Sentiment for the cannabis sector has yet to rebound from its last peak in late 2020/early 2021, but that doesn’t mean you need to skip out on 420 stocks. Even Forbes recently argued that full U.S. legalization of marijuana remains (at least) a decade away.
Why? For one, although political leaders still appear unwilling to approve a sweeping overhaul of federal cannabis laws (despite most Democrats and Republicans supporting such a move), the legalization wave continues on the state level in the U.S.
Every day, investors can invest in companies exposed to this, albeit through stocks listed in the over-the-counter (or OTC) market. That said, there are a few stocks trading on major exchanges with strong exposure to state-level legalization, such as real estate investment trusts (or REITs) catering to the sector.
Alongside this, there is also a Canada-based cannabis company that, while its entry into the American pot market remains on hold, may have a game-changing catalyst on tap.
With this, let’s take a look at seven of the best 420 stocks to buy. For each one, a blaze of popularity may be just around the corner.
Innovative Industrial Properties (IIPR)
Innovative Industrial Properties (NYSE:IIPR) is the leading publicly-traded REIT that leases real estate to state-licensed marijuana growers. In the past, this has made it one of the more popular cannabis stocks among investors wanting growth exposure, value, and yield.
That said, not even profitability and a steady dividend were enough to prevent IIPR stock from crashing in 2022 and early 2023. During this time, the REIT tumbled from around $240 per share to as low as $63.36 per share. As I discussed back in May, this was primarily due to concerns that declining rent collection rates meant IIPR’s dividend was under threat.
More recently, though, quarterly results have helped to shift sentiment for IIPR back toward bullish. With shares offering a high yield (8.75%) and results signaling greater stability than previously expected, now may be the time to buy.
Cannara Biotech (LOVFF)
There’s a good chance Cannara Biotech (OTCMKTS:LOVFF) is one of the 420 stocks you’ve never heard of before. This is not only because shares in this Canadian licensed cannabis producer trade in the OTC market.
Even when compared to other OTC-traded cannabis plays, LOVFF stock is under-the-radar. However, this lack of high investor awareness may work in your favor. In contrast to many high-profile marijuana stocks, Cannara is profitable and trades at what is arguably a reasonable multiple (22.1) of these earnings.
Before you think this reasonable valuation means that the market expects earnings to soon fall off a cliff, think otherwise. The company recently reported a robust quarter, with revenue up 58.4% and earnings of around 2 cents per share, which is relatively high given this stock trades for just 80 cents per share. For the valuation-conscious, LOVFF is worth considering.
MariMed (MRMD)
MariMed (OTCMKTS:MRMD) is a name I’ve been bullish on in past articles on both marijuana stocks, as well as on penny stocks. Valuation is a big reason for this.
Currently, MRMD stock trades 17.6 times trailing twelve-month earnings. Yes, profitability has declined more recently after a strong year in 2022. As seen with MRMD’s more than 30% drop in price over the past month (following the company’s latest earnings report), it seems even those following the stock are abandoning it. So, why go bottom-fishing today in MariMed?
This post-earnings sell-off came despite promising commentary from CEO Jon Levine in the earnings release. Namely, there is great potential with the legalization of recreational marijuana sales in the U.S. state of Maryland, leading to stronger results ahead for the company. As I’ve noted before, MariMed may be an appealing takeover target for another state-level producer as well.
Planet 13 Holdings (PLNHF)
Planet 13 Holdings (OTCMKTS:PLNHF) is one of the state-level producers of 420 stocks but with a twist. Although the company produces a variety of branded cannabis and cannabis-infused products, its main focus is on operating large, destination-style dispensaries.
For instance, in Las Vegas where (as Investorplace’s Muslim Farooque detailed last month), Planet 13 accounts for a fair amount of Nevada’s overall cannabis sales. Still, with recent financials showing declining revenue and continued net losses, you may still think this is an overhyped pot stock worth avoiding.
However, I wouldn’t jump to that conclusion with PLNHF stock. With the company expanding its superstore presence into large U.S. states like California and Illinois, a growth resurgence and progress toward profitability may lie ahead. With shares near their 52-week low, instead of skipping out on PLNHF, buying could be the better move ahead of the stock coming back into favor.
POSaBIT Systems (POSAF)
POSaBIT Systems (OTCMKTS:POSAF) is unique among pot stocks in that the continued delay of changes in U.S. federal marijuana laws works in this company’s favor. Why? As you may know, POSaBIT provides payment solutions to the retail cannabis industry.
As I’ve pointed out, the legal gray area surrounding this industry continues to keep mainstream payment processors away. This, in turn, gives small fintech POSaBIT the edge against established companies in the payments space. Over the past year, continued growth has enabled the company to reach profitability.
At current prices, POSAF stock trades for only 14.2 times earnings. As recreational pot sales continue to become legalized on the state level, the company may have the ability to continue experiencing steady revenue and earnings growth. If it becomes more clear growth isn’t slowing down, shares could even move up to a higher earnings multiple.
Medicine Man Technologies (SHWZ)
Nearing halving in price since January, it’s been a tough year for Medicine Man Technologies (OTCMKTS:SHWZ) stock. Shares in this state-licensed producer (operating in Colorado and New Mexico) experienced their last big sharp decline recently, following the release of Medicine Man’s Q2 2023 results.
A post-earnings price decline for SHWZ stock makes some sense. For the quarter, both revenue and adjusted EBITDA declined and reported operating income fell substantially (from $9 million to $4.9 million) year-over-year. Still, this recent earnings report may not be a reason to make this one of the 420 stocks to avoid/sell.
As a Seeking Alpha commentator argued in July, while it may take time, Medicine Man may have a recovery path. With some time on its side (thanks to the cash runway), the company could successfully continue to scale up operations, enabling it to materially improve its fiscal results.
Tilray Brands (TLRY)
The situation with Tilray Brands (NASDAQ:TLRY) has become quite interesting. That is, TLRY may now be one of the cannabis stocks to buy, but perhaps due to a catalyst that has little to do with marijuana itself.
How so? Last week, news broke that the Canada-based cannabis purveyor was acquiring eight craft beer and beverage brands from Anheuser-Busch InBev (NYSE:BUD). So far, this major announcement has had a mixed impact on TLRY stock. At first, shares spiked on the news. In more recent trading days, the stock has leveled off yet remains up when compared to pre-announcement prices.
Tilray has stated this deal will increase annual beverage revenue to $300 million. Tilray’s management has also stated that this deal will be accretive to EBITDA. While taking an alternative route to get there, if this deal truly improves the company’s financial performance, higher prices are likely for TLRY stock.
On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.