Most cannabis stocks took a shellacking in July. You'd run out of fingers and toes to use in counting the number of cannabis stocks that dropped by double-digit percentages last month.
But the meltdown also created what appear to be good opportunities to scoop up some cannabis stocks on the cheap in August. Three particularly compelling stocks, in my view, are Innovative Industrial Properties (IIPR 3.22%), HEXO (HEXO), and OrganiGram Holdings (OGI 1.54%).
1. Innovative Industrial Properties
Innovative Industrial Properties (IIP) is around 20% off its highs from earlier this year. I can understand the sell-off to some extent. The company issued nearly 1.5 million new shares in July as part of an equity offering that raised gross proceeds of more than $188 million. Investors don't like dilution in the value of their shares.
But the underlying reason to buy Innovative Industrial Properties hasn't diminished. Actually, I think the added cash that the company will have makes this stock an even better buy now. Why? IIP has even more money to put to work for its shareholders by investing in additional medical cannabis properties and leasing them out.
The company recently announced that it acquired a property in Massachusetts from Trulieve Cannabis. IIP then signed an agreement to lease the property back to a subsidiary of Trulieve for a 10-year period. The more leasing deals that IIP signs, the greater its recurring revenue will be. I like IIP's business model and think this stock is poised to rebound.
HEXO is a whopping 40% off its highs from earlier in 2019. The cannabis producer recently became the target of a short-seller alleging that it violated Canadian cannabis marketing advertising regulations by promoting its products on social media.
I don't think this alleged scandal will have legs, though. On the other hand, my take is that the decision by the province of Quebec to ban the sale of cannabis-infused candies could have a negative impact on HEXO's growth prospects. HEXO claims a 30% market share in the province thanks to a major multiyear supply deal signed last year.
But the big long-term opportunity for HEXO lies outside of Canada. I think the company's securing of a medical cannabis license in Europe was a good step. CEO Sebastien St-Louis stated in the company's Q3 conference call in June that HEXO is in discussions with over 60 Fortune 500 companies about the potential to partner. I expect that HEXO stock could get a big boost if it signs up another big partner in addition to Molson Coors.
OrganiGram is another Canadian cannabis stock that's been dragged down recently. The stock is around 30% off its previous highs this year. As is the case with Innovative Industrial Properties and HEXO, though, I continue to view the long-term prospects for OrganiGram in a favorable light.
Other Canadian cannabis producers get a lot more hype right now, but OrganiGram could be a rising star that will attract plenty of attention in the near future. The company posted solid Q3 results in July despite swinging to a net loss due to fair-value changes to assets and inventories. What I really like about OrganiGram is that its management team exercises fiscal discipline, which is kind of a rarity in the industry.
I look for OrganiGram to bounce back in a big way over the next several months. The company should have record harvests. Ontario is expected to triple the number of retail stores open by October, with Quebec and Alberta also significantly increasing their retail locations. Also, the Canadian cannabis derivatives market opens in October. My view is that OrganiGram will be well positioned to capitalize on all of these important developments.