While the equity markets have recently entered bear markets, cannabis investors have seen a steady decline in their portfolio value for the last 12 months. Several pot stocks are down close to 80% from record highs, wiping out millions in market value.
We know that cannabis companies are grappling with lower-than-expected demand due to the slow rollout of retail stores in major Canadian provinces. As these provinces start increasing the number of licenses, inventory levels of several marijuana companies will move lower, thereby reducing the number of write-offs.
The cannabis industry is still at a nascent stage and is expected to grow at an exponential rate in the coming years. So while most pot stocks are at 52-week lows, the upside potential is massive.
Here we look at two such cannabis stocks that are solid bets for the coming decade.
MediPharm Labs is trading 79% below record highs
Shares of MediPharm Labs (TSX:LABS) are trading at $1.59, which is 79% below record highs. This Canada-based company specializes in pharmaceutical-grade production of cannabis. It focuses on distillation and cannabinoid isolation and purification.
It has a 70,000 square foot facility with a production capacity of 30,000 kilograms. The company has spent significant resources to develop advanced extraction technology and provide safe and accurately measured cannabis products to customers.
Last May, MediPharm announced a supply agreement with Cronos Group. According to this contract, MediPharm will supply Cronos with $30 million of cannabis concentrate over the next 18 months — a figure that’s expected to rise to $60 million in two years.
In September 2019, MediPharm entered into a two-year manufacturing agreement with Cronos for filling and packaging of vaping devices.
These agreements will result in a steady stream of income for MediPharm. Unlike most cannabis stocks, however, MediPharm is posting an adjusted net profit. According to consensus estimates, the company’s revenue is expected to touch $133.7 million in 2019 and $187 million in 2020, up from $7.67 million in 2018.
A price-to-earnings multiple of 11.4 and a price to 2020 sales ratio of 1.11 makes MediPharm one of the cheapest marijuana companies in Canada.
A cannabis landlord
What’s better than a profitable pot stock? One that pays a dividend. Innovative Industrial Properties (NYSE:IIPR) is a cannabis-focused real estate investment trust. The company acquires, owns and manages properties leased to licensed operators. IIPR acquires properties through sale-leaseback transactions and third-party purchases.
Cannabis is still illegal at the federal level in the United States, which makes it difficult for companies to raise debt capital. That’s where IIPR comes in, making it easier for licensed producers to focus on manufacturing on top-quality products and cut capital spending on property acquisition.
IIPR continues to grow top-line by property acquisition. It now owns 51 properties totaling 3.2 million square feet with an average lease term of 15.6 years.
IIPR stock is currently trading 63% below record highs, which has increased its dividend yield to a tasty 8.6%. This cannabis REIT is trading at an attractive forward price to earnings multiple of 14, while analysts expect earnings to grow by 81.3% in 2020 and 55.4% in 2021.
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The Motley Fool owns shares of and recommends Innovative Industrial Properties. Fool contributor Aditya Raghunath has no position in any of the stocks mentioned.