Cannabis stocks may be some of the most controversial investing ideas. Yet, they could also become some of the most profitable.That reality may happen if cannabis can be rescheduled and federally legalized.
Currently, the drug is considered a dangerous Schedule 1 drug along with LSD and heroin. However, that could soon change. The Department of Health and Human Services is recommending that the Drug Enforcement Administration (DEA) reschedule cannabis. That would make it a Schedule III drug, a lower risk tier, and significantly reduce restrictions.
It’s also seen as a first step toward federal legalization, which is supported by a majority of Americans.
“An overwhelming share of U.S. adults (88%) say either that marijuana should be legal for medical and recreational use by adults,” according to Pew Research,
With further progress, cannabis stocks could become even more profitable.
Afc Gamma Inc (AFCG)Source: gvictoria / Shutterstock.com
First, the cannabis real estate investment trust (REIT) carries a hefty yield of about 14.51%. Second, the company, which offers commercial real estate loans for cannabis farms, has solid earnings growth.
In fact, the company reported second-quarter GAAP net income of $12.1 million, or 59 cents a share, six cents above estimates. The REIT also saw distributable earnings of $9.9 million, which supports dividend payouts. Also, while the company had to reduce its dividend payout, that should change with the potential for legalization.
From a current price of $13.03, I’d like to see the REIT initially test prior resistance at $16.03, and eventually, above $20.
Tilray Inc. (TLRY)Source: Ralf Liebhold / Shutterstock.com
Next, take a look at Tilray (NASDAQ:TLRY), which is showing big signs of life again. After falling to a low of about $1.51, it’s now up to $3.09 after breaking through resistance at $3.08. From here, I’d like to see it initially challenge $5.12. Further down the road, the stock could double from current prices. Maybe.
Of course, further upside also depends on rescheduling and the potential for federal legalization. Earnings are also showing signs of life, with nil EPS, which beat expectations by four cents. Revenue of $184.19 million, up 20.1% year over year (YOY), also beat expectations by $30.23 million.
Even better, for its fiscal year ending May 2024, TLRY expects to see EBITDA of $68 million to $78 million, or 11% to 27% growth YOY. It expects to see positive adjusted free cash flow, as well, according to CEO Irwin Simon in a recent press release.
Finally, we have to consider that its acquisition of beer and beverage brands from Anheuser-Busch (NYSE:BUD) will certainly strengthen the company. Tilray believes the deal will “position the company as the fifth largest craft beer brewer in the U.S. with a 5% market share,” as noted by Seeking Alpha.
Canopy Growth (CGC)Source: T. Schneider / Shutterstock
Left to wither and die since 2021, Canopy Growth (NASDAQ:CGC) is also showing signs of life again at 68 cents.
If we see marijuana rescheduled, and the potential for legalization at the federal level, and if the company can get its act together, it could take off again. In addition, the company just reported net revenue of $109 million, which was YOY growth of 3%.
The company believes it’s “on a path to achieving positive Adjusted EBITDA across all our businesses. The decisive actions we took over the past year are driving significant reduction to ongoing costs across our operations,” said Chief Financial Officer Judy Hong in a company release.
On the date of publication, Ian Cooper did not hold (either directly or indirectly) any positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines
Ian Cooper, a contributor to InvestorPlace.com, has been analyzing stocks and options for web-based advisories since 1999.
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