Why I’m Bullish on This Industry & This Stock Amid Market Panic

Marijuana Industry to Be on the Rise

It doesn’t look like the best-case scenario is panning out for marijuana stocks in the United States.

Of all the Democratic Party presidential candidates, it appears that the least friendly toward pot legalization, Joe Biden, is going to be the party’s nominee. Couple that with the overall stock market downturn and it would appear that the marijuana industry is in trouble.

But appearances can be deceiving. Even though we may not get the perfect political outcome for pot stocks, we are still in a very favorable position to see their prices rise exponentially over the coming years.

In fact, I’d say that this is the most bullish I’ve been about cannabis stocks in a long, long time. With all that’s happened with the stock market lately, it’s impossible to say that marijuana stocks are overvalued anymore.

Whereas before, many skeptics were able to point to massive market caps relative to small available legal markets (pot stocks are valued based on the future size of the global marijuana market, which is going to be worth billions upon billions of dollars), now we’ve seen many cannabis stocks valued at much more competitive prices.

Furthermore, as I’ve pointed out before, marijuana sales may actually go up during the current crisis.

Recently in Toronto, Ontario, Canada (back before all the coronavirus-related states of emergency were put into place), there were massive lines outside marijuana stores. What this elucidates is that, recession or no, people want their weed.

And the historical data supports that finding, at least when it comes to alcohol.

During the financial collapse of 2008, alcohol did not see a dip in sales. Alcohol sales climbed despite the rapid drop in both stock market value and personal wealth in the United States. (Source: “Alcohol sales thrive in hard times,” CNN Money, June 9, 2011.)

“I wouldn’t say it’s recession proof,” said Esther Kwon, an alcohol industry analyst at Standard & Poor’s Financial Services LLC, back in 2011. “People will buy less and they will move to different venues, meaning moving to home instead of a bar. But people will continue to drink, regardless.”

And drink they did in the last recession, with alcoholic beverage sales jumping by more than nine percent in both 2008 and 2010, and by 10% over the 12-month period ended May 31, 2011. That’s despite unemployment rising during those years.

“These numbers grew almost in spite of the recession,” said Sageworks analyst Sam Zippin, pointing out that medical care was the only other sector to maintain growth through the Great Recession. “Other than going to the doctor, [alcohol] is another need to have.” (Source: Ibid.)

What this shows is that vice goods like alcohol and weed  are, if not recession-proof, at the very least recession-resistant. That’s because, if the sky really is falling on their heads, people turn to cheap and easy distractions to keep their minds off of the impending doom.

It should also be noted that marijuana is typically enjoyed in one’s home instead of out in public. With millions of people stuck inside with nothing to do all day (some put the estimate of unemployment due to the coronavirus crisis as high a 20%), it makes sense that many people will turn to relatively cheap distractions like weed to help pass the time.

Marijuana deliveries also make this reality more feasible, as people will not have to leave their homes to get their legal pot.

While storefronts are closed, which may very well hurt sales revenue (we’ll likely see a dip in sales in all industries, not just marijuana), there’s a good chance that we could see a spike in sales following the coronavirus pandemic, even if we’re still stuck in a recession.

A final benefit of the current situation for marijuana stocks is that one industry that’s likely going to be hit is the pot black market.

Having long siphoned billions of dollars in profit away from the legal marijuana industry, the black market really doesn’t have a competent response to the current climate.

While people may trust their black-market dealers to get them quality pot in normal times, they will probably be less trusting during a time when an easily communicable disease is spreading. Legitimate businesses that follow stringent regulations will be considered less risky sources of pot.

That means pot stocks, on the other side of this market panic, may actually see a huge swell of revenue as many people turn to legal marijuana providers for their fix.

IIPR Stock Looks Set to Climb

With the outlook for cannabis stocks being bullish in my view, that makes some of the top marijuana stocks on the market right now that much more exciting.

And it’s hard to find a more exciting marijuana stock than Innovative Industrial Properties Inc (NYSE:IIPR).

Innovative Industrial Properties is a marijuana real estate investment trust (REIT), which means it focuses on investing in properties that can be leased to legal marijuana producers.

This allows Innovative Industrial Properties stock investors to benefit from the massive gains in the marijuana industry without having the same degree of exposure to the drop-offs. IIPR stock gets all the potential, with far less of the volatility.

On top of that, being a marijuana REIT, Innovative Industrial Properties Inc is mandated to distribute 90% of its profit back to shareholders by way of a dividend. That healthy dividend continues to grow and is a solid boon for investors.

Furthermore, Industrial Properties stock is one of the few ways for investors to gain exposure to the U.S. marijuana market. It’s the only marijuana REIT on a major U.S. stock exchange.

And due to the marijuana prohibition at the federal level in the U.S., one of the only ways for investors to gain access to pot stocks that are steeped in the American cannabis industry.

As such, IIPR stock is uniquely suited to both make stellar gains in the present and explode when federal U.S. marijuana legalization eventually arrives.

I view Industrial Properties stock as one of the few cannabis stocks that is both stable—and therefore more resilient during marijuana stock market corrections—and holds immense opportunity, not just for gains, but big gains in a short period.

And, as mentioned earlier, one of the best benefits of having a marijuana REIT in an investment portfolio is that dividend, a number that has been steadily climbing for years now.

Adding in the fact that shares of Innovative Industrial Properties Inc are at bargain prices right now, I see few stocks on the market that are as potential-filled as this one.

The simple reason is that all the marijuana producers, which are going to keep making pot, are going to need places to grow their crops. And if the historical data is indicative of trends and we actually see a growth in legal marijuana sales during the economic downturn, then you have a company that won’t just survive, but will thrive in the coming months and years.

Analyst Take

The marijuana stock market is typically volatile; that’s nothing new to cannabis stock investors.

Sure, we’re seeing a huge amount of volatility in the stock market in general as a result of the coronavirus, but, frankly, for marijuana investors, this is pretty much business as usual.

And just like in every other marijuana stock dip, a rally is coming. Of that there is little doubt. People are not going to stop smoking weed. As explained earlier, they may even do it more, given the current circumstances.

And that bring us to the opportunity: marijuana stocks like Innovative Industrial Properties Inc are uniquely positioned to see big gains in the “coronavirus stock” market and beyond.

Due to a variety of factors, not the least of which being that marijuana is a vice product and is therefore a tougher breed of stock during a recession, the marijuana industry is looking like it will come out the other side stronger than ever.

We’re talking potentially doubling money within a year as IIPR stock recovers and the marijuana industry continues to grow.