4 Cannabis Stocks Heating up for 2021

The cannabis sector has gained significant prominence with the recent Democratic presidential win in the U.S. The legalization of pot companies in the United States has been underway for years in a fragmented way. But the industry is likely to gain momentum with the new Administration because President-elect Joe Biden has indicated that he aims to end the federal prohibition of recreational marijuana.

Medical marijuana is now legal in 38 states and the District of Columbia. Fifteen states have legalized the consumption of cannabis for recreation. Four states that stand at the cusp of decriminalization of medical marijuana are Montana, South Dakota, Arizona, and New Jersey. Further, earlier this month, the Marijuana Opportunity Reinvestment and Expungement (More) Act was passed in the U.S. House of Representatives, but it has yet to become a law, for which passage in the U.S. Senate is required.

Increasing stress and limited forms of entertainment during the pandemic are factors that are believed to have pushed the demand for cannabis in the United States. According to data from Akerna KERN.O (a leading cannabis data aggregator and research company), marijuana sales on Thanksgiving eve surged 80% above the daily average in 2020. These developments indicate that the cannabis industry in the United States is positioned for strong growth in future. The stigma around the use of cannabis is slowly vanishing, and increased legalization across states is paving the way for better access to capital for pot companies.

Canopy Growth Corporation (CGC), Innovative Industrial Properties, Inc. (IIPR), Cronos Group Inc. (CRON), and Aphria Inc. (APHA) are four companies that are likely to witness immense growth in 2021. Let's look at little more closely at each

Canopy Growth Corporation (CGC)

CGC is involved primarily in the manufacture, distribution, and sale of recreational and medical cannabis in Canada, the United States, the United Kingdom and Germany. Cannabis, Hemp and Other Consumer Products and Canopy Rivers are the two segments through which it operates. Dried cannabis flowers, oils, as well as soft gel capsules are the major products sold by CGC under the brands Tweed, Deep Space, Quatreau, and Spectrum Therapeutic.

CGC recently announced its latest deal with The Vitamin Shoppe wherein the signature Martha Stewart CBD gummies offered by CGC will be sold by its online store. In a move to tap into the holiday shopping season, the gummies will be offered at a 25% discount.

CGC’s revenue for the second quarter ended September 30, 2020 climbed 76.6% year-over-year to C$135.2 million, driven by the expansion in recreational cannabis revenue in Canada, strength in Storz & Bickel ("S&B") vaporizer sales as well as ThisWorks. Net loss per share for the quarter was $0.09 compared to C$0.25 EPS posted in the prior year period. CGC aims to achieve C$150-C$200 million of cost savings.

Analysts expect revenue for the quarter ending December 31, 2020 to increase 23.4% year-over-year. EPS for the quarter is expected to increase 22.2%. On a year-to-date basis, CGC surged 23.1% to end Friday’s trading session at $25.97. Over the past six months, the stock climbed 51.1%.

How does CGC stack up for the POWR Ratings?

A for Trade Grade

B Buy & Hold Grade

B for Peer Grade

A for Industry Rank

B for Overall POWR Rating.

It is currently ranked #32 of 240 stocks in the Medical - Pharmaceuticals industry.

Innovative Industrial Properties, Inc. (IIPR)

IIPR is an American Real Estate Investment Trust involved in acquiring, owning, and managing specialized properties leased to renowned state-licensed medical marijuana operators. The company has 66 properties spanning5.4 million rentable square feet across 17 states.

With the objective of expanding its portfolio, IIPR has acquired a property in Georgetown, Massachusetts and Olympia, Washington, for $33 million total. These properties comprise approximately 181,000 square feet of industrial space. IIPR has also entered a long-term, triple-net lease agreement for each property with a subsidiary of 4Front Ventures Corp. The Massachusetts property will operate as a regulated cannabis cultivation, processing, and dispensing facility, whereas the Washington property will be subleased to a cannabis license holder for continued use as a cannabis cultivation and processing facility.

During the third quarter ended September 30, 2020, IIPR’s total revenues surged 197% year-over-year to $34.3 million due to the acquisition and leasing of new properties, additional tenant improvement allowances, and construction at existing properties. EPS for the quarter rose to $0.86 from $0.55 posted in the same period last year.

