2 smartest cannabis stocks to buy in 2022 and beyond
It was a brutally difficult bear market for cannabis investors. The shares of the AdvisorShares Pure US Cannabis ETF collapsed more than 72% in the past 12 months, and there is no relief in sight thanks to toxic inflation-killing sludge, rising interest rates, fears of a recession and a general distaste for growth stocks of all stripes.
In such an environment, investors have to be smart – and that means thinking about buying stocks of companies that aren’t subject to the same headwinds as others in the industry. Let’s look at a pair of pot stocks capable of growing even in the face of external conditions that might seem a little pessimistic.
1. New Lake Capital Partners
As a real estate investment trust (REIT), New Lake Capital Partners (NLCP -1.64%) is not an everyday marijuana stock, as it will never need to sell a single cannabis nugget to deliver to its shareholders. Instead, it engages in sale-leaseback transactions where it exchanges money in exchange for grow and retail properties, which it then leases back to the seller to create a rental income stream. In short, New Lake is a smart cannabis stock because it profitably trades the shovels competitors need today for more valuable, longer-lived assets during the gold rush. industry.
Its holdings span 11 states and focus its search for favorable deals by examining areas with limited licenses to grow, distribute or retail marijuana. This guarantees its tenants a competitive landscape, which is more likely to lead to their success, thereby reducing the risk of defaulting on their rent payments. About 94% of its tenants report positive adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), which also helps.
On July 6, with a trio of new buys in Pennsylvania and Nevada worth $50 million, New Lake announced that it had spent all the money it raised in its IPO ( IPO). This will help achieve management’s goal of generating revenue of $42-44 million this year. And it will also support the company’s dividend hikes. Currently, its forward dividend yield exceeds a hefty 7.6% and its base payout is up 191.7% over the past 12 months.
Although it may not beat the market anytime soon thanks to the gloomy sentiment surrounding cannabis stocks, New Lake is at the start of its growth journey. While he may soon need to raise more funds to fund purchases beyond what his $30 million revolving credit facility will allow, investors buying stocks will likely benefit from years of his expansion alongside from the weed market.
2. 22nd Century Group
22nd Century Band (XXII -0.68%) is a biotechnology that creates strains of genetically modified marijuana plants that produce economically valuable psychoactive chemicals in greater quantities than wild-type plants. Plus, it does the same for other cash crops like tobacco and hops, and it even makes low-nicotine cigarettes. Although 22nd Century is not yet profitable, its diverse offerings mean that a setback in any of its segments is unlikely to cause lasting damage to its revenue. But its real value is that it can help other companies make more money by increasing the yield of their plants by licensing its bio-engineered strains or designing new ones for a fee.
There’s something for most pure cannabis companies in the 22nd century range. It can create plants that are resistant to blight and pests, enrich or reduce the production of specific psychoactive molecules, and even calibrate the aromatic molecules that give marijuana its distinctive smell (or suppress them altogether). Especially in an industry like cannabis, where maintaining positive profit margins is an ongoing and endemic struggle, tweaking plant genetics could be invaluable.
Currently, 22nd Century Low Nicotine Cigarettes is driving the strongest growth, with its last 12 months revenue reaching nearly $33.2 million and quarterly revenue rising. 32.9% year-over-year. With the recent signal from the Biden administration that it will propose a new rule limiting the total amount of nicotine in cigarettes over the next few years, it is possible that its revenue will go parabolic through direct-to-consumer sales or via grant licensing its cultivars to other tobacco companies. Still, even without this regulatory giveaway, 22nd Century is going to be a key upstream catalyst for the growth of the marijuana industry, and that’s why it’s a smart stock to buy before it becomes more widely discovered. .
Alex Carchidi has no position in the stocks mentioned. The Motley Fool has no position in the stocks mentioned. The Motley Fool has a disclosure policy.