The legal cannabis market is projected to reach $102.2 billion globally by 2030, growing at a sizzling 25.7% annual rate, according to a report by Grand View Research. This dramatic growth is expected even without U.S. federal support, but that equation could shift dramatically under President-elect Donald Trump's second term.
His recent endorsement of state-level legalization and nomination of pro-cannabis officials like Robert F. Kennedy Jr. for health and human services secretary and Matt Gaetz for attorney general signals a potential sea change in federal policy. However, both nominations face an uncertain path through Senate confirmation.
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Even if these specific appointments falter, Trump's campaign rhetoric and public support for marijuana banking reform suggest a more favorable regulatory environment ahead.
Two marijuana stocks appear well positioned to capitalize on this evolving landscape. Let's examine these potential opportunities in the beaten-down cannabis space.
A beaten-down cultivator ready for growth
Canadian cannabis titan Tilray Brands (TLRY -3.38%) has seen its stock decline 42.8% year to date at the time of this writing, potentially creating an attractive entry point for long-term investors. As a result of this dramatic sell-off, the company's shares trade at just 1.3 times trailing sales, a remarkably low valuation for a market leader in an ultra-high-growth industry.
What's the investing thesis? Tilray Brands' diversified business model sets it apart from other pure-play cannabis competitors. The company has strategically expanded into craft beer and spirits, providing stability while maintaining a strong footprint in cannabis.
Wall Street analysts project the company's revenue to increase by more than 20% over the course of fiscal 2025 and 2026, reflecting management's savvy pivot to alcohol as the cannabis industry slowly matures.
Recent results underscore this strategic transformation. The company's latest earnings report showed 13% year-over-year growth with record quarterly revenue of $200 million, driven by strong performance in both cannabis and alcohol segments. Gross margin improved by over 500 basis points, demonstrating improved operational efficiency across the business.
Meanwhile, the company's international expansion continues to bear fruit, with German medical cannabis flower revenue surging 50% following legalization.
Looking ahead, Tilray Brands faces both significant opportunities and risks. The company's early mover advantage in European markets and diverse revenue streams could position it well for long-term growth.
Yet as a relatively small player with a $1.22 billion market cap, the company could face intense competition if U.S. legalization attracts major pharmaceutical and tobacco companies with far greater resources.
Still, for investors with a decade-long time horizon willing to weather near-term volatility, Tilray's current valuation and market position make it an intriguing, if speculative, play on the future of legal cannabis.
A cannabis REIT offering stability and income
Innovative Industrial Properties (IIPR -3.68%) provides a more conservative way to invest in cannabis growth. As a real estate investment trust (REIT) focused on regulated cannabis facilities, the company offers steady rental income along with appreciation potential. Its shares have increased modestly in 2024, posting a 4.74% gain year-to-date as of this writing.
What makes this cannabis REIT special? Innovative Industrial Properties maintains a rock-solid balance sheet with just an 11% debt-to-asset ratio and no debt maturities until 2026, providing significant financial flexibility.
The company's high-quality property portfolio spans 108 properties across 19 states, with an impressive 95.7% lease rate and a weighted average remaining lease term of 14 years. These metrics support the company's substantial 7.43% dividend yield, while shares trade at a reasonable 17.7 times forward earnings.
The REIT's third-quarter results showcase its operational strength amid industry headwinds. Revenue dipped 1.7% year over year to $76.5 million, reflecting a mix of property transitions and lease reclassifications, while adjusted funds from operations held steady at $64.3 million despite the challenging environment.
Management has demonstrated its ability to navigate tenant challenges effectively, maintaining strong overall occupancy by successfully releasing properties when needed. The company's triple-net lease model and diverse tenant base across multiple states provide additional layers of risk protection for income-focused investors seeking exposure to the cannabis industry's growth potential.
Is it time to buy these two cannabis pioneers?
Both Innovative Industrial Properties and Tilray Brands offer compelling ways to invest in cannabis industry growth ahead of potential federal reforms under the second Trump administration.
Tilray Brands provides direct exposure to cultivation and brands with significant upside potential, while Innovative Industrial Properties offers steady income with more modest appreciation potential. Key catalysts to watch in 2025 include potential Senate confirmation of pro-cannabis officials, movement on banking reform legislation, and continued state-level legalization efforts.
However, investors should note that cannabis investments carry substantial risks beyond normal market volatility. Federal prohibition remains a significant hurdle, and any delays or setbacks in reform efforts could pressure these stocks.
Additionally, both companies face unique challenges -- Tilray Brands with potential competition from deep-pocketed players like tobacco giant Altria, and Innovative Industrial Properties with tenant stability concerns.
