Marijuana stocks generally performed well in the first half of 2019, with some of them downright smoking hot, though there were naturally some losers, too.
As the calendar flips to July and the second half of the year gets under way, these three cannabis stocks are worth closely watching: top Canadian cannabis grower Canopy Growth (CGC 1.28%), real estate investment trust Innovative Industrial Properties (IIPR 0.37%), and ancillary cannabis player EnWave (NWVCF 2.02%) (ENW).
Why this trio? All three are going into the second half of 2019 with strong momentum and, more importantly, they're among the cannabis stocks that currently seem most promising as long-term investments.
Hemp farm. Image source: Getty Images.
Overview
|
Company |
Country |
Market Cap |
Profitable (TTM)? |
Dividend |
YTD 2019 / 2-Year Performance* |
|---|---|---|---|---|---|
|
Canopy Growth |
Canada |
$13.9 billion |
No |
N/A | 50% / 564% |
|
Innovative Industrial Properties |
U.S. |
$1.2 billion |
Yes |
2% |
171% / 621% |
|
EnWave |
Canada |
$198 million |
No |
N/A | 87% (OTC in U.S.) and 82% (TSX) / 127%(TSX)** |
|
S&P 500 |
-- |
-- |
-- |
1.9% |
18.5% / 26.5% |
Data sources: Yahoo! Finance and YCharts. TTM = trailing 12 months. YTD = year to date. OTC = over the counter. TSX = Canada's TSX Venture Exchange. *Two years is the longest whole-year comparison period possible. **EnWave has traded OTC for less than two years. Data as of June 28, 2019.
Canopy Growth
Canopy Growth has the distinction of having the largest marijuana stock by market cap. It's a top cannabis grower, with a production capacity widely considered to be second behind fellow Canadian grower Aurora Cannabis.
The company sells medical and recreational marijuana in Canada, which legalized cannabis for recreational use in October, and also markets medical marijuana internationally. Earlier this year, Canopy threw its hat into the U.S. hemp market, which opened on Jan. 1 when the U.S. Farm Bill went into effect. The company, which is constructing a production facility in New York state, expects to have hemp-derived cannabidiol (CBD) products available to U.S. consumers by late this year or early in 2020. (CBD is a nonpsychoactive chemical that's been linked with various medicinal benefits.) Moreover, Canopy and its partner Constellation Brands (STZ 0.78%) are developing cannabis-infused beverages, which they hope to bring to market in Canada late this year, pending regulatory approval.
In its recently reported fiscal fourth quarter, the company's revenue rocketed 313% year over year to $94.1 Canadian, driven by Canada's new adult-use market. Its net loss widened by nearly a factor of 6 to CA$323.4 million, because of its aggressive investments to scale up and expand its business. The company remains flush with cash. It had CA$4.5 billion in cash and cash equivalents at the end of the period, thanks to its partnership with Constellation Brands. Last fall, Canopy received $4 billion when the alcoholic-beverage giant raised its stake in it to 38%.
Image source: Getty Images.
Innovative Industrial Properties
A marijuana company that's not only profitable but also pays a dividend sounds like an oxymoron, but Innovative Industrial Properties is the real deal. The San Diego-based company, which has been publicly traded since December 2016, is a real estate investment trust (REIT) that specializes in properties used for growing and processing cannabis.
While Innovative Industrial is relatively new and small, it's growing like a weed. As of May 7, it owned 19 properties that were 100% leased to state-licensed medical-use cannabis operators in Arizona, California, Colorado, Illinois, Maryland, Massachusetts, Michigan, Minnesota, New York, Ohio and Pennsylvania, with a weighted-average remaining lease term of about 15.2 years. The company uses triple-net leases (whereby tenants pay property taxes, insurance, and certain maintenance expenses) with built-in rent increases.
In Q1 2019, Innovative Industrial Properties' revenue surged 146%, earnings per share soared 267%, and adjusted funds from operations (AFFO) per share jumped 135% year over year. AFFO is a key profitability measure for REITs, as it drives dividend changes.
EnWave
EnWave is an ancillary cannabis player (meaning it doesn't touch the stuff), which manufacturers, licenses, and installs equipment for dehydrating organic materials, including marijuana and hemp. This business accounted for just 23% of its total revenue in its recently reported fiscal second quarter, so the company is far from a pure play on cannabis. Its primary business is producing all-natural dried cheese snacks using its proprietary radiant energy vacuum (REV) dehydration technology.
EnWave seems little-known among U.S. investors, which is probably because it's a small, foreign-based company and its stock trades over the counter (OTC) in the United States. But it's sure to become more discovered, thanks to the wave of royalty-bearing license and sales agreements it's been inking with major Canadian cannabis growers, including Aurora and Tilray. Growers are adopting REV tech largely because it's reportedly faster than other dehydration or drying technologies.
In fiscal Q2, EnWave's revenue soared 110% year over year, and its earnings per share came in at breakeven for the third quarter in a row. So the company seems on the verge of profitability.
A caution: EnWave is a thinly traded stock, particularly in the U.S., which means it has the potential to be quite volatile.
