Please ensure Javascript is enabled for purposes of website accessibility

The Best Marijuana Stocks to Buy During the Stock Market Crash

By Keith Speights - Mar 22, 2020 at 9:03AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

They're profitable. They have solid business models. And they even pay attractive dividends.

Let me acknowledge right out of the gate that "best" is a relative term. The reality is that nearly every marijuana stock has been crushed during the coronavirus-fueled stock market crash. But some stocks have weathered the storm better than others. And some are better picks to buy while the market downturn continues.

The most important thing to look at with any pot stock right now (and any stock, for that matter) is its financial position. Companies that are losing money and have unmanageable levels of debt have higher risk levels. With this in mind, I think the two best marijuana stocks to buy with the stock market crashing are Constellation Brands (STZ -4.34%) and Innovative Industrial Properties (IIPR -0.70%). Here's why I ranked these two stocks at the top.

Green traffic light with a cannabis leaf on the light

Image source: Getty Images.

1. Constellation Brands

The best thing that Constellation has going for it compared to most marijuana stocks is that it's in solid financial shape. Constellation's bottom line has been dragged down by its investment in Canopy Growth (CGC -18.57%), but it still posted a solid profit in its latest quarter.

There was speculation that the coronavirus outbreak was negatively affecting sales of Constellation's top-selling Corona premium beer brands. However, the company responded to what it called "unfounded claims" in late February, noting that sales trends for its Corona lineup were increasing rather than declining.

Corona and other premium beer brands including Modelo have enjoyed strong and consistent demand while other beers have faced headwinds. This brand strength gives Constellation an advantage that I think sets it apart from pure-play marijuana stocks.

Granted, the company's strength hasn't insulated its stock from being hammered during the market meltdown over the last few weeks. Constellation's share price has plunged more than 40% from its highs set earlier this year. One positive side effect of this decline, though, is that the company's dividend yield has soared to nearly 2.5%.

Thanks to Constellation's investments in Canopy Growth, the Canadian cannabis producer is in a better position to survive the economic downturn than many of its peers. I still think that this investment will pay off for Constellation over the long run. 

2. Innovative Industrial Properties

Innovative Industrial Properties stock has taken an even bigger shellacking. Its share price has dropped more than 40% in only a few weeks. But it's important to note that IIP stock had jumped more than 40% prior to the market crash.

I still think that IIP ranks as one of the best marijuana stocks to buy right now despite the downturn. Actually, my view is that the stock is a better pick because of the downturn.

For one thing, IIP's already-great dividend looks even better. Its yield now stands at close to 8.6%. As a real estate investment trust (REIT), the company has to return at least 90% of its taxable income to shareholders in the form of dividends. I don't think IIP's dividend is in any danger because I don't think its earnings are in jeopardy.

The company has leased nearly all of the square footage in the properties that it owns under long-term agreements. Yes, the quarantines and social distancing will impact many of IIP's customers to some extent. I wouldn't be surprised if some of them encounter financial difficulties that could affect their ability to pay rents.

However, IIP focuses on customers who are medical cannabis operators. These companies should be somewhat less impacted than recreational marijuana businesses will be. In fact, IIP has continued to make new sale-leaseback deals even in the midst of the coronavirus pandemic.

IIP is consistently profitable. It has more in cash, restricted cash, and investments than it has in debt. This strong balance sheet gives me confidence that IIP will bounce back in a huge way once the worst of the COVID-19 outbreak is over.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Constellation Brands, Inc. Stock Quote
Constellation Brands, Inc.
$233.06 (-4.34%) $-10.57
Innovative Industrial Properties Stock Quote
Innovative Industrial Properties
$109.87 (-0.70%) $0.78
Canopy Growth Stock Quote
Canopy Growth
$2.85 (-18.57%) $0.65

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/01/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.