MMost cannabis companies have seen their stocks fall so far this year as falling profits, a slowing pace of legalization and expectations have spooked investors. The AdvisorShares Pure Cannabis ETF is down more than 49% this year, while ETFMG Alternative Harvest ETF fell more than 39%.
NewLake Capital Partners (OTC: NLCP), Cannacord Genuity Group (OTC: CCORF) and Trulieve Cannabis (OTC: TCNNF) have not been immune to investor concerns, and their stocks have also fallen, although all three are financially strong enough to last until the cannabis investment cycle swings back in their favor.
NewLake is small but growing fast
NewLake Capital Partners is the newcomer to the cannabis real estate investment trust (REIT) bloc. It just had its IPO last August, and its $455 million market cap is dwarfed by the $3.82 billion market cap of Innovative industrial properties, its main competitor. Both REITs specialize in sale-leasebacks to cannabis companies, where they provide capital to cannabis operators by buying cultivation and retail properties and then leasing them to cannabis companies with triple leases that place most of the maintenance costs on tenants.
In the first quarter, NewLake reported revenue of $10.2 million, up 13% sequentially. Net income was $5 million, compared to $4.3 million in the prior quarter. More importantly, the company continues to grow funds from operations (FFO) and said in the first quarter it had $7.7 million in FFO, up 16.2% sequentially. Adjusted FFO (AFFO) was $8.1 million, up 15.7% from the fourth quarter of 2021.
NewLake said it expects annual revenue of between $42 million and $44 million, up from $28.2 million reported in 2021. The company has 29 properties that are 100% leased and whose average lease term is 14.3 years.
NewLake’s stock is down more than 28% so far this year, but its fundamentals are strong enough that it makes sense to buy the stock while it’s discounted, especially because the company has just increased its dividend by 29% to $0.33 per share quarterly. , offering a yield of approximately 6.44%. The dividend looks safe as the company has a target of 80% to 90% of the AFFO payout ratio, considered safe for a REIT.
Cannacord Genuity is Crucial for Cannabis Businesses
Cannacord Genuity is a global investment bank that provides wealth management, brokerage and investment services to individuals, institutions and businesses. It is not a pure cannabis stock, but it frequently represents mergers and acquisitions (M&A) in cannabis.
Cannacord has had five consecutive years of increased revenue and three consecutive years of increased net profit. However, it fell in the first quarter, with $491 million in revenue, down 29.1% year over year, and $0.52 in earnings per share, down 56.7% compared to the same period last year. The drop has caused the stock to drop more than 28% this year.
It may seem counter-intuitive, but I think now is the right time to buy stocks for several reasons. It has a price-to-earnings ratio of around 4.95, well below what it should be given the stability of the business.
Mergers and acquisitions in the cannabis industry are also not expected to slow down. More profitable and better-funded companies are consolidating their licenses by buying up struggling cannabis companies. According to a study by Cannabiz Media, of the 137 cannabis M&A deals it found over the past two years, Cannacord was in the lead with 22 deals and was in the lead in representing sellers and buyers.
Even though cannabis company mergers have slowed, that’s only a small part of Cannacord’s business. It is one of the most profitable wealth management companies in Canada, with an operating margin (over 12 months) of 20.39% and a low leverage ratio of 0.095.
Cannacord also offers something most cannabis companies don’t: a quarterly dividend. It has increased its dividend by 22% this year to $0.085 per share, representing a yield of 3.2%, with a very safe cash payout ratio of 12.88%.
Trulieve will be a cannabis survivor
Trulieve, based primarily in Florida but with dispensaries in 11 states in Q1, leads all other cannabis retailers in revenue. The company reported first-quarter revenue of $318.3 million, more than $5 million higher than curafeuillethe second largest company in the revenue ranking.
Despite its size, Trulieve continues to show steady growth. Its quarterly revenue increased 64% year over year and 4% sequentially. It also improved gross margin to 56%, from 43.4% in the fourth quarter of 2021.
The only concern about Trulieve is that as it has grown through acquisitions and the opening of new retail dispensaries at 165 stores, it has gone from a profitable business to a business. who loses money. In the first quarter, it posted a net loss of $32 million, up 55% from the previous quarter, but down from the $30 million in net profit it reported in the first quarter of 2021. Much of that can be attributed to the $17.2 million in charges associated with its purchase of Harvest Health & Recreation last year.
This decline in net income is a major reason the stock has fallen more than 46% so far this year. This does, however, provide a better entry point for investors, as Trulieve is as prepared as any cannabis company to remain a major player in the industry. Last month, company insiders bought 31,650 shares of Trulieve, taking advantage of the bargain price, for now.
Looking at its adjusted EBITDA of $105.5 million, an improvement from $100.9 million in the fourth quarter, the company appears to be making progress in returning to profitability.
Trulieve also reiterated its guidance for 2022 with expected revenue between $1.3 billion and $1.4 billion and adjusted EBITDA between $450 million and $500 million. This compares to revenues of $938.4 million and adjusted EBITDA of $384.6 million last year.
Don’t wait too long
These three cannabis companies are too healthy to watch their stocks wallow for long. Trulieve, once it absorbs its acquisition of Harvest, will likely see its margins increase, bringing it back to profitability. NewLake Capital Partners is just beginning its trail, so I see a lot of opportunities there. Cannacord has enough geographic and revenue diversity to rebound quickly. These last two stocks also offer a dividend to reward long-term investors.
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Jim Halley holds positions in innovative industrial properties. The Motley Fool holds positions and recommends Innovative Industrial Properties and Trulieve Cannabis Corp. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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