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Could the second quarter of 2024 offer a budding opportunity for cannabis investors? With Germany’s recent nod for personal cannabis use and the potential impact of the U.S. presidential election, a fresh wave of growth seems on the verge. In 2021, under the Biden Administration, cannabis stocks skyrocketed amid hopes for federal legalization. As the 2024 election looms and the Biden Administration pushes for cannabis reform, the stage is set for a potential cannabis revolution.
U.S. Vice President Kamala Harris is advocating for the reclassification of cannabis from “Schedule I” to “Schedule III.” Should this transformation materialize with the Drug Enforcement Administration (DEA) in the near future, it could pave the way for federal legalization. President Biden’s recent mention of marijuana reform in his State of the Union address further fuels this momentum. With a confluence of factors driving the cannabis sector forward, let’s explore the three top cannabis stocks for savvy investors.
Cronos Group (CRON)
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Cronos Group (NASDAQ:CRON) stands tall as a dominant Canadian cannabis player, garnering a significant following in the industry. With a 26% year-to-date surge, Cronos Group is capturing attention, not least due to its commendable financial health. Ending the year with $862 million in cash reserves, a remarkable feat from its $2.6 billion cash balance in 2016, Cronos Group is well-poised for organic growth and strategic acquisitions.
Cronos’ ace up its sleeve lies in its expanding footprint in Australia and Germany’s medicinal cannabis market. Particularly in Germany, where regulatory barriers are softening, Cronos Group could witness substantial expansion, leveraging a network of 200 pharmacies through its partnership with Cansativa GmbH. Moreover, its nearly 6% stake in PharmaCann presents another avenue for revenue growth, especially in the event of U.S. federal marijuana legalization.
Innovative Industrial Properties (IIPR)
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Innovative Industrial Properties (NYSE:IIPR) stands out as a prominent real estate investment trust (REIT) leasing its industrial properties to seasoned medical cannabis operators. Unlike peers, it boasts consistent growth, with a five-year average AFFO growth of 47%, raising dividends by 39% during the same period. Sporting a tantalizing 7% yield and trading at a modest 11.34 times forward AFFO, IIPR appeals to income-seeking investors.
Continuing its upward trajectory, IIPR exceeded FFO and revenue expectations in Q4, collecting full rent despite tenant-related challenges. Demonstrating foresight, the REIT is investing $119.5 million in new property acquisitions, underpinning its forward-thinking strategy.
Grow Generation (GRWG)
The Rise and Fall of Grow Generation: Navigating Turbulent Waters in the Hydroponic Industry
A Rollercoaster Journey
Grow Generation (NASDAQ:GRWG) has been a beacon in the hydroponic and cannabis cultivation equipment retail sector, once soaring to a staggering $64.58 in February 2021. However, the stock has taken a nosedive of over 90%, resting at $2.86 currently. The company rode the pandemic wave to impressive heights when dispensaries globally were labeled essential, fueling substantial sales growth. Fast forward to 2024, and the landscape has drastically shifted, with top-line growth dwindling at an alarming rate.
Bouncing Back: Signs of Resilience
Despite the turbulent times, Grow Generation’s forecast for sales and adjusted EBITDA in 2024 and 2025 suggests a path to stability and modest growth, potentially leading to a return to positive adjusted EBITDA. Furthermore, the company sits on solid ground with no debt and a cash reserve of $65 million. Adding to its allure is the fact that GRWG stock trades at a mere 0.8 times forward sales, 13% below its sector median. Anticipated interest rate cuts and the looming possibility of federal-level legalization could signal the dawn of a resurgence for GRWG stock.
The Silver Lining
As the pieces align for Grow Generation, investors are eyeing a phoenix-like rise from the ashes of its recent decline. With a solid foundation, strategic positioning, and optimistic market indicators, GRWG stands poised to reclaim its former glory. The company’s past success, coupled with its current resilience, paints a hopeful picture for stakeholders navigating the unpredictable waters of the hydroponic industry.
