The marijuana industry continues to experience a lot of growth. Multiple countries around the world have already moved to legalized recreational marijuana.
In the U.S., 18 states plus the District of Columbia have legalized recreational marijuana already, with many more having legalized medicinal use -- 39 in total. It is likely that more states will follow suit in the coming years, and eventually, there might be federal legalization of marijuana in the U.S.
Investors naturally want to know how they can capitalize on the booming cannabis industry. Here we will discuss 3 stocks that provide exposure to the cannabis industry, but also pay hefty dividends to shareholders.
Altria (MO) is a consumer staples giant. It sells cigarettes, chewing tobacco, cigars and e-cigarettes under the Marlboro brand. The company has also tried to diversify away from its flagship tobacco products. Its investments include a 45% stake in marijuana company Cronos Group (CRON) . Additionally Altria has an option to acquire another 10% at a fixed price.
This growth in the cannabis industry could be a boon for Altria, which has seen growth in tobacco slow down as consumers steadily quit smoking. On July 28, Altria reported second quarter 2022 results. Revenue of $5.37 billion declined by 4% and missed estimates by $50 million. Adjusted earnings per share of $1.26 beat estimates by a penny.
The company also reaffirmed full-year 2022 adjusted diluted EPS guidance of $4.79-$4.93. The range represents 4%-7% growth for the full year. Altria has increased its dividend for over 50 years, placing it on the exclusive Dividend Kings list. It is also a Dividend Champion.
The decline in the U.S. smoking rate continues, though it has recently recovered some. In response to the negative long-term trend, Altria has invested heavily in new products that appeal to changing consumer preferences. They are also investing heavily into share repurchases to try to support continued EPS and dividend-per-share growth.
If Altria makes a bigger entry into cannabis once it is federally legalized, the company could take share quickly. Altria has tremendous competitive advantages. It operates in a highly regulated industry, which virtually eliminates the threat of new competition in the tobacco industry. Altria enjoys strong brands across its product portfolio, including the No. 1 cigarette brand. As a result, it has pricing power and brand loyalty. In addition, tobacco companies enjoy low manufacturing and distribution costs, thanks to its economies of scale.
Innovative Industrial Properties.
Innovative Industrial Properties (IIPR) is a real estate investment trust that exclusively focuses on owning properties used for the cultivation and production of marijuana. The ongoing legalization of cannabis in the U.S. has led to stunning returns and portfolio growth.
The $2.8 billion REIT owns 110 properties in 19 states. Amid the cannabis boom over the past few years, as well as its exclusivity in terms of the listing giving the trust access to public markets, Innovate Industrial remains one of the fastest-growing REITs in the world.
On August 3, Innovative Industrial announced its Q2 earnings for the period ending June 30, 2022. For the quarter, revenues and normalized Adjusted Funds From Operations (AFFO)/share were $70.5 million and $2.14, an increase of 44.1%, and 30.4%, respectively. The company delivered another quarter of very high growth, with another four acquisitions completed during the quarter. Contractual rental escalations at certain properties also boosted results.
As of May 4, 100% of IIPR's properties were leased with a weighted-average remaining lease term of approximately 16 years, close to the previous quarter, which is once again very impressive. With its tenants enjoying resilient marijuana demand amid growing consumption, the company collected 99% of its contractual rent due for Q2.
The stock has rewarded investors with strong dividend growth. On March 14, Innovative Industrial increased its dividend by 16.7% to a quarterly rate of $1.75. The 16.7% increase compares to the previous quarter. Year over year, it implies an increase of 32.5%. The shares currently yield 7.0%.
The Scotts Miracle-Gro Company (SMG) is one of the world's leading marketers of branded consumer lawn and garden as well as hydroponic and indoor growing products. The company offers fertilizers, grass seed products, spreaders, outdoor cleaners, and any lawn-related weed, pest, and disease control products. Scotts Miracle-Gro generates around $4.9 billion in annual revenue and is headquartered in Marysville, Ohio. Exposure to cannabis comes from the Hawthorne brand.
This is a period of turnaround for SMG. On August 3, Scotts Miracle-Gro reported its Q3 results for the period ending July 2, 2022, with numbers coming in rather underwhelming. The company recorded sales of $1.2 billion during the quarter, a 26.3% decline compared to Q3 2021, primarily driven by a 63% sales decline in the Hawthorne division and a 14% decline in the U.S. Consumer division. The decline in Hawthorne's sales was due to oversupply issues in the cannabis industry amid record sales last year.
The company is currently being pressured by higher commodity prices that have led to a significant margin decline despite multiple pricing actions. Consequently, adjusted EPS came in at $1.98 compared to $3.98 in the same period of last year. Despite the recent challenges, management mentioned they are extremely encouraged that consumer purchases in May and June were at near-record levels. To get the business back on the right track and return profitability in both segments to an appropriate level, the company launched Project Springboard. The Project will lead to a set of detailed financial and incentive-related targets to ensure management is making substantive progress.
In the meantime, shareholders receive a high dividend yield of 4.6%. Scotts Miracle-Gro's dividend should be quite safe. Over the past couple of years, the company's expanded profitability has improved dividend coverage, even encouraging a potential acceleration in its growth. During the last recession, in 2008, the company posted a loss but quickly rebounded.