Don't think for a second that just because many marijuana stocks performed miserably in 2019 that there weren't any big winners. One key to finding those winners is to focus on U.S.-based stocks rather than on the stocks of Canadian cannabis producers.
The three best U.S. marijuana stocks of 2019 delivered gains of 45% or more. Here's which stocks ranked at the top -- and whether they're smart picks to buy now.
1. Scotts Miracle-Gro
Scotts Miracle-Gro (NYSE:SMG) went from falling nearly 43% in 2018 to becoming the best-performing U.S. marijuana stock of 2019 with an impressive gain of over 70%. The company achieved this remarkable turnaround the old-fashioned way by posting strong revenue and earnings growth.
Credit the booming U.S. cannabis industry for much of Scotts' tremendous performance this year. The company's Hawthorne Gardening subsidiary drove much of Scotts' revenue growth, with California's legal recreational marijuana market improving significantly and emerging cannabis markets in Florida, Ohio, Michigan, and Massachusetts picking up momentum.
However, Scotts Miracle-Gro's core U.S. consumer lawn and garden products business was also solid in 2019. In his comments about the company's overwhelmingly positive fiscal second-quarter results in May, CEO Scott Hagedorn said that "consumers came flying out of the gate compared with last year to get a head start on the lawn and garden season." They kept coming through that gate throughout the year, generating what Hagedorn referred to in November as "the strongest growth we've seen this decade."
2. Innovative Industrial Properties
Innovative Industrial Properties (NYSE:IIPR) was a big winner in 2018 with a gain of 40% and delivered an even better performance in 2019, with its shares soaring close to 70%. The cannabis-focused real estate investment trust (REIT) achieved this huge gain by sticking with its strategy of reinvesting capital into additional medical cannabis properties to lease to customers.
The company started out 2019 with only 11 properties in nine states. By the end of the year, that number was up to 46 properties in 14 states. All of the properties are leased for a weighted average of more than 15 years.
Investors were no doubt attracted to IIP's tremendous growth, with trailing 12-month revenue and earnings more than doubling in 2019. They were also almost certainly drawn to the stock's dividend, which currently yields nearly 5.5%.
3. Trulieve Cannabis
While Scotts Miracle-Gro and Innovative Industrial Properties are ancillary providers to the cannabis industry, one pure-play stock also ranked among the top three U.S. marijuana stocks of 2019 -- Trulieve Cannabis (OTC:TCNNF). Trulieve's shares jumped more than 45% higher, fueled by rapid growth in Florida's medical cannabis market.
Trulieve operated 23 medical cannabis dispensaries in Florida at the beginning of 2019. The company announced the opening of its 42nd dispensary in the state in December, only a few days after becoming the first medical cannabis license holder to top 40 retail locations. This retail expansion drove Trulieve's revenue and earnings significantly higher throughout last year.
There's no question that Trulieve reigns as the leader in Florida. The company claims a market share of close to 50% of medical cannabis flower sales. Trulieve is also expanding beyond Florida, with additional operations in California, Connecticut, and Massachusetts.
Are they buys now?
I think that the short answer to this question is "yes." All three of these top-performing U.S. marijuana stocks of 2019 can still deliver market-beating returns in the future, in my opinion.
Scotts Miracle-Gro should continue to reap the rewards from its string of acquisitions that have made Hawthorne the top gardening products supplier to the U.S. cannabis industry as the cannabis markets in multiple states mature. I also look for the company's consumer lawn and garden products business to continue growing in 2020 with the launches of new products on the way.
Expect Trulieve's growth trajectory to slow with fewer new stores opening in Florida. However, the stock could nonetheless perform well in 2020 as the overall market in Florida grows and as Trulieve builds its operations in other states.
My favorite of these three U.S. stocks, though, is Innovative Industrial Properties. I think that IIP will be able to repeat its successes achieved in 2019 by investing in more medical cannabis properties. And with its fantastic dividend, my view is that IIP ranks as one of the top marijuana stocks to buy for 2020.