Get Paid To Wait In Cannabis

August 7, 2023 · Green Market Report

It’s an old Wall Street strategy on dividends – getting paid to wait. In cannabis stocks, this could be the way to go since valuations have been terribly slow to recover. Year-to-date cannabis stock performance has lagged other sectors. The AdvisorShares Pure US Cannabis ETF (MSOS) is down 23% year-to-date and has tumbled 52% for the past year. The Global X Cannabis ETF (POTX) has also slid 36% year-to-date and  60% for the past year.

Compare that to the iShares Russell 3000 which is up 17% year-to-date 8% for the past year. Even the AdvisorShares Vice ETF is up 6% year-to-date and for the past year. All performance figures are taken from Yahoo Finance.

So, if you genuinely believe in the cannabis sector, it might make sense to put your money where you may get something back as you wait for the buzz to return to cannabis investing. 

Here are four cannabis stocks that pay quarterly dividends:

AFC Gamma

AFC Gamma (NASDAQ: AFCG) (is an institutional lender that originates, structures, and underwrites senior secured loans and other types of financing to operators in states that have legalized medicinal and/or adult-use cannabis. The company has announced it will report its earnings on Tuesday, August 8. In June, AFC Gamma declared a quarterly dividend for the quarter ending June 30, 2023, of $0.48 per outstanding share of common stock. At the time, the company said that it believes the June quarterly dividend represents a sustainable dividend level on the current portfolio, assuming no significant non-accruals and without any additional investments. 

AFC Gamma noted in June that deploying capital in traditional real estate was still proving challenging in this environment given the bid-ask spread between buyers and sellers, and higher interest costs that have made certain construction projects uneconomical. The company said in June, “Given the noticeable pullback by regional banks from the commercial real estate market, we are seeing quality deal flow, yet believe there is a longer time frame to deploy capital, which may lead to additional cash drag.” Still, it is committed to paying dividends between 85% and 100% of ordinary income for each calendar year.

Altria

Altria (NYSE: MO) owns a 41% stake in Cronos Group (NASDAQ: CRON), so while it isn’t a pure-play cannabis dividend, it’s pretty close. The company’s CFO Sal Mancusco recently wrote to shareholders, “We have increased our dividend for more than half a century, with 57 increases over the past 53 years. Since the end of 2018, our annualized dividend per share has grown from $3.20 to $3.762, a compounded annual growth rate of 4.1%.” Cronos revenue has fallen and there have been rumors of a sale – most recently involving Curaleaf. 

Innovative Industrial Properties

As a REIT (real estate investment trust), Innovative Industrial Properties (NYSE: IIPR) just reported its earnings last week. The cannabis REIT delivered total revenues of approximately $76.5 million in the quarter, representing an 8% increase from the prior year’s quarter. IIP reported that rent collection for its operating portfolio was 97% for the quarter. That financial performance continues to drive dividend returns to investors with $7.20 of dividends declared per share in the past 12 months alone, an increase of 11% over the prior 12-month period. The company said the dividend remained covered by its AFFO (adjusted funds from operations) during the quarter with a payout ratio of 80%, which is in line with the board’s targeted payout ratio of 75% to 85% of AFFO. 

Turning Point Brands

Turning Point Brands (NYSE: TPB), the owner of ZigZag papers actually pays a dividend – it isn’t huge, but a dividend nonetheless. Last week, the company declared a regular quarterly dividend of $0.065 per common share. The dividend is payable on October 6, 2023, to shareholders of record on the close of business on September 15, 2023. Simply Wall Street wrote, “Since 2017, the dividend has gone from $0.16 total annually to $0.26. This implies that the company grew its distributions at a yearly rate of about 8.4% over that duration.” 

Unlike other cannabis companies, Turning Point’s return has rivaled that of the S&P 500. Its year-to-date return was 17% vs. the S&P’s 16%. Last week Green Market Report wrote that the company saw better-than-expected second-quarter financial results buoyed by rising legal consumption as more state markets opened. “The company reported a 2.6% year-over-year increase in total consolidated net sales, bringing in $105.6 million in revenue, up from the same period in 2022. That eked past Yahoo analyst average estimate of $104.22 million. Net income saw a nice surge, increasing by 83% year-over-year to $9.9 million. Adjusted net income also saw a rise of 8.4% to reach $15.3 million.”

Scotts

Scotts Miracle-Gro (NYSE: SMG)  isn’t a pure play name for cannabis, but it does have a large hydroponics division called Hawthorne. Last week, Scott’s announced it would make a payment of a cash dividend of $0.66 per share. Despite facing a sales slump, the company has healthy cash flows so the dividend is safe.  Simply Wall Street wrote, “The dividend has gone from an annual total of $1.30 in 2013 to the most recent total annual payment of $2.64. This implies that the company grew its distributions at a yearly rate of about 7.3% over that duration.”

In Closing

It’s been an extended bear market for cannabis stocks as legislative hopes grow and fade on a regular basis. Many markets remain challenged as consolidation continues. Since the group tends to trade lockstep, earning a little payola along the way might be worth considering. (Full Story)

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