The marijuana industry is a lot of things. It’s a potentially once-in-a-generation growth opportunity for investors, with up to $75 billion in full-year sales expected by the time 2030 rolls around. This rapid sales growth is a big reason more than a dozen marijuana stocks now have market caps that top $1 billion.
It’s also an industry with plenty of built-in risks considering that very few pot stocks are currently profitable, and that regulatory red tape has substantially held back the Canadian weed industry since recreational marijuana was legalized in October.
Dividends are a real rarity for marijuana stocks
However, one thing the marijuana industry is not (at least yet) is an income generator. Although there are marijuana stocks that pay a dividend, these companies aren’t what we’d consider “pure plays.”
For instance, Scotts Miracle-Gro generated 13% of its previous fiscal-year sales from its subsidiary, Hawthorne Gardening, which supplies lighting, soil, nutrient, and hydroponic solutions to the North American cannabis-growing industry. Although Scotts pays out a 2.5% yield, it still generates the bulk of its revenue from its lawn, garden, and crop-care products.
Likewise, Molson Coors Brewing is in the process of developing a line of nonalcoholic cannabis-infused beverages via its partnership with Quebec-based HEXO. This partnership, known as Truss, will be rolling out its line of beverages as soon as Health Canada gives the OK within the next four months. But when taken as a whole, Molson Coors, despite a 3% dividend yield, reels in most of its sales from alcoholic beverages. Although it’s a marijuana play, it’s not what we’d call a pure play.
This is an industry unlikely to see much in the way of income plays given that most operating income, at least for the foreseeable future, will be reinvested into capacity expansion, marketing, brand building, product development and diversification, and international expansion. Since dividends are most often paid out by companies with slowing growth prospects, cannabis stocks probably aren’t the best bet to generate income. But there are exceptions to this rule…
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