The 7 Most Undervalued Cannabis Stocks to Buy in May 2024
Cannabis may be one of the most controversial investing topics. But, it’s also turning out to be one of the most profitable. Look at Canopy Growth (NASDAQ:CGC), for example. Since bottoming out at around $2.77 in March, it hit a high of $14.92. Now at $9.86, it could race even higher. All thanks to substantial catalysts that could send undervalued cannabis stocks to higher highs.
For one, according to a recent Pew Research poll, 88% of Americans want to see legalization. Two, more U.S. states could legalize it. Three, the Drug Enforcement Agency just said it would reschedule cannabis as a less severe drug.
Four, as we near the presidential election in November, we could hear more about the potential for federal legalization given its popularity among 88% of Americans. In addition, Germany just legalized its use, which could set off a domino effect of legalization throughout Europe.
We could go on, but you get the point. Cannabis stocks are hot and could see higher highs. Here are seven undervalued cannabis stocks you may want to consider buying today, with some paying dividends.
Innovative Industrial Properties (IIPR)
The last time I mentioned Innovative Industrial Properties (NYSE:IIPR), it traded at around $97 on April 23. After hitting a high of $111.71, it’s pulling back on healthy profit-taking and a revenue miss and is still a strong buy opportunity.
For one, with a yield of 6.95%, the real estate investment trust (REIT) focused on the acquisition, and management of state-licensed cannabis operators, just paid out a dividend of $1.82.
Two, earnings were mixed, but should improve moving forward. First quarter adjusted funds from operations (AFFO), for example, came in at $2.21, which beat by 16 cents. Unfortunately, revenue of $75.5 million, down 0.8% year-over-year (YOY) did miss by $3.01 million. In addition, with cannabis sales set to improve, and interest rates likely to fall, bullish trends could push IIPR higher.
At the moment, the REIT own 108 properties across 19 states with 8.9 million rentable square feet. Also, 95.2% of its portfolio is under a triple-net lease.
AFC Gamma (AFCG)
The last time I mentioned AFC Gamma (NASDAQ:AFCG), it traded at $11.50 on April 15. It would hit a high of $12.66. And while I still like the cannabis REIT – especially for its 15.5% yield – I’d wait for it to pull back first. It’s starting to slip from double-top resistance and could potentially slip back to $11.75 near term.
Earnings were mixed here, too. While EPS of 49 cents beat by six cents, net interest income of $14.76 million – down 12.3% YOY – missed by $1.33 million. However, much like IIPR, with cannabis sales likely to increase and hopeful interest rate cuts on the way, AFCG could push higher, as well.
At the moment, “AFC Gamma targets direct lending and bridge loan opportunities typically ranging from $5 million to $100 million across multiple real estate sectors, with a specialization in loans to state-licensed cannabis operators,” as noted on its site.
NewLake Capital Partners (NLCP)
There’s also NewLake Capital Partners (OTCMKTS:NLCP), which I also mentioned on April 15 as another one of the top undervalued cannabis stocks
At the time, it traded at about $18. Today, it’s up to $20.55 and is also overbought. While I do like the stock for its 8% yield, I’d also wait for it to pull back before buying. It’s another REIT that should benefit from improving sales, and eventual rate cuts from the Federal Reserve.
The REIT, which provides real estate capital to licensed cannabis operators through sale-leaseback transactions and owns a portfolio of 31 properties comprised of 14 cultivation facilities and 17 dispensaries, did post impressive earnings.
In its first quarter, funds from operations came in at 50 cents, which beat by four cents. Revenue of $12.6 million – up 10.5% YOY – beat by $620,000.
Also, Anthony Coniglio, President and CEO, said:
“Our growth in revenue and AFFO year-over-year and sequentially, after deducting one-time adjustments in the fourth quarter, are what drove our second consecutive quarterly dividend increase to $0.41 per share, or $1.64 per share annually.”
