There's no reason to search for potential growth stocks in marijuana -- not when some companies are already showing success. GrowGeneration (GRWG +0.00%), Innovative Industrial Properties (IIPR 0.68%), and Trulieve (TCNNF 3.13%) are solidly profitable businesses, and all three are positioned to blossom as more states open up medical and recreational cannabis sales. Each company should also benefit from the expansion of marijuana sales, but for different reasons because they represent different parts of the cannabis industry.
GrowGeneration's shares are up more than 958% in the past year, Trulieve is up more than 378%, and IIPR is up 132% -- and that's just a start. Thirty-six states already allow some type of marijuana sales, and as the other states find themselves strapped for cash because of the coronavirus pandemic, they too may gladly reach for the tax dollars from cannabis.
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GrowGeneration has a green thumb for business
GrowGeneration's metrics are appetizing. Through the first nine months of its fiscal year, the company has nearly doubled its assets compared with the previous year. Also, revenue rose 142% to $141.4 million and net income increased 57% to $3.8 million.
GrowGeneration, based in Denver, is the biggest hydroponic equipment supplier in the country. It sells organic nutrients, soils, advanced lighting, and other hydroponic equipment used by home and commercial cannabis growers. In other words, the company doesn't have to wait for a federal law opening up the country to marijuana sales because every state or municipality that decriminalizes marijuana helps boost the company's sales.
Innovative Industrial Properties keeps coming for the rent
Maryland-based Innovative Industrial Properties is a unique real estate investment trust (REIT) that deals solely with medical marijuana companies. In most cases, Innovative buys a company's greenhouse facility and then leases it back. This gives marijuana companies much-needed capital from the sale of the property, but it's an even better deal for Innovative. Its leases are all long-term (10-year to 20-year) triple-net agreements. (That means that Innovative puts all maintenance costs on its lessees, including built-in rent increases.)
The marijuana REIT owns properties in 17 states, and its client list includes some big names in cannabis: Trulieve, Cresco Labs, Harvest Health & Recreation, and Green Thumb Industries, among others. This past year, Innovative expanded its portfolio from 47 to 67 properties, giving it 5.3 million square feet of rentable property.
Business is good thanks to companies rushing to grab market share in marijuana sales. Innovative has grown funds from operations (FFO) by 382% over the past three years. In the third quarter, the company said its revenue through nine months was $79.8 million, compared with $26.9 million in the same period in 2019. Net income through nine months was $44.3 million, up from $13.5 million year over year, and adjusted funds from operations (AFFO) were $3.62 per share, compared with $2.02 per share in 2019.
Its debt-to-assets ratio of 9.4% is excellent for a REIT and makes the company's dividend seem safe. The company has increased its dividend nine times since its 2016 initial public offering, with the most recent hike of 6% bringing the payout to $1.24 per share, a yield of 2.1% that's about even with the S&P 500 average.
IIPR Revenue (TTM) data by YCharts.
Trulieve has turned investors into believers
Trulieve was the first licensed medical marijuana company in Florida and sells nearly half of the state's medical marijuana today. There are bills before the Florida Legislature to legalize recreational cannabis as early as 2022, and if they pass, Trulieve is in great shape to respond -- it already has 75 dispensaries in the state. Its next closest competitor, Suretta Wellness, has 39.
Trulieve has expanded beyond the Sunshine State with stores in California, Connecticut, Pennsylvania, and Massachusetts. Earlier this month, it received approval from West Virginia to open four dispensaries there.
The company has been profitable since 2017, and in the most recent quarter it reported $65.8 million in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). That's an improvement of 83% year over year, marking the 11th quarter in a row of adjusted EBITDA.
Quarterly revenue was $136 million, up 13% over the previous quarter and 93% year over year. Through the thirds quarter, it reported $353 million in revenue, a rise of 104% over the same period in 2019. The only metric that fell was net income, which was affected by the company's expansion plans, down significantly to $25.3 million from $132.5 million year over year. The expansion included the purchases of PurePenn and Solevo Wellness, which gave Trulieve three operational dispensaries and 35,000 square feet of cultivation space in Pennsylvania.
Plenty of options, depending on you
You can't make a bad choice among these three. I believe Trulieve and GrowGeneration have the most long-term upside. Trulieve's big challenge will be successfully moving its winning formula outside of Florida, and while the grow-at-home trend that's currently driving GrowGeneration's sales may not hold up after the pandemic, I do think that hydroponics are likely to boom in the coming years as well. Innovative Industrial Properties is the safer choice of the three, with steady, dependable cash flow. It can afford to take its time with expansion as the industry grows.
Whichever sounds most appealing to you, all are doing something many other cannabis companies haven't figured out yet -- making a profit.
