The countrywide legalization of Cannabis sales on October 17 by Canada has set off a modern gold rush by investors. Since pot is still illegal by Federal law in the U.S. the handful of Canadian cannabis companies that trade over-the-counter in the U.S. and have been bid up to astronomical values.
The belief is that legalization will spread to other countries, and that there is a huge market for cannabis for both therapeutic and recreational uses.
At this point the 10 largest publicly traded Canadian pot companies have a combined market cap over $40 billion. They operate in a market that is forecast to have global sale of $11 billion this year. That’s a lot of hope for the future!
I think that cannabis will be a growth product, but not at the pace envisioned by the investors currently scooping up the Canadian pot stocks. These stocks are in balloon race sized bubble territory and I suspect will eventually come back to earth, with many failings to survive as going entities. I don’t like playing craps with my investment dollars. I live in Nevada, so I can get better odds plus free drinks at the local casino.
Related: Buy These 3 Stocks to Profit From Marijuana Legalization
From 8 Things You May Not Know About the California Gold Rush by the History Channel, we can learn an applicable lesson from numbers six and seven:
- Prospecting for gold was a very costly enterprise. I apply this to investors trying to pick winners vs. losers from the new crop of pot producing companies.
- More fortunes were made by merchants than by miners. More reliable revenue, growth and profits will likely come from companies that provide the necessary infrastructure and supplies to the pot industry.
With these lessons in mind here are two stocks that should experience growth from the pot boom, and be solid dividend paying companies. I am after all, the Dividend Hunter.
It is very possible that you are familiar with The Scotts Miracle-Gro Company (NYSE: SMG). Scotts is the world’s largest marketer of branded consumer lawn and garden products. In the case of the pot market, the company offers the necessary solutions to enhance the abilities of a marijuana business to produce product.
Scott’s Hawthorne division focuses on products for hydroponic and cannabis businesses. Last year the division had 55% of its sales to California pot growers. As cannabis is legalized in more states, so Hawthorne’s market should grow.
While you wait for pot to become the “next big thing” by actually becoming big business, SMG is an attractive dividend stock.
The payout is growing by 5% per year and the shares yield 3.0%.
Innovative Industries Properties (NYSE: IIPR) is a REIT that calls itself “The Leading Provider of Real Estate Capital for the Medical-Use Cannabis Industry.”
The company owns a portfolio of specialized industrial and greenhouse buildings, 100% leased to state-licensed medical-use cannabis growers.
IIPR came to market with a December 2012 IPO. This is a real business with real assets generating real revenue and profits. Results have been very good, and the quarterly dividend has grown from $0.15 per share to start 2017 to $0.35 per share for the dividend paid this month.
The stock currently yields 3.25%.