When it comes to top-tier investment ideas, technology and innovation kingpin Apple (AAPL 0.74%) usually finds its way onto the list. A quick look at Apple's track record speaks for itself, with substantive U.S. smartphone market share and rapidly growing service revenue derived from its Watch and streaming platforms. Not to mention, Apple has enough cash on its balance sheet that it could (in theory) purchase all but a few dozen publicly traded companies.
This year, investors are buzzing about Apple's upcoming release of 5G-capable iPhones. Consumers' ability to access even faster data downloads is liable to lead to a strong upgrade cycle and help push Apple's earnings growth into the low double-digit percentage range.
Apple's branding, cash hoard, and market share make it a relatively safe bet for investors -- but it's certainly not the only bet they should be making with their money. Although cannabis stocks grossly underperformed the stock market (and Apple) as a whole in 2019, there are a trio of high-growth pot stocks that I believe could handily outperform the largest publicly traded company in the U.S. over the next decade.
There's no doubt that Canada had an opportunity to be a global cannabis leader and completely dropped the ball over a variety of regulatory issues that got in the way. But if there's one Canadian pot stock that's stood head and shoulders above its peers, it's OrganiGram Holdings (OGI -0.75%).
Though OrganiGram lost money in its fiscal fourth quarter, the company did something that no other Canadian grower has previously done -- it reported an operating profit without the aid of one-time benefits or fair-value adjustments. During the fiscal third quarter, OrganiGram's net sales of $24.8 million Canadian were enough to outpace cost of goods and operating expenses by CA$1.2 million. No other cannabis stock has been able to generate an operating profit without the aid of fair-value adjustments or some one-time revaluation of assets.
What else makes OrganiGram special is the company's focus on a single cultivation and processing facility in New Brunswick. Aside from the fact that the Moncton campus is near eastern Canadian provinces with higher-than-average cannabis-use rates among adults, the simple fact that OrganiGram is working with only one cultivation farm means it's easier to control supply chain costs and adjust operations to meet demand and domestic market conditions.
As one final nod, OrganiGram's management expect a fully functional Moncton to produce around 230 grams per square foot. This could wind up being more than double the average yield per square foot of its peers.
OrganiGram may not be the best-known Canadian pot stock, but it's the best positioned to succeed over the long run.
Planet 13 Holdings
Another pot stock that should outperform Apple in both the growth and value column is Planet 13 Holdings (PLNH.F -4.19%).
Planet 13 is a small-cap, vertically integrated multistate operator (MSO) in the United States that does things a bit different from other MSOs. It's these differences that makes the company such an intriguing investment opportunity.
For one, no MSO offers the unique experience that Planet 13 brings to the table. The company's SuperStore just west of the Las Vegas Strip spans 112,000 square feet (that's bigger than the average Walmart) and will house an events center, restaurant, coffee shop, and consumer-facing processing center, in addition to a large-scale dispensary.
Planet 13 has also done an incredibly good job of incorporating technology into its SuperStore, as well as personalizing the experience and maximizing its layout to drive margins. Self-pay kiosks help drive quick sales throughout the store, while high-margin derivatives near the checkout line and a centrally located immersion station encourage consumer interaction and add-on sales.
Most important, there's lots of transparency, with Planet 13 reporting its foot traffic, purchases, and average ticket size each month. Though this is a store where sales can ebb and flow with tourism, the company has seen a steady improvement in foot traffic and average sales ticket since opening its doors in November 2018. With a new location set to open just minutes from Disneyland in Santa Ana, California, in the second half of 2020, Planet 13 looks to be on track to achieve recurring profitability before the year is over.
Innovative Industrial Properties
Finally, investors should consider forgoing the purchase of Apple shares in favor of cannabis real estate investment trust (REIT) Innovative Industrial Properties (IIPR 2.33%).
Like any REIT, Innovative Industrial Properties' goal is to acquire assets that it can then lease for extended periods of time. The only difference is IIP wants to acquire medical marijuana grow farms and processing sites, as opposed to more traditional real estate. Since the beginning of 2018, IIP's portfolio has expanded from 11 properties to the 47 it owns today in 15 states. The weighted-average remaining lease length on these properties is a healthy 15.5 years, with an average return on invested capital of 13.3%. This means achieving a complete payback on its $510 million in invested capital in a little over five years.
Although most REITs primarily grow by acquisition, Innovative Industrial Properties does have a modest organic growth component built in. Every year, IIP passes along rental increases to its tenants, helping it stay ahead of the inflationary curve. It also collects a 1.5% property management fee that's tied to the current rental rate, thereby further lifting its organic growth.
In terms of its bottom line, Innovative Industrial Properties is the most profitable pot stock on a per-share basis. Chances are it's going to become even more profitable. Last week, IIP announced a common stock offering that's designed to raise $217.4 million in cash. This company has quickly put its cash to work in recent quarters, and the expectation is that this newly raised capital will only further enhance its income potential.
As the icing on the cake, Innovative Industrial Properties' nearly 5% yield is five times higher than Apple's dividend yield.