The marijuana fever is here to stay, as corroborated by the green light in the recent U.S. Farm Bill for hemp and hemp-based cannabidiol (CBD) production. Canada has also legalized recreational marijuana with a number of dispensaries obtaining the permit to sell legalized cannabis. At the same time, mergers and acquisitions between large beverage, tobacco, pharma and cannabis companies should certainly help the weed market grow.
And with more number of states, both in the United States and Canada, legalizing recreational marijuana, the weed has carved out a space among sin industries. For instance, beer alone is a $110-billion industry in the United States, while cigarettes are a $77 billion and wine a $60-billion industry. And when it comes to the legal weed market, it is expected to reach a value of as much as $75 billion by 2030, according to Investment bank Cowen & Co.
To top it, global consumer marijuana outlays are estimated to climb 38% to $16.9 billion this year, up from a projected $12.2 billion last year, $9.5 billion in 2017, and $6.9 billion in 2016, per Arcview Market Research and BDS Analytics. Additionally, compounded global annual sales growth of cannabis from 2017 to 2022 is expected at $31.3 billion. It’s also worth pointing out that the beer industry, in particular, is losing ground to the marijuana industry in terms of sales.
Having said that, the marijuana industry needs to address certain issues. Let’s admit that without federal legalization, the NYSE and Nasdaq won’t be listing stocks that operate in the United States. Thus, if you are looking to invest in bigwig American marijuana stocks, there some subsidiary players you should consider.
And why not? We have all witnessed that during the shale boom in the early part of the 21st century, energy equipment makers saw their values skyrocket. That same belief can be applied to the marijuana industry. This brings us to the following stocks that won’t touch the plant but will surely benefit from this fast-growing industry.
Best Alternative Marijuana Stocks to Invest In
The Scotts Miracle-Gro Company (SMG - Free Report) is without a doubt one of the best alternative marijuana stocks. The company is known for offering products for pest control and growing plants in sand, gravel, or liquid. In this process, Scotts Miracle-Gro has become a major supplier to the booming marijuana industry that is dependent on its products to boost cultivation output.
Scotts Miracle-Gro did have a tough time last year, with its cannabis-focused subsidiary, Hawthorne yet to be profitable and the long winter hampering gardening. But, that has changed this year with the U.S. Farm Bill being passed and hemp production being legalized. The company’s cannabis business this year has started on a positive note. During the first quarter, its sales in consumer lawn and garden segment went up 9%, but, Hawthorne’s went up a staggering 84%. And this promptly got reflected in its share price. The Zacks Rank #2 (Buy) company has outperformed the broader Fertilizers industry so far this year (+32.1% vs +8.1%). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The company’s expected earnings growth for the current year is 13%, in contrast to the industry’s projected decline of 0.1%. In fact, in the past 60 days, Scotts Miracle-Gro has seen one earnings estimate move up, while none moved down for the current year. The Zacks Consensus Estimate for earnings rose 0.2% in the same period.
The second alternative marijuana stock to consider is Innovative Industrial Properties, Inc. (IIPR - Free Report) . It has been elected to be taxed as a real estate investment trust (REIT), starting with the year ended December 31, 2017.
As a REIT, it owns properties where California state-licensed operators grow weed for medical usage. Notably, as an REIT, the company need not touch the plant and thus can easily be listed on the exchanges.
The company currently has been expanding at a stellar pace and analysts are projecting 109% growth in sales in the upcoming quarter. IIPR stock is up more than 200% over the past year and also offers a juicy dividend yield of 1.96%. And we all know that these dividend payers do have a sustainable business model, long track of profitability and strong liquidity.
The company’s expected earnings growth for the current year is 64.2%, way more than the REIT and Equity Trust - Other industry’s projected gain of 1%. In fact, in the past 60 days, Innovative Industrial Properties has seen one earnings estimate move north, while none moved south for the next year. The Zacks Consensus Estimate for earnings rose 1.5% in the same period.
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