 13.6%, which should help Innovative Industrial Properties recoup all its investments in five years.
Innovative Industrial Properties currently has a Zacks Rank #1 (Strong Buy). The company’s expected earnings growth rate for the next year is 80.9%, more than the REIT and Equity Trust - Other industry’s expected rise of 3.8%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Aphria Inc. APHA produces and sells medical cannabis in Canada and internationally. The company offers pharmaceutical-grade medical cannabis; and adult-use cannabis under the Solei, RIFF, Good Supply, and Broken Coast brands.
Aphria has been one of the few bright spots in the industry. It has registered profits in the last two quarters. In fact, in the last reported quarter, its sales jumped nearly 850%, which is definitely a rarity among marijuana stocks.
And there is still plenty more room for the company to grow in the upcoming year, as it recently obtained a cultivation license that will more than double its production capacity.
Aphria currently has a Zacks Rank #1. The company’s expected earnings growth rate for the next year is 250%, more than the Medical - Products industry’s expected rise of 18.5%.
Square, Inc. SQ provides payment and point-of-sale solutions in the United States and internationally. But the company announced plans of launching a platform for business houses to sell cannabidiol (CBD) products last month.
Lest we forget, the FDA has acknowledged that there is immense public interest in CBD as a wellness aid. CBD is widely used in treating pain, inflammation and epilepsy. What’s more, analysts estimate that nearly 65 million Americans have tried CBD and 63% have found it effective.
Market research firm Brightfield projected that CBD sales in the United States alone will jump 55% to $648 million by the end of this year. In fact, they expect the U.S. hemp CBD market to reach a worth of $22 billion by 2022.
Square, thus, will certainly make the most of its foray into the CBD space. Square, currently, has a Zacks Rank #3 (Hold). The company’s expected earnings growth rate for the next year is 23.4%, more than the Internet - Software industry’s expected rise of 16.1%.
GW Pharmaceuticals plc GWPH focuses on discovering, developing, and commercializing cannabinoid prescription medicines using botanical extracts derived from the Cannabis plant.
The cannabinoid drug maker is expected to see an uptick in sales next year as well, especially, after its lead drug; Epidiolex became the first cannabis-derived drug to gain FDA approval.
GW Pharmaceuticals currently has a Zacks Rank #3. The company’s expected earnings growth rate for the next quarter is 69.64% versus the Medical - Products industry’s expected rise of 69.37%.
Zacks Top 10 Stocks for 2020
In addition to the stocks discussed above, would you like to know about our 10 top tickers for the entirety of 2020?
These 10 are painstakingly hand-picked from over 4,000 companies covered by the Zacks Rank. They are our primary picks to buy and hold.
Start Your Access to the New Zacks Top 10 Stocks >>
Click to get this free report Square, Inc. (SQ) : Free Stock Analysis Report GW Pharmaceuticals PLC (GWPH) : Free Stock Analysis Report Innovative Industrial Properties, Inc. (IIPR) : Free Stock Analysis Report Aphria Inc. (APHA) : Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research