March is the month to buy stocks that could profit from the U.S. cannabis industry. Why? The clock is ticking for big states to launch their recreational marijuana markets. And there’s a pretty good chance of major federal cannabis reform as well. Buying now gives investors an opportunity to eventually realize big gains.
But which stocks are the best picks? Here are three top cannabis stocks to buy in March from across the industry.
Let’s start with one of the largest multistate cannabis operators in the U.S., Cresco Labs (OTC:CRLBF). The company ranks as the largest wholesaler of branded cannabis products. It also operates a growing chain of retail cannabis stores.
Cresco is firming up its position in the states where it currently operates. For example, the company recently closed its acquisition of Verdant’s four medical cannabis dispensaries in Ohio. It also won a license to begin selling recreational marijuana in Arizona, which just opened its adult-use market; Cresco already sold medical cannabis in the state.
New markets also beckon. Cresco is acquiring Bluma Wellness in a deal expected to close in the second quarter of 2021. Bluma operates seven medical-cannabis dispensaries in Florida under the One Plant brand. Its stores rank second in the state for per-store sales of smokable flower. Bluma plans to open another eight locations.
Cresco has been a big winner, with its shares soaring more than 35% so far this year. Despite these gains, though, the stock still trades at a price-to-sales multiple that’s well below most of its peers. I think this valuation combined with the company’s strong growth prospects make Cresco Labs one of the best pure-play pot stocks on the market.
Innovative Industrial Properties
Innovative Industrial Properties (NYSE:IIPR) offers two things that most marijuana stocks don’t: profitability and a great dividend. And the two go hand-in-hand.
The company is a real estate investment trust (REIT) that focuses on the U.S. medical cannabis industry. As a REIT, Innovative Industrial Properties (IIP) must return at least 90% of its taxable income to shareholders in the form of dividends. Its payout currently yields over 2.7%. That’s a lower yield than IIP’s historical average, but not because of dividend cuts; the company has increased its dividend payout nearly fivefold over the last three years.
IIP’s dividend yield has fallen because its stock has soared. This tremendous performance stems from continued strong revenue and earnings growth. In the fourth quarter of 2020, IIP’s revenue and earnings more than doubled year over year.
All the company needs to do to keep the momentum going is to find more medical cannabis properties to lease out. I don’t think that IIP will have any problems achieving that goal. If it succeeds in doing so, this stock should have plenty more room to run.
You probably know Scotts Miracle-Gro (NYSE:SMG) best for its consumer lawn and garden products. However, over the last few years, the company has made a string of acquisitions that have made it a leading supplier of hydroponics solutions to cannabis operators.
Scotts' Hawthorne division focuses on the cannabis market and now ranks as the company’s biggest growth driver. In the first quarter of fiscal 2021 (which ended on Jan. 2), Hawthorne generated 71% year-over-year revenue growth. That marked the fourth consecutive quarter in which the unit delivered sales growth of at least 60%.
Hawthorne should continue to enjoy tremendous success. The recent move by New Jersey to legalize recreational marijuana and the likelihood that New York State could follow suit provide major new markets for the business segment’s products.
Don’t overlook Scotts' core consumer lawn and garden business, though. It provides steady and growing cash flow that makes the stock less risky than most cannabis stocks. This core business also helps Scotts pay out a dividend that yields a little over 1.1%. For conservative investors who are interested in profiting from the cannabis boom, Scotts Miracle-Gro looks like a really good stock to buy this month.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.