Patient, long-term investors tend to do better in the stock market than those who flit in and out of the market, as the S&P 500 has risen almost 270% over the past decade and sets new records almost daily.
Having a time horizon that spans years, even decades, will serve marijuana investors well, considering the Horizons Marijuana Life Sciences ETF is down almost 30% since it was created in 2017, compared to a 115% gain by the broad market index.
Image source: Getty Images.
That doesn't mean all cannabis stocks will need so many years before generating a return, but a buy-and-hold philosophy will ensure your portfolio's gains will be maximized.
That's why the following trio of marijuana stocks should be on every pot stock investor's radar. They offer the best chance for providing near-term rewards, as well as substantial returns for years to come.
Image source: Getty Images.
This lender for the marijuana industry is picking up steam
Alex Carchidi (AFC Gamma): Advanced Flower Capital Gamma (AFCG 2.28%) solves a problem that many of the companies in the cannabis industry have: poor access to financing. While cannabis has been legalized in certain states, it's still illegal at the federal level, which means major banks refuse to lend to marijuana businesses.
Therefore, when it comes time for those companies to expand beyond what their cash flows support, they have almost nowhere to turn for leverage, and that's where AFC Gamma (AFC) steps in.
Since its founding in July 2020, AFC issues loans to worthy cannabis businesses, and all of those loans are secured by real estate that gets held as collateral. So its interest payments from the loans that it issues are quite safe, as borrowers who default will be forced to turn over their property, which can then be sold at the market rate to recoup the initial cost of the loan.
Of the loans it has already disbursed, the weighted average yield to maturity is 20%, which is quite strong. If the company can maintain this return profile, its capital will explode in value over time.
Right now, AFC is profitable, and its loan revenue is rapidly expanding sequentially each quarter.According to its third-quarter earnings report, published on Nov. 4, total revenue from interest grew by 21.4%, reaching $10.6 million."
And, it'll return a lot of that revenue right back to investors through its dividend, which currently yields 7.53%. The dividend may continue to increase with every quarter that passes, as it did most recently in Q3, when it grew by 13.2%.
In short, AFC is still at the very start of its growth journey, so the time is ripe to buy it. Early investors will get the largest benefit over time as the company continues to expand.
Image source: Getty Images.
Bet on this underdog
Eric Volkman (Jushi Holdings): One of the hotter multistate operators (MSOs) on the scene just now, Jushi Holdings (JUSHF -5.64%) is about to wrap up 2021 in impressive fashion.
On the retail end of the marijuana industry, the game is all about scale. Every ambitious pot company with a few dollars in the bank and a product portfolio is actively seeking potential acquisitions, large and small, to expand its network.
The exciting thing about Jushi's expansion strategy is that the company has planted roots in two cannabis markets that are still years away from full blossom: Pennsylvania and Virginia.
The former is the fifth most populous U.S. state and has only made medical marijuana legal so far. With neighboring big guns New York and New Jersey both flipping the switch on recreational weed recently, the Keystone State can't be far behind. Jushi isn't yet a nationwide powerhouse, but it sure has a strong presence in Pennsylvania, with a comparatively high total of 15 of its BEYOND/HELLO dispensaries.
As for Virginia, which after a somewhat inexplicable delay will officially make sales of recreational marijuana legal in 2024, it's bordered by five states that haven't flipped said switch. Assuming that status quo is maintained, Virginia will be a magnet for pot aficionados not only within the state, but throughout its sprawling region.
So Jushi has some explosive growth in front of it in the coming years. But I also think the company's potent hybrid of organic and acquisitions-fired growth will produce attention-grabbing results when the company reports its Q3 figures later this month.
With recent acquisitions coming onstream (such as that for Massachusetts-based Nature's Remedy), we shouldn't be surprised to see something like the 15% sequential and 220% year-over-year revenue improvement Jushi posted in Q2.
Nor would it be shocking to see a return of that rarest of pot industry animals, a bottom-line profit. Q2 saw the company veer into the black with a nearly $5 million net profit for the period.
Jushi's management is good at strategic thinking, as evidenced by its effective value-adding acquisitions. the company recently secured a $100 million credit facility for exactly that purpose. So more smart buys are on the way, and we'll hear a lot more from this very much up-and-coming cannabis player before the year is through.
Image source: Planet 13 holdings.
An out-of-this-world opportunity
Rich Duprey (Planet 13 Holdings): MSO Planet 13 Holdings (PLNH.F -6.00%) is doing cannabis differently. While it operates a handful of marijuana dispensaries in a few states like other MSOs, what separates Planet 13 from the competition is its focus on providing cannabis consumers with an experience.
According to Planet 13, its Las Vegas dispensary is the largest in the world, but beyond just having a large selection of dried cannabis, paraphernalia, and derivatives to purchase in the retail store, it also features a cafe, a processing center, and an events stage.
Because of its presence near the Las Vegas Strip, the dispensary attracted over 1 million visitors in 2019, before the pandemic shut everything down, and it still represented over 9% of all marijuana sales in the state. While the number of visits are still below the two-year level, volume is growing and should eventually reach parity.
Management believes the dispensary will generate $130 million in annual revenue from its Nevada stores by 2023.
But it's more than just Las Vegas. Planet 13 recently opened another superstore in Orange County, Calif. -- near Disneyland, Knott's Berry Farm, and some of the state's best-known beaches. It also intends to have a home delivery program operational to service both local residents and the resorts.
Beyond its megaplexes, Planet 13 also operates a smaller neighborhood retail concept called Medizin, which is the same experience, just in a smaller footprint. Instead of 55,000-square-foot facilities, Medizin is fully built out at just 4,750 square feet. It could be the blueprint Planet 13 uses to expand across the country to grow both sales and profits as the smaller store generates a higher percentage of its sales from higher-margin in-house brands.
Within five years, Planet 13 intends to have at least eight superstores and nearly two dozen smaller locations.
At just $3.77 per share, Wall Street sees the MSO nearly doubling in value over the next year, setting a consensus price target of $7 per share. Revenue is forecast to grow from $70 million last year to $205 million by the end of next year when it turns from a loss of $0.05 per share in 2019 to a profit of $0.06 per share.
The stock is down after the company missed third-quarter estimates, but that makes Planet 13 Holdings a discounted stock to buy today.
