Please ensure Javascript is enabled for purposes of website accessibility

3 Top Cannabis Stocks to Buy in May

By Keith Speights - May 9, 2020 at 7:35AM

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

All three have great growth prospects. And two of them even pay dividends as an added bonus.

Many of the high-flying pot stocks of not too long ago are now among the biggest losers in today's volatile market. However, there are still promising picks in the cannabis industry for long-term investors.

There are three marijuana stocks that look especially appealing right now. Here's why Innovative Industrial Properties (IIPR 2.40%), Scotts Miracle-Gro (SMG 6.23%), and Green Thumb Industries (GTBIF 2.86%) are top cannabis stocks to buy in May.

Three cannabis leaves on a line trending upward

Image source: Getty Images.

1. Innovative Industrial Properties

Innovative Industrial Properties (IIPR 2.40%) ranks as the leading real estate investment trust (REIT) that specializes in the medical cannabis market. The company owns 55 medical cannabis properties in 15 states.

Shares of IIP fell recently after the company missed Wall Street estimates for the first quarter. However, I think this presents a great opportunity to buy the stock on the dip. While IIP did narrowly fall short of analysts' revenue and earnings estimates, it still more than tripled its revenue year over year, with earnings per share soaring 118%. 

More importantly, the company's growth prospects remain very strong. IIP has already acquired nine additional properties this year. Even if this pace slows, revenue and earnings will continue to rise significantly. IIP has worked with three tenants to defer rent temporarily as they deal with the impact of the COVID-19 pandemic. However, there's no reason at this point to expect any long-term repercussions to IIP's growth trajectory.

One really attractive plus for IIP is its dividend. The company's dividend yield currently stands north of 5%. IIP's dividend payout has more than doubled over the last year.

2. Scotts Miracle-Gro

There weren't any complaints with Scotts Miracle-Gro's (SMG 6.23%) latest quarterly results. The company easily topped Wall Street revenue and earnings estimates in its fiscal 2020 Q2 results announced earlier this week. 

The main growth driver for Scotts is its Hawthorne business, which is a top supplier of gardening products to the cannabis industry. Hawthorne's sales soared 60% year over year in Q2 to $230 million. Business is booming for Hawthorne as the legal cannabis markets in big states expand.

Scotts' core consumer lawn and gardening business also continues to be a winner. Sales for the segment jumped 11% in Q2 thanks in part to new organic gardening products. With Americans staying at home due to the COVID-19 pandemic, many of them have taken up gardening. Scotts reported that consumer purchases in the last week of April set a record for any seven-day period in the company's history. 

The resurgence in interest in gardening combined with tremendous growth prospects for the cannabis industry should enable Scotts Miracle-Gro to keep its momentum going. As an added bonus, the company pays a dividend that currently yields nearly 1.8%.

3. Green Thumb Industries

Speaking of tremendous growth prospects for the cannabis industry, one company that's poised to profit from that growth is Green Thumb Industries (GTBIF 2.86%). It's one of the largest multistate cannabis operators in the U.S.

GTI's revenue skyrocketed 265% year over year in the fourth quarter of 2019. This growth was driven in part by the company's new stores opened in Florida, New Jersey, Ohio, and Pennsylvania. GTI is scheduled to report its Q1 results next week. Will its growth taper off because of the COVID-19 outbreak? Don't bet on it.

The legal cannabis market in GTI's home state of Illinois continued to grow in April even with lockdowns in place. Ohio posted record monthly cannabis sales in March. A rising tide lifts all boats, and GTI is one of the biggest boats in the cannabis waters in both of these states.

Probably the biggest knock against GTI is that it isn't profitable yet. But that's a problem that could be remedied in the not-too-distant future as its revenue rises and the company's ramp-up in spending related to expansion efforts levels off. GTI is arguably the riskiest of these three marijuana stocks, but I think its growth prospects make the risk worth taking for aggressive investors.

Keith Speights owns shares of Innovative Industrial Properties. The Motley Fool owns shares of and recommends Green Thumb Industries, Innovative Industrial Properties, and Scotts Miracle-Gro. The Motley Fool has a disclosure policy.

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

The Scotts Miracle-Gro Company Stock Quote
The Scotts Miracle-Gro Company
$80.86 (6.23%) $4.74
Innovative Industrial Properties Stock Quote
Innovative Industrial Properties
$94.36 (2.40%) $2.21
Green Thumb Industries Stock Quote
Green Thumb Industries
$10.42 (2.86%) $0.29

*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 08/10/2022.

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.