Investing in cannabis stocks isn't for the faint of heart. The wild up-and-down swings can be dizzying. The risks are real. But the potential pay-off over the long run could be enormous.
Choosing which cannabis stocks to buy involves the same process as investing in any other kind of stock. You'll want to find well-run companies that have great growth prospects, a strong competitive advantage, and a solid financial position.
I think three cannabis stocks check off all of these boxes. Here's why Charlotte's Web Holdings (OTC:CWBHF), Innovative Industrial Properties (NYSE:IIPR), and Trulieve Cannabis (OTC:TCNNF) are top cannabis stocks you can buy right now.
1. Charlotte's Web Holdings
Charlotte's Web pioneered the U.S. hemp cannabidiol (CBD) market. The company, founded by six brothers who were medical marijuana growers in Colorado, developed a strain of cannabis in 2011 that was low in psychoactive ingredient THC but had a high level of CBD by crossbreeding a strain of marijuana with industrial hemp. As word got out that this cannabis strain was effective in treating medical conditions, particularly types of epilepsy, Charlotte's Web's momentum took off.
The U.S. hemp market totaled around $600 million last year. Aggressive estimates call for the market to reach nearly $22 billion by 2022. More conservative analysts project that the U.S. hemp market will total $4.4 billion within the next three years. Either way, Charlotte's Web has a huge opportunity before it.
Charlotte's Web ranks as the No. 1 brand in the hemp CBD market. The number of stores that carry the company's products has more than doubled so far in 2019 to over 8,000 retail outlets, including big chains such as CVS Health and Kroger. No other hemp CBD company claims a higher brand awareness and retail distribution footprint than Charlotte's Web.
Unlike many cannabis stocks, Charlotte's Web is already consistently profitable. Its revenue continues to skyrocket, up more than 45% year over year in the second quarter. The company has little debt and more than $51 million in cash. Charlotte's Web appears to be in good financial shape to fund its efforts to capitalize on the anticipated massive growth in the U.S. hemp CBD market.
2. Innovative Industrial Properties
Innovative Industrial Properties (IIP) is a real estate investment trust (REIT) that focuses on acquiring and leasing medical cannabis properties. The company currently owns 30 properties in 12 states that have legalized medical cannabis.
IIP's revenue on a trailing-12-month basis has more than quintupled since the company went public in late 2017. This tremendous growth stemmed from the company's simple business strategy of reinvesting cash made from existing leased properties into new properties. With the U.S. cannabis industry expanding rapidly and 33 U.S. states allowing legal medical cannabis, IIP has plenty of more growth opportunities.
Trading on the New York Stock Exchange has given IIP visibility and stature that no other cannabis-focused REIT has. The company is the clear leader in providing real estate capital for the U.S. medical cannabis industry.
IIP also claims a solid financial position. The company has been consistently profitable for more than two years. It has a low level of debt compared to most REITs. IIP also pays a nice dividend which currently yields 2.7%.
3. Trulieve Cannabis
Trulieve Cannabis operates 31 medical cannabis stores in Florida as well as a statewide home delivery program for medical cannabis patients. The company also has recently acquired cannabis dispensaries in California, Connecticut, and Massachusetts.
Florida is the third biggest state in the U.S. based on population. Its medical cannabis market is growing by roughly 10% per month. Trulieve expects to expand its number of stores in the state to 44 by the end of 2019. The company also has opportunities for growth in the other three states where it owns operations as well as moving into new markets.
Trulieve was the first medical cannabis company in Florida. This first-mover advantage makes Trulieve the dominant player in the state's fast-growing medical cannabis market. Because Florida only awards a limited number of licenses to medical cannabis dispensaries, Trulieve is in a great position from a competitive standpoint.
Based on price-to-sales multiples, Trulieve is one of the cheapest cannabis stocks on the market. But that low valuation doesn't mean the company's financial status is troubling. Trulieve is consistently profitable. It has a manageable debt load. The company also has a cash stockpile of $54 million. Trulieve's financial position should improve even more as it continues its rapid growth.