Marijuana stocks have been on a roller coaster ride lately. A combination of mixed legalization rules across states, the continued illegality of marijuana at the federal level, and the often less-than-tantalizing balance sheets some of these companies offer has understandably left some investors on the sidelines.
But there are still compelling stocks in this space if you have the risk tolerance and a long-term time horizon. And investing in marijuana stocks doesn't mean you need to take a position in a slow-growing or unprofitable company. Quite the opposite, in fact.
Here are two such powerhouse marijuana stocks that are somewhat unexpected investments in this multi-billion-dollar market that you may want to add to your portfolio in the very near future.
1. Innovative Industrial Properties
No investment is entirely devoid of risk. However, I believe Innovative Industrial Properties (IIPR 2.21%) remains a no-brainer way to invest in marijuana stocks if you're just getting started in this industry and/or don't have the propensity for risk that often accompanies these types of investments.
There are a few different ways in which Innovative Industrial Properties fits this bill. For one, it doesn't cultivate or sell cannabis. Instead, it's a real estate investment trust (REIT) that buys industrial facilities and leases them to licensed cannabis operators.
On top of that, it only leases its facilities to operators licensed to grow medical marijuana. This focus on the medical industry lends stability to the company's operations. Not only have far more states legalized marijuana for medical rather than recreational purposes (38 compared to 19), but this space also represents a $14 billion market on track to hit a valuation of $66 billion by the year 2030.
And the REIT's business model is an anomaly in the world of marijuana stocks. It uses sale-leaseback transactions of properties in key medical-use markets, The company has acquired properties in Massachusetts, New Jersey, Pennsylvania, California, Maryland, Arizona, and Texas in 2022 alone, with well-known tenants like Trulieve, Cresco Labs, Green Thumb Industries, and Curaleaf locked into lengthy, triple-net leases. This has given it a track record of stable growth and profitability against the backdrop of a broader market that has historically been fraught with turbulence.
In the first half of 2022, Innovative Industrial Properties reported that revenue, net income, and adjusted funds from operations (FFO) grew by 47%, 37%, and 40%, respectively, from the same period in 2021. Over the past three years, a turbulent time across many industries, the company still increased its dividend by more than 80% and garnered a total return of 60% for investors. The stock yields 7.5% based on current share prices.
Innovative Industrial Properties' history of enriching shareholders throughout its growth story offers a robust foundation amid current volatility. And even as other marijuana stocks are struggling with profitability, this REIT is continuing to report rent collection of 99% with strong top- and bottom-line growth. This bodes well for investors seeking to invest in the marijuana space and get generous returns over many years.
Plus, analysts think the stock could have an upside of more than 100% over the next 12 months alone.
2. Jazz Pharmaceuticals
Like the previous pick, Jazz Pharmaceuticals (JAZZ 0.77%) is a less traditional way of playing the marijuana space, which might be just the ticket for investors who aren't as interested in cannabis operators or want to diversify beyond these types of stocks.
Jazz Pharmaceuticals' exposure to the cannabis industry represents only one slice of its portfolio, but one that could mean significant growth potential. The company acquired the cannabidiol drug Epidiolex when it bought GW Pharmaceuticals for $7.2 billion in 2021. Epidiolex is approved to treat various forms of severe epilepsy including Lennox-Gastaut syndrome and Dravet syndrome, as well as tuberous sclerosis complex, a rare genetic disease that causes benign tumor growth.
When Epidiolex was approved in 2018, it became the first-ever medication with an active ingredient based on marijuana to be approved by the Food and Drug Adminstration. In the most recent quarter, sales of the drug rose 12% from the year-ago period to $175.3 million. It generated nearly $1 billion in sales in 2020 and 2021 combined.
Beyond Epidiolex, Jazz Pharmaceuticals also has a broad portfolio of drugs targeting a range of neurological conditions as well as various types of cancers. For example, its narcolepsy medications Xywav and Xyrem had $504 million in sales in the most recent quarter, up 10% year over year. Its small cell lung cancer drug Zepzelca generated $68 million in sales during that three-month period, a 22% spike from the year ago. In total, Jazz reported revenue of $932.9 million for the quarter, up 24% year over year, while its bottom line totaled $34.7 million, versus a $363.3 million net loss in the year-ago quarter.
Jazz also has an impressive pipeline with a range of candidates targeting post-traumatic stress disorder, essential tremor disocder, and multiple sclerosis spasticity, among other conditions.
Jazz Pharmaceuticals' strong track record of revenue growth (annual sales are up more than 90% over the trailing-five-year period) and movement to profitability portend well. Investors with a minimum investment horizon of three to five years might consider this stock not only for its exposure to the cannabis industry, but also for the broader potential of its diverse product portfolio and pipeline.
With analysts estimating that the stock could have an upside over 70% in the next 12 months, this could be the time to consider a position in this medical marijuana stock.
