Over the past year, pot stock investors have taken a shine to ancillary cannabis stocks – those that don’t deal directly with the plant. After witnessing the success of companies like GrowGeneration and Innovative Industrial Properties, it is now the turn of AFC Gamma (NASDAQ: AFCG) to make an attempt to replicate the success of its predecessors. We’d like to alert you of this IPO as this pot stock just gained 20%.
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AFC stands for “Advanced Flower Capital” and the company is in the business of lending money to “high-quality cannabis companies nationwide in all aspects of production: cultivation, processing, and distribution.”
AFC Gamma specializes in real estate financing for the pot industry. It operates in both the recreational as well as medical marijuana space. The company has established itself as a REIT (real estate investment trust). AFCG launched an IPO last week and listed on the bourses on Friday, March 19, 2021. AFC Gamma’s issue price was $19 a share. It closed day one at $23, an increase of 21% from its issue price.
The company raised close to $119 million through the 6.25 million shares of common stock it floated in its public issue. AFC Gamma said it will use the IPO proceeds to retire debt, fund lending activities, and “for working capital and other general corporate purposes”. But why did this pot stock just gain 20%?
Increasing Interest in Ancillary Pot Stocks
Ancillary pot stocks like AFC Gamma are great bets for investors who are not confident of putting money directly into companies dealing directly with cannabis. A pure-play marijuana stock comes with too much volatility and it’s difficult to determine which company will stand the test of time.
However, 2020 has proved that ancillary stocks are good places to invest in right now. Take a look at GrowGeneration (GRWG). The company operates in the hydroponic and organic gardening stores in the US. It manufactures and distributes everything – fans, filters, humidifiers, nutrients – that a cannabis business needs. The stock rose 228% from $16.7 on October 1, 2020, to $54.78 on Friday.
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If you had taken cannin’s “strong buy” recommendation for GRWG in April, 2020 – you’d be up OVER 1,350% right now.
Innovative Industrial Properties (IIPR) is the other ancillary stock that has seen tremendous growth since October 2020. The company is in the business of buying real estate from marijuana companies and then leasing it back to them. The stock was trading at $125.13 on October 1. It is trading at $178.24 today. This is another cannin.com recommendation topping out at over 1000%.
A primary reason for the fast growth of ancillary stocks is that they aren’t burdened by factors like 280E taxation or difficulty in listing on higher exchanges. They also don’t have restrictions on selling in different states. Essentially, providing ancillary services to pot companies is a lot like selling shovels or blue jeans to prospectors during the Gold Rush. The prospectors would or wouldn’t get lucky and strike gold. But the business selling the shovels and blue jeans always made a ton of money.
IPO Alert: Perfect Timing for AFC Gamma
AFC Gamma is entering a lucrative space with few competitors. Many banks are hesitant to lend to pot businesses. This is because marijuana is still not legalized at the federal level. Congressman Ed Perlmutter recently introduced a Marijuana & Banking Bill for The Third Time. In a Yahoo Finance video, he said, “Everyone knows this is a serious issue that Congress needs to address. 47 states, four US territories, and the District of Columbia have legalized some form of recreational or medical marijuana, including CBD.”
A 2021 Leafly report echoed this by stating: “because cannabis remains federally illegal, government grants and bank loans are not available. As a result, personal savings, family wealth, and second mortgages are the most common sources of start-up capital in the cannabis industry.”
At a time when multiple states are legalizing marijuana, not having access to capital hurts company plans for expansion and diversification. This means AFC Gamma is one of the early movers in the financing space for the cannabis industry and it is not tough to see why the IPO was well received. This is why we are issuing an IPO alert for this pot stock that just gained 20%.
IPO Alert: This Pot Stock Just Gained 20%
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