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Although cannabis stocks made a splash this past week thanks to President Biden’s comments on reviewing marijuana’s Schedule 1 designation, the sector both in the US and Canada is way down for 2022.
The New Cannabis Ventures American Cannabis Operators Index, which contains the largest US multi-state operators, is down 59% year to date. The Canadian Cannabis LP Index is down 54% over the same period.
While Biden’s comments on Oct. 6 may have renewed hope for marijuana legalization on the federal level or some type of cannabis reform, there is still a long road for either to happen.
There are ways to invest in cannabis without buying shares of companies directly involved in the growing or selling of the plant. These ancillary companies provide everything from hydroponic supplies necessary to go cannabis to online platforms that connect consumers with dispensaries.
New Cannabis Ventures follows these companies through the Ancillary Cannabis Index. YTD, it is down 71%.
Despite the steep losses, here are a few companies in the ancillary index you might want to take a look at for alternate cannabis investment plays.
GrowGeneration
The nation’s largest hydroponics supplier, GrowGeneration Corp. (NASDAQ:GRWG), has 62 stores in 13 states. Since nearly all commercially grown cannabis is grown indoors, hydroponics play a key part in making that happen.
Most of the company’s footprint is in California, where it also gets most of its annual revenue from — 35%. Although GrowGeneration (GRWG) doesn’t cater exclusively to the cannabis industry, it has its sights on expansion in states where adult-use marijuana dispensaries recently began operation or soon will be. These states are Missouri, Illinois, Arizona, Pennsylvania, New York, and New Jersey.
The company has missed EPS estimates three of the last four quarters it has reported. Seeking Alpha contributor Davide Ravera says GrowGeneration is a hold as it relies too heavily on the cannabis industry, which he said is slowing down in many parts of the country due to legislative uncertainty and delays in establishing new markets.
Leafly
Leafly Holdings (LFLY) is primarily known as a company operating a website where cannabis consumers can find dispensaries near them, read reviews of them, and recently, even get marijuana delivered to them.
The company doesn’t turn a profit and reported just $12M in revenue for fiscal 2022 Q2. Leafly (LFLY) has a strong sell rating from Seeking Alpha’s Quant Rating.
Although it maintains a hold rating on the stock, Seeking Alpha contributor Stone Fox Capital warns that Leafly (LFLY) investors shouldn’t expect to make money over the next few years.
WM Technology
WM Technology (NASDAQ:MAPS) is better known as the company behind Weedmaps, a website that operates in much the same way as Leafly (LFLY). However, WM (MAPS) also provides a suite of monthly subscription-based software solutions to support cannabis retailers.
Like Leafly (LFLY), WM (MAPS) has had a disappointing year, down 67% YTD. Quant Rating also views the stock as a sell.
Seeking Alpha contributor Donovan Jones recently noted that while WM (MAPS) continues to grow revenue and gross profit, its operating losses are high. He rates the stock a hold.
Turning Point Brands
While Turning Point Brands (TPB) is known for making tobacco products and smoking accessories, it also manufactures the Zig-Zag line of rolling papers, which are used to make marijuana joints.
Like other ancillary companies, Turning Point (TPB) is having a bad year, down ~43% and earning a strong sell rating from Quant Rating.
However, there is hope for the stock, according to contributor Carles Diaz Caron, who has a buy rating. He wrote that despite the downturn, Turning Point (TPB) is “a very profitable company with very high margins and a good ability to generate cash.”
AFC Gamma
This company originates, underwrites, and invests in senior secured loans, and other debt securities for established companies operating in the cannabis industry where it is legal for medical or adult use. One striking attribute of AFC Gamma (NASDAQ:AFCG) is its huge dividend yield, which currently stands at 13.82%.
Over the last four quarters it has reported, it beat EPS estimates two times and missed the other two. Mayank N. Sharma, a contributor, calls AFC Gamma a buy saying the mortgage real estate investment trust (REIT) is on a good growth track with a well-balanced lending portfolio.
Innovative Industrial Properties
Innovative Industrial Properties (NYSE:IIPR) is an industrial REIT invested exclusively in cannabis activity-related properties. It has 65 properties in total, with the most concentrated in Massachusetts and Pennsylvania, where it has nine locations in each state.
The stock is down 63% YTD and Quant Rating views it as a hold. Still, contributor Bela Lakos views Innovative Industrial Properties (IIPR) as a buy due to its attractive valuation, high quality portfolio and flexible balance sheet.
