Charlotte's Web Holdings (CWBHF -3.23%) and Innovative Industrial Properties (IIPR -0.82%) rank as two of the most profitable cannabis stocks on the market right now. Both companies stand out as leaders in their niche markets.
So far this year, Innovative Industrial Properties has been the bigger winner, by far. But which of these two stocks is the better pick for investors over the long run? Here's how Charlotte's Web and Innovative Industrial Properties stack up against each other.
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The case for Charlotte's Web
Charlotte's Web paved the way for what has become a thriving hemp cannabidiol (CBD) market in the U.S. The company's name became synonymous with CBD in 2013 after major news outlets covered the story of how Charlotte's Web's CBD oils had helped drastically reduce epileptic seizures for young Charlotte Figi.
Today, Charlotte's Web claims the No. 1 hemp CBD brand in the U.S. It markets 12 CBD oil products, four capsule products, four topical products, a CBD isolate, and even 12 CBD products for dogs. More products are on the way, including consumables and cosmetic products.
In 2018, Charlotte's Web planted 300 acres of hemp, producing 675,000 pounds of dried hemp biomass. This year, the company is planting 862 acres -- 187% more than it did last year. That doesn't necessarily mean that Charlotte's Web will immediately sell all it produces. The company grows more hemp than it needs for the next year to reduce the risk of product shortfalls.
However, the demand for its products seems likely to continue to skyrocket. Cannabis market researcher Brightfield Group projects that the U.S. hemp CBD market will explode to $22 billion by 2022. A less aggressive estimate comes from Hemp Industry Daily, which estimates the market will increase from around $1 billion this year to as much as $7.5 billion in 2023.
Charlotte's Web has more outlets for its products than ever before. More than 6,000 retailers now carry its CBD products, including major national retail chains such as CVS Health. Online sales accounted for 55% of the company's total revenue last year.
The average analyst's one-year price target for Charlotte's Web reflects a premium of close to 70% above the current share price. While this could be overly optimistic, the stock should have plenty of room to run in the near future and over the long run.
The case for Innovative Industrial Properties
Innovative Industrial Properties (IIP) ranks as one of the best-performing cannabis stocks of 2019 so far. The company is the leader in providing real estate capital for the U.S. medical cannabis industry.
IIP's business strategy is simple. The company acquires existing properties or ones in development with attached greenhouse facilities that are in states where medical cannabis is legal. IIP then invests in enhancing these facilities and leases the properties to companies that have medical cannabis licenses.
The company currently owns 23 properties in 11 states. All of the properties are leased out with a weighted-average remaining lease term of approximately 15.6 years. IIP's average yield on invested capital for these properties is around 14.7%.
IIP's growth prospects appear to be very good. Thirty-three U.S. states have legalized medical cannabis with more likely on the way to doing so. IIP should be able to continue growing by reinvesting its capital into additional medical cannabis properties.
One nice plus for buying IIP stock is its dividend. As a real estate investment trust (REIT), the company must return at least 90% of taxable income to shareholders in the form of dividends. IIP's dividend currently yields just under 2%.
Wall Street analysts' consensus one-year price target for IIP reflects a premium of nearly 60% over the current share price. This shows that analysts aren't too worried that the stock's valuation has become too high, with shares trading at 36 times expected earnings.
Better cannabis stock
I like both of these stocks. If I had to choose just one, though, it would be Innovative Industrial Properties. The company is highly profitable and has proven that it knows how to succeed in its niche market. And I expect IIP's dividend will grow as it expands its business. Charlotte's Web is a good pick, but I think that IIP is the better cannabis stock right now.