The consensus revenue estimate for full-year 2020 is $118 million, signaling a 164.1% surge year-over-year. EPS for 2020 is expected to grow 71.9%. Its IIPR rallied 148.5% on a year-to-date basis to end Friday’s trading session at $188.54. The stock has surged 90.5% over the past six months.

IIPR’s POWR Ratings reflect this promising outlook. It has an overall rating of “Strong Buy” with an “A” for Trade Grade, Peer Grade, and Buy & Hold Grade. Among the 21 stocks in the  REITs - Industrial industry, it’s ranked #4.

Cronos Group Inc. (CRON)

CRON is a cannabinoid manufacturing and marketing company. It sells hemp-derived supplements and cosmetic products through hospitality partners, ecommerce, and retail. The company operates in Canada, the United States, and other countries. A global wellness platform, PEACE NATURALS, adult-use brand Spinach and COVE as well as hemp-derived Lord Jones and PEACE+ represent CRON’s brand portfolio.

In October, CRON’s United States segment launched new full-spectrum tinctures under the brand Lord Jones™. These tinctures are available in peppermint and orange flavors. This Lip Balm is based on Whole Plant Formula CBD is expected to contain 25mg of U.S. hemp-derived CBD from full-spectrum hemp extract, as well as other premium ingredients, such as shea butter, mimosa wax, beeswax, and an oil blend for additional hydration.

During the third quarter ended September 30, 2020, CRON’s revenue surged 96.3% to $11.3 million, led by growth in the adult-use cannabis in Canada and by an expansion in Israeli medical cannabis. CRON’s EPS for the quarter fell to $0.19 from $1.62 posted in the same period last year. During the quarter, the company received approval to sell PEACE NATURALS™ branded pre-rolls and oils in Israel.

CRON appointed Kurt Schmidt as its President and CEO on September 9.

The Street expects revenue for the quarter ending December 30, 2020 to increase 47% year-over-year. EPS is likely to grow 14.3% year-over-year. CRON rose 1.4% on a year-to-date basis to close at $7.78 on Friday. Over the past six months, the stock climbed 18.6%.

CRON is rated a “Buy” in our POWR Ratings system. It has a “B” for Trade Grade, Buy & Hold Grade, and Industry Rank. In the 27-stock  Agriculture Industry, it is ranked #7.

Aphria Inc. (APHA)

APHA is involved in the core cultivation, processing, production, marketing, distribution, and sales of medical marijuana in Canada and other countries. The company’s product portfolio includes medical cannabis and adult-use and cannabis-derived products. Solei, Good Supply, RIFF, Aphria, Broken Coast brands, and P'tite Pof are some of the brands under which APHA sells its products.

Leading pot company, Tilray (TLRY), has announced its merger with APHA to form the world’s largest cannabis company. The deal, which is expected to close in the second quarter of 2021, involves a reverse merger that will swap shares at a 23% premium to TLRY’s closing price December 15. The merged entity would be led by APHA’s CEO Irwin Simon.

During the first quarter ended August 31, 2020, APHA’s net revenue climbed 15.5% to C$145.7 million. The company posted record gross revenue for adult-use cannabis of C$69.6 million. APHA’s loss per share was $0.02 compared to $0.07 EPS posted in the same period last year. At the end of the quarter, the company had C$400.0 million of cash and cash equivalents.

The consensus revenue estimate for the quarter ended November 30, 2020 is expected to grow 31.2% year-over-year. And EPS for the fiscal year ending May 2020 is expected to increase 213.3% year-over-year. APHA closed the trading session at $7.65 on Friday, gaining 46.5% on a year-to-date basis. Over the past six months, the stock soared 70.4%.

APHA is rated a “Buy” in our POWR Ratings system. It has an “A” for Trade Grade and Industry Rank. It is a “B” FOR Buy & Hold Grade, and Peer Grade. In the Medical - Pharmaceuticals Industry, it is ranked #37.

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CGC shares were trading at $25.54 per share on Monday afternoon, down $0.43 (-1.66%). Year-to-date, CGC has gained 21.10%, versus a 15.96% rise in the benchmark S&P 500 index during the same period.

Namrata is an accomplished financial journalist, with nearly a decade of experience. She specializes in interpreting news releases and framing investment strategies, and has worked with some of the leading companies in real estate, banking, insurance, mutual funds, financial research, fintech, and investment education.

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