This article was originally published on January 11, but the Casey folks are promoting these same five stocks quite similarly with the bait of their “Become a Marijuana Millionaire in 2018” report, focusing on the impending Canadian legalization this summer, so we’re re-posting our January article here to answer some reader questions. The five stocks discussed last time around still seem to be identical (though they’ve added another one, which I haven’t looked at)… and if you’re worried that you’ve missed out, well, rest assured that the five stocks have not done well since they were teased as millionaire-makers in that “Marijuana Summit” presentation in January, I’ll include a chart on their performance-to-date at the end of this article.
But other than that, what follows has not been updated or revised since January… enjoy!
Can you still “make a fortune on the marijuana boom of 2018?” The Casey folks are out with a pitch about the new wave of recreational pot sales, spurred by California’s legalization and Canada’s impending legalization.
Justin Spittler and Nick Giambruno are the analysts Casey had on the presentation, and their goal is to “get in early” and “become the next marijuana millionaire” during this marijuana investing mania. The offer they’re making is a two-year subscription to Crisis Investing, for which they’ve teased some marijuana stocks in the past, only this time around they’re selling it at $1,795 for two years with no refunds (and, presumably, no refunds for those renewals that come through at $1,795 a year after that).
The hook is that there’s a guarantee that you’ll have “the chance to make 500% gains” on each of the five stocks they’re teasing in this presentation… which is obviously irrational based on the actual financials of most pot stocks in the near future, so they must be either using a far-in-the-distance deadline for those 500% gains or betting that there will be another wild spike in the pot stocks. Which there has again been, to some degree, over the past couple months, largely thanks to the Canada and California anticipation.
Oh, and that “guarantee” about all five of them reaching 500% returns? That’s not a “refund” guarantee, it’s a “we’ll give you another year for free” guarantee — which, of course, costs them nothing and is a pretty standard kind of guarantee for these higher-dollar newsletters or late. (“If you’re disappointed enough in this service to call and complain, we’ll give you more of this thing that you didn’t like, free!”)
So, anyway, what stocks did they tease in their “presentation” yesterday? Let’s feed the clues to the Thinkolator and see what we find… I’ve pulled what quotes I could from the presentation, but they didn’t provide a transcript and I almost poked my eyes out a few times having to listen to it all, so it’s possible that my wording is off a little bit on some of the quoted clues… consider those to be paraphrasing, please, not direct quotes.
The first one is teased as a Real Estate Investment Trust and the “safest bet” …
“The safest bet in marijuana… a dividend paying stock that gives you ownership of some of the most valuable real estate”
This one must be a stock we’ve had on the watchlist for a while, Innovative Industrial Properties (IIPR). I put this on the watchlist because REITs that specialize can often be compelling — mostly because specialized REITs, who rent to tenants who are otherwise hard to serve or have facilities that are somehow difficult to replicate, can earn higher cap rates on their properties (that’s the term usually used for the cash earnings of a building or property — so a cookie cutter office building might have a cap rate of 5%, for example, indicating that cash earnings per year are about 5% of the purchase price, but a hospital might have a cap rate of 7% or a marijuana production facility might be at well over 10% (IIPR reported acquiring their earliest properties at a 13% cap rate, which is exceptional). That enables faster cash flow growth, and therefore faster dividend growth.
I still like the idea of this one, though it’s very early and they don’t have many properties yet — they haven’t been builders of properties, but have instead done “sale/leaseback” deals with a couple of growers to acquire properties as they begin to build the portfolio. They would get better scale if they could ramp up and buy a competitor like Kalyx Development, though I don’t know if that’s actually feasible (Kalyx is another marijuana landlord, they almost became a publicly traded REIT by merging with a SPAC last year but the deal fell through — so they’re private still).
Right now the valuation is a bit tough, since IIPR is trading at almost twice its book value — and that book value should be pretty fair, since it’s based on acquisitions they’ve made over the past year or so. But certainly they’re a far safer bet than most of the actual marijuana growers, since they don’t have a particular bet placed on marijuana prices, or even on legalization progress (so far, their facilities are rented by medical marijuana growing companies… which are probably less likely to face regulatory challenges than recreational pot companies).
IIPR is still quite small, roughly $120 million in market cap. If this were a normal sector, I’d suggest waiting it out for better prices… partly because to grow they’ll need to buy more properties, and to buy more properties they’ll need to raise more money, which probably means issuing more stock, and that has a tendency to depress the share price on dilution fears (even though almost all REITs have to sell shares to grow, and a 3% cost of capital — that’s their current dividend — is not so bad if your cap rate is in the low teens, that gives a lot of room for high cash margins, which can also help to fund growth).
But since there’s also the possibility that IIPR could just get a super-loopy valuation on marijuana enthusiasm (instead of just the “awfully expensive” valuation it’s at today), it might make sense to nibble now and hope for better prices later. After watching this for a bit and looking it over again as I was writing it up for you today, that’s what I decided to do today — I missed out on the chance to buy at the weakest part of the stock price fall after Attorney General Jeff Sessions put a scare into marijuana investors last week (it went from $36 to $26 in the space of about a day, but bounced back to the low $30s pretty quickly), but I’ll go ahead and enter a small position now and watch for other opportunities. I’ll be writing in more detail about that for the I