Last year’s stock market crash – fueled by fears of the pandemic’s effects on the economy – has proven to be a great buying opportunity for investors. Since the market bottomed at the end of March 2020, the S&P 500 is up over 80%.
No one knows exactly when we will face another bear market, defined as a drop of 20% or more from recent highs. But it’s worth being prepared to grab shares of big companies from the discount bin once that happens. For those looking for exposure to the burgeoning cannabis industry, two great jar stocks to consider buying in the next bear market are: Innovative industrial properties (NYSE: IIPR) and Cannabis Trulieve (OTC: TCNNF). Let’s see why both companies deserve your attention if the market plunges.
1. Innovative industrial properties
Business is booming for Innovative Industrial Properties, a real estate investment trust (REIT) that focuses on the medical cannabis industry. Because pot companies legally have limited access to banking services (while cannabis remains illegal at the federal level), many of these companies have turned to REITs like Innovative Industrial Properties to raise cash and house their products.
The business model is simple but effective: Innovative Industrial Properties acquires real estate assets from companies in the medical marijuana industry, then leases those properties under long-term agreements, allowing pot growers to free up cash. indispensable.
The results were impressive, and the company’s latest quarterly update – for its second quarter ending March 31 – was further proof of concept. The REIT reported total revenue of $ 42.9 million, which was up 103% from the first quarter of 2020. The company’s net profit of $ 25.6 million jumped 121. 9% year over year. Meanwhile, the cannabis industry continues to gain momentum in the United States
In the November 2020 election, several states voted to legalize the medical or recreational use of the substance by adults. These include Arizona, South Dakota, New Jersey, Mississippi, and Montana. And since then, recreational cannabis has also been legalized for adults in New York City, which has automatically become the second largest state market (after California). Innovative Industrial Properties operates in 18 states and owns 69 properties with an average lease term of 16.7 years. Medical cannabis is legal in 36 states and the District of Columbia, giving Innovative Industrial Properties plenty of room to grow.
There are concerns that if a change in legal circumstances in the United States makes it easier for cannabis companies to access capital through banking services, it could seriously harm the business of Innovative Industrial Properties. While many cannabis companies would turn to banking if they could, there is good reason to believe that innovative industrial properties would remain popular even in the midst of these developments.
It is not because potty growers can get loans from banks and thus get into more debt. While the cash flow associated with taking out loans can provide a level of financial flexibility for businesses, in the long run, leverage – and particularly large debt – can have significant drawbacks, including high interest rates.
For cannabis companies, doing business with Innovative Industrial Properties gives them access to cash while avoiding many of the drawbacks of debt. The growth of the cannabis industry will continue to benefit the REIT and, in the long run, the shareholders of the company should be greatly rewarded, just as they have been in recent years.
2. Trulieve Cannabis
Thanks to a dominant presence in Florida, Trulieve Cannabis regularly records good financial performances. The company more or less delivered during the first quarter. Trulieve Cannabis reported sales of $ 193.8 million, 102% higher than the first quarter of 2020. The pot grower’s net profit of $ 30.1 million was 27% higher than the last year.
Unlike most other pot growers, Trulieve Cannabis is used to seeing green in the bottom line, and investors shouldn’t be concerned that it was below analyst expectations on that front this. this time. Instead, let’s focus on the outlook for the business. Perhaps the biggest recent news for Trulieve Cannabis is its planned acquisition from Arizona. Harvest health and recreation in a deal valued at $ 2.1 billion.
The deal will help Trulieve Cannabis gain a stronger presence outside of the Sunshine State (and specifically Arizona), which should help drive revenue and profits. This acquisition, according to Trulieve, will create “the most profitable multi-state operator in the world’s largest cannabis market.” The combined entity will be present in 11 states and operate 126 clinics.
It will be a market leader in at least two states – Florida and Arizona – and as the cannabis industry continues to grow, the new Trulieve will undoubtedly be one of the biggest beneficiaries, thanks to its already strong roots across the United States. Personally, I was a fan of Trulieve Cannabis even before this planned acquisition. This deal makes the marijuana company even more attractive, especially if its shares fall in a bear market.
This article represents the opinion of the writer, who may disagree with the âofficialâ recommendation position of a premium Motley Fool consulting service. We are motley! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.