The volatility of the marijuana sector often overshadows the long-term returns the industry could deliver when it reaches its full potential. Because marijuana remains illegal at the federal level, investors have been skeptical of going all-in on U.S. cannabis stocks. However, the pandemic-induced cannabis demand boom brought these stocks into the limelight last year.
And now that more states are ramping up their own legalization efforts and there are renewed hopes of federal legalization, you might want to reconsider investing in these pot stocks today. Three, in particular, have performed outstandingly over the last year and are heading toward a brighter future.
Image source: Getty Images.
1. Cresco Labs
Cresco Labs' (CRLBF -5.34%) solid performance was evident from its recent fourth-quarter (ended Dec. 31) results released last month. It ended 2020 on a high note, with total revenue jumping 271% year over year to $476.3 million. Management gave much of the credit to the retail revenue generated from its Sunnyside stores in the key markets of Illinois and Pennsylvania.
Adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) for the full year also increased by $108 million to $116 million. It's an impressive jump that reflects how efficiently the company handled its operating expenses. Cresco has also been rapidly expanding in its home state of Illinois, which is a rather new market for recreational cannabis. Illinois legalized marijuana in January 2020 and has seen impressive sales numbers since then. Total legal cannabis sales last year crossed $1 billion. Cresco has 10 retail stores in the state. Management also thinks winning in California, one of the oldest but most key markets, will strengthen the company's position in the U.S.
2. Trulieve Cannabis
Trulieve Cannabis (TCNNF -6.26%) is emerging as a strong contender in the cannabis space, with total revenue that increased 106% year over year to $521.5 million for the full year 2020. Its adjusted EBITDA for the year grew 99% to $251 million, while it also reported an adjusted net profit of $106 million -- a rare achievement for marijuana companies.
The company is ready to rock 2021 as well. Management expects a jump of 63% year over year in total sales to a range between $815 million and $850 million for the year. Adjusted EBITDA could come in at around $355 million to $375 million.
At one point, Trulieve's strong dependence on the medical cannabis market was a concern for investors who saw other cannabis companies taking advantage of the growing recreational market. But I believe it was wise of Trulieve to hold its ground in the medical cannabis space, especially in its home state of Florida. Its investments give the company a competitive edge over its peers, and should prove lucrative when the state legalizes recreational cannabis. Florida lawmakers filed a bill in January to legalize the drug for adult use. Trulieve also made an entry into the recreational cannabis market in the third quarter by launching a few high-margin cannabis derivatives, including gels, chocolates, cookies, and brownies.
Trulieve is trying to apply the same strategy in Pennsylvania by expanding its medical cannabis footprint before the state legalizes recreational cannabis. On April 5, it announced the acquisition of three medical dispensaries operating under Keystone Shops. This acquisition brought the company's total retail store number to 83 nationally. There are no developments in recreational pot legalization in the state yet, but now that neighborhing New York and New Jersey have voted to legalize the drug, it may be difficult for Pennsylvania to lose out on tax revenue to those states. If and when adult-use legalization happens there, Trulieve will be ready to make its mark.
3. Innovative Industrial Properties
Innovative Industrial Properties (IIPR -0.82%) offers a slightly different path into the marijuana industry. It's not a pure-play cannabis company, but a real estate investment trust (REIT) that offers leasing solutions to medical cannabis companies. The illegal status of marijuana prevents cannabis companies from setting up their own production facilities, so Innovative does the job for them. By attaching itself to this evolving industry, Innovative has grown its revenue more than triple-fold. Innovative's tenants include Cresco Labs, Trulieve Cannabis, Curaleaf Holdings (CURLF -5.94%), and Green Thumb Industries (GTBIF -5.60%).
Its performance last year, in particular, was very impressive. For the full year 2020, the company saw a 162% year-over-year increase in total revenue to $117 million. Its net income for the year rose 191% to $64.4 million from the year-ago period. The growing demand for cannabis in 2020 made cannabis companies focus on expansion, thus leading to Innovative leasing out more properties. At the end of its fourth quarter ended Dec. 31, 2020, it held 67 properties in 17 states, totaling 5.8 million square feet.
The added advantage of investing in Innovative is that it pays consistent dividends to its investors. As a REIT, Innovative is legally required to pay out at least 90% of its earnings as dividends, and it currently sports a nice 2.5% dividend yield. This is a cannabis company that found its way into the sector in a creative way, and I think it can offer today's investors an opportunity to double their money over the long term.