He added:
“Looking forward, the cannabis industry has much to be excited about following the proposal to reschedule cannabis from Schedule I to Schedule 3, an increase in meaningful dialogue among congressional leaders, and medical to adult-use conversion in Ohio and the Adult-use ballot in Florida.”
ETFMG Alternative Harvest ETF (MJ)
Or, if you want to safely diversify with top undervalued cannabis stocks at a low price of $4.18, look at the ETFMG Alternative Harvest ETF (NYSEARCA:MJ).
With an expense ratio of 0.75%, the ETF tracks the performance of cannabis companies benefiting from global medicinal and recreational use. While its chart isn’t too attractive at the moment, give it time. With news of rescheduling, state legalization, and the potential for federal legalization, the MJ ETF and its holdings could see higher highs, with patience.
Some of its top holdings include Tilray (NASDAQ:TLRY), Innovative Industrial, SNDL Inc. (NASDAQ:SNDL), Cronos Group (NASDAQ:CRON), Canopy Growth, and AFC Gamma Inc. to name a few of the top ones.
After bottoming out at around $2.60 a share, the MJ ETF is now up to $4.18. From here, if it can break above resistance at $4.83 a share, I’d like to see it retest $6 moving forward.
Advisor Shares Pure US Cannabis ETF (MSOS)
After bottoming out at around $5.13 in November, the Advisor Shares Pure US Cannabis ETF (NYSEARCA:MSOS) ran to a high of $11.37. Now at $9.35, it’s still a strong buy that could double as the cannabis story heats up.
With an expense ratio of 0.60%, the MSOS ETF is the first actively managed U.S.-listed ETF with dedicated cannabis exposure focusing exclusively on U.S. companies, including multi-state operators, as noted on the ETF’s site. Some of its top holdings include Green Thumb Industries (OTCMKTS:GTBIF), Curaleaf Holdings (OTCMKTS:CURLF), Trulieve Cannabis (OTCMKTS:TCNNF), and Cresco Labs (OTCMKTS:CRLBF).
As I usually note, ETFs are a great investment. Not only do they allow you to diversify with dozens of stocks, but they’re also cheaper. You can buy MSOS ETF, for example, for less than $10, while gaining exposure to its 25 holdings.
Curaleaf Holdings (CURLF)
There are also undervalued cannabis stocks like Curaleaf. After bottoming out at around $2.50, it raced to a high of $6.40. Now back to $5.50, the undervalued cannabis stock could also race higher.
For one, the recent legalization in Germany could have a domino effect across Europe, where CURLF has been expanding its footprint. For example, CURLF recently acquired Northern Green Canada, which is one of a few Canadian cultivators with EU-GMP (European Union – Good Manufacturing Process) certification.
In addition, according to the Green Market Report:
“It has consistently supplied high-THC, non-irradiated flower to the German market, which is expected to see exponential growth following the recent removal of cannabis from the narcotics list. NGC is also increasingly supplying Australia and New Zealand, the world’s fastest-growing cannabis markets.”
Two, CURLF is considering a secondary listing in Europe to help “bolster shareholder value,” as noted by Seeking Alpha.
Green Thumb Industries (GTBIF)
We can also look at Green Thumb Industries, an undervalued cannabis consumer packaged goods company and owner of RISE Dispensaries trading at just $12.81.
Since bottoming out at around $6.42 in August, GTBIF raced to a high of $16.33. Now back to $12.81, it’s still a strong buy. In its most recent quarter, the company’s first quarter revenue of $276 million was up 11% YOY.
“Gross profit for the first quarter 2024 was $144.9 million or 52.5% of revenue compared to $124.7 million or 50.2% of revenue for the first quarter 2023,” they added. “Net income attributable to the Company for the first quarter 2024 was $31.1 million or $0.13 per basic and diluted share, an increase from net income of $9.1 million, or $0.04 per basic and diluted share in the prior year period.”
Analysts at Needham also raised their price target on GTBIF to $17, with a buy rating. All after the company’s impressive first quarter earnings, which beat expectations.
On the date of publication, Ian Cooper did not have (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.
