The way things look on Capitol Hill, it will be years before the Federal Government legalizes cannabis, but it may not matter. Recent comments from the US Secretary for the Department of Health and Human Services (HHS), Xavier Becerra, suggest that marijuana could be rescheduled or de-scheduled as early as this year. He asserts that the Federal review of marijuana’s Class 1 scheduling will be complete.
At that time, the plant could remain where it is and be completely illegal, or there could be change. Rescheduling the drug could open the door to Federally-approved medical or recreational use, while de-scheduling could make the legality issue moot. If it isn’t a controlled substance, there won’t be much reason to control it other than how recreational compounds such as alcohol are handled.
The takeaway is that the US cannabis industry could be on the verge of flowering. Federal acceptance would open the door to a national standard of operations that would benefit the entire industry. Jurisdictions like California are facing a cannabis industry meltdown as oversupply hurts prices and over-taxation hinders business.
Curaleaf: #1 In The US By Market Cap
Curaleaf (OTCMKTS: CURLF) is the leading cannabis company in the US by market cap. This vertically integrated multi-state operator has business in 19 states, including 22 cultivation sites, 152 retail outlets, and over 900 wholesale customers. The company has sustained growth despite exiting states such as California, where low wholesale prices and high taxes are causing businesses to shut down. The latest quarterly results were mixed but continue to show the company’s differentiated strategy is helping to maintain its leadership position. Among the drivers of shareholder value that are in sight are the company’s balance sheet and pathway to profitability.
The balance sheet carries debt; the salient point is that cash is sufficient to sustain operations, and there are levers to profitability coming into play. Among those is a reduction in CAPEX. CAPEX is expected to all by 50% in the coming quarters because the footprint is largely built out.
Innovative Industrial Properties Pays A Dividend
Innovative Industrial Properties (NYSE: IIPR) is a small but rapidly growing company cashing in on the cannabis business. It is not a grower or retailer but a REIT consolidating the industry using sale-leasebacks. The company is a triple-net REIT that buys and leases-back cannabis properties to the original owner. The company owns 110 properties in 19 states, mostly cultivation or manufacturing sites, with a few retail locations.
Innovative Industrial Properties strategy benefits all parties because cannabis companies can unlock the value of their real estate, IIPR is in business, and IIPR shareholders earn a dividend from a profitless industry. IIPR yields about 8.75%, with shares trading near $81, which is a relatively reliable payment. The company has long-term leases with its clients and clear visibility to cash flow.
Verano Holdings: A Top Multi-State Operator
Verano Holdings (OTCMKTS: VRNOF) is another integrated multi-state operator, although not quite as large as Curaleaf. Verano Holdings is active in 13 markets and has licenses in 14. The company recently expanded to 132 retail locations boasting a superior experience; its signature strains are among the highest ranked by consumers.
The company utilizes a data-driven strategy to manage its brands and SKUs, so new products typically command a high share of total revenue. The stock hit bottom in early 2023 and has been trending sideways ever since.