4 Top Ancillary Cannabis & Hemp Stocks for 2020
Most investors are now aware that cannabis is one of the fastest-growing industries globally and growth investors are warming up to the idea of placing their bets on pot stocks after witnessing their stupendous performance in the first half of the last decade. According to Grand View Research, the global cannabis market will expand to $66.3 billion by 2025, at a CAGR of 23.9%. As the cannabis industry continues to explode, you’re probably wondering – what are the 4 top ancillary cannabis & hemp stocks for 2020?
Ancillary pot companies offer a winning combination
Most publicly-traded pot stocks operate either as a cultivator, distributor, medical marijuana manufacturer, and/or retailer. However, for a new investor, it can get a bit overwhelming to understand the intricacies of the cannabis industry and the various investment options.
To add to it, most of the pure-play cannabis companies are facing substantial volatility in the stock markets – especially amid COVID-19. Many cannabis stocks also suffer from regulatory issues and other industry-related concerns such as supply chain bottlenecks and a thriving black market.
Thus, the risk of investing in core cannabis stocks may deter many from investing in the cannabis industry. Such investors can still reap the benefits of the cannabis sector through investing in ancillary cannabis companies.
Ancillary cannabis companies are those which aren’t directly related to the handling of cannabis products but provide essential services to them. These include real estate or agricultural support such as optimization of soil yield, as well as packaging. Some ancillary companies also offer branding solutions to cannabis companies.
For risk-averse investors, ancillary cannabis companies are the most preferred way to invest in cannabis and hemp stocks These companies aren’t as exposed to market fluctuations as the pure-play pot companies. So, what are the 4 top ancillary cannabis & hemp stocks for 2020?
A leading agri-tech player, GrowGeneration Corp. (NASDAQ: GRWG) has been one of the largest hydroponic suppliers in the U.S. since 2014. It provides cannabis companies with much-needed lighting technology, ventilation, pest control, and soil enhancement supplies.
The company also provides climate control systems, greenhouse infrastructure, and necessary nutrients for the growth of cannabis. It has operations across 28 centers and nine states in the U.S.
GrowGeneration has been posting consistent revenue growth for the past ten quarters. In Q2 of fiscal 2020, GrowGeneration’s revenue surged 123% year-on-year to $43.5 million. The company’s adjusted EBITDA at $4.6 million also expanded more than twice the level since the same period in the last year.
It also posted a staggering 75% growth in its earnings per share in the second quarter. In terms of the balance sheet, the company has $59.3 million in cash at the end of Q2. The growth in its earnings and a comfortable cash position will help GrowGeneration finance its existing debt obligations and focus on acquisitions.
GrowGeneration is optimistic about its operations and expects its revenue and adjusted EBITDA growth to continue until 2021. The company also intends to fuel its revenue growth through strategic acquisitions.
Because of this, we believe GrowGeneration is one of the 4 top ancillary cannabis & hemp stocks for 2020.
KushCo Holdings (OTCMKTS: KSHB) is a packaging and branding company that caters to the cannabis sector. Kush Co assists cannabis cultivators to understand the regulatory complications with regards to the packaging of CBD products.
In addition, it offers services in the product designing, branding, and marketing of the end products. Some of its brands include Kush Energy, Kush Supply, Koleto Packaging Solutions, and The Hybrid Creative.
There is a lot of growing demand for external packaging companies as most cannabis cultivators aren’t equipped to handle this operational aspect.
The company is gaining momentum in terms of its financial standing. According to Kush Co.’s preliminary fourth-quarter results, the company expects a 14% to 17% sequential rise in its revenue.
It also expects its adjusted EBITDA for the quarter to exceed its guidance. According to Nick Kovacevich, the company’s Co-founder, Chairman, and Chief Executive Officer, “Fiscal Q4 2020 was arguably the most pivotal quarter in KushCo’s entire 10-year history, as we returned to growth, executed on our strategic plan, and achieved our first quarter of positive adjusted EBITDA in more than three years.”
Because of this, we believe KushCo is certainly one of the 4 top ancillary cannabis & hemp stocks for 2020 – plus its currently trading at well-below its price target.
Scotts Miracle-Gro (NYSE: SMG) is a leading US company that produces and sells innovative resources for lawns, gardens, and pest-control. Scotts Miracle offers indoor hydroponic services and operates under the brands Miracle-Gro, Scotts, and Ortho.
Its hydroponic products saw a 60% annual growth in revenue in the first nine months of this fiscal year. Scotts Miracle posted growth in its overall sales for the nine-month period. Notably, the agri-resource provider is also upbeat about its full fiscal year performance.
It expects a 30% rise in its revenue and a 62% growth in its earnings for fiscal 2020. Its adjusted EBITDA for fiscal 2020 is expected to reach $700 million. Further, it raised its quarterly dividend by 7% with a consistent history of dividends.
The company’s unique offerings in the industry and strong financial position make it a high-growth, low-risk investment proposition so we believe it belongs on the list of the 4 top ancillary cannabis & hemp stocks for 2020.
Innovative Industrial Properties
One of the best ways to avoid the fluctuations of the market is to steer clear of core CBD players and opt for more stable cash flows. In this case, a real estate investment company in the cannabis space, Innovative Industrial Properties (NASDAQ: IIPR) may be your ideal pick.
IIPR is a real estate investment trust or REIT that acquires land and properties and leases it specifically to cannabis companies. These leases are typically for fifteen years and ensure predictable cash flows.
The company grows through the inorganic route and has been acquiring many companies in the past two years. Its latest purchase has been property located in Lakeland, Florida. IIPR has its focus on medical cannabis operators because of its immense growth prospects.
Its stable cash flows and focus on acquisitions will also provide IIPR room to increase dividend payouts over time. As Cannin.com analysts predicted, this stock has more than tripled in value since March of 2020. We believe that this is certainly one of the 4 top ancillary cannabis & hemp stocks to invest in during 2020.
Ancillary Cannabis & Hemp Stocks: Bottom line
Ancillary cannabis companies are perfect for those who wish to tap the growth of the cannabis industry but aren’t prepared for the inherent volatility associated with most cannabis and hemp stocks. Most of them are also profitable unlike the usual pot producers and offer a consistent dividend, which can help generate a stable source of passive income. Speaking of passive income, you should check out our predictive stock trading algorithm. We predict price movements of cannabis & hemp stocks 12 hours in advance with our machine learning algorithms. Get your free month now.
4 Top Ancillary Cannabis & Hemp Stocks for 2020
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