marijuana plants in a greenhousemarijuana plants in a greenhouse

Thanks to macroeconomic headwinds like rising interest rates, runaway inflation, and fears of a global recession, many stocks are in retreat. The Dow Jones Industrial Average is flirting with a bear market, while the S&P 500 and Nasdaq are already in bear markets.

Some sectors are doing better than others. One of the worst-performing areas of the stock market happens to be cannabis. Why? The biggest culprits are stalled federal U.S. legalization and the inability of marijuana companies to access traditional capital.

finviz dynamic chart for MJ

As of this writing, the ETFMG Alternative Harvest ETF (NYSEARCA:MJ ), the world’s largest cannabis exchange-traded fund, is down by a whopping 56% year-to-date and 66% year-over-year. Not to be outdone, the AdvisorShares Pure US Cannabis ETF (NYSEARCA:MSOS ) has lost 64% of its value in 2022 and 70% of its value over the last 12 months.

finviz dynamic chart for MSOS

Eventually, the stock market will bottom and start to trend higher. More importantly, Washington will finally do what the majority of American voters want and federally legalize marijuana. Until those two things happen, it continues to be a great time for investors to find beaten-down cannabis stocks that are ripe for recovery.

Better still, patient investors should check out marijuana stocks that pay frothy dividends. Below are three financially robust cannabis companies that have seen their share prices take a hit yet continue to provide inflation-crushing dividends.

Company NameStock TickerShare PriceAnnualized DividendDividend Yield
AFC Gamma IncNASDAQ:AFCG$16.00$2.2414.6%
Newlake Capital Partners IncOTCMKTS:NLCP$13.85$1.4811.0%
Innovative Industrial Properties IncNYSE:IIPR$91.40$7.208.1%

AFC Gamma Inc

finviz dynamic chart for AFCG

AFC Gamma Inc (NASDAQ:AFCG ) is a real estate investment trust (REIT) that provides institutional loans to high-quality cannabis companies in the U.S. The “AFC” stands for advanced flower capital. The company offers loans and related credit facilities that are generally secured by substantial assets such as real estate, licenses, and cash flow. (Source: “Q2 2022 Earnings Presentation,” AFC Gamma Inc, August 9, 2022.)

The company serves clients in all areas of the marijuana sector, including real estate/facilities, equipment/supplies, cultivation, processing, and distribution. 

As of August 9, AFC Gamma had reviewed 610 deals representing $15.8 billion in aggregate value. Of those deals, the company had rejected 549, funded 13, and was still reviewing 42.

For the second quarter, the company reported net income of $11.4 million, or $0.58 per share, and distributable earnings of $13.6 million, or $0.69 per share.

In September, AFC Gamma stock paid quarterly dividends of $0.56 per share, for a yield of 14.6%. This works out to a year-over-year increase of 30%. The company has raised its dividend in four of the last five quarters. (Source: “AFC Gamma Announces Third Quarter Dividend,” AFC Gamma Inc, September 15, 2022.)

Newlake Capital Partners Inc

Newlake Capital Partners Inc (OTCMKTS:NLCP) is a REIT that provides capital to state-licensed cannabis operators through sale-leaseback transactions, third-party purchases, and build-to-suit projects. (Source: “Home Page,” NewLake Capital Partners Inc, last accessed October 12, 2022.)

Many people aren’t familiar with the company because it only went public about a year ago.

NewLake Capital Partners Inc’s properties are leased to single tenants on a long-term, triple-net basis. This means the tenants are responsible for the ongoing expenses of a property, in addition to the rent. The leases include rent escalators of two to three percent. (Source: “Investor Presentation: September 2022,” NewLake Capital Partners Inc, last accessed October 12, 2022.)

NewLake Capital Partners Inc’s real estate portfolio consists of 31 properties in 12 states, covering 1.7 million square feet. The properties are 100% leased, and thanks to the company’s astute underwriting skills, it has collected 100% of its rent due, with no abatements or deferrals, since its founding in 2019.

Despite the fact that NewLake Capital Partners Inc has announced wonderful financial results (including adjusted funds from operations growth and a rock-solid balance sheet), the strongest pipeline in its history, and growing, high-yield dividends, Newlake Capital stock has taken a beating recently, down by 50% year-to-date and year-over-year.

In September, the company declared a quarterly dividend of $0.37 per share, for a yield of 11%. This represents NLCP stock’s sixth consecutive quarterly dividend increase. (Source: “NewLake Capital Partners Declares Third Quarter 2022 Common Stock Dividend,” NewLake Capital Partners Inc, September 16, 2022.)

Innovative Industrial Properties Inc

finviz dynamic chart for IIPR

Innovative Industrial Properties Inc (NYSE:IIPR ), which was founded in 2016, is the first publicly traded company on the New York Stock Exchange (NYSE) to provide real estate capital to the medical marijuana industry. (Source: “Our Business,” Innovative Industrial Partners Inc, last accessed October 12, 2022.)

Since marijuana is still federally illegal in the U.S., it’s difficult for cannabis companies to find capital. That’s where Innovative Industrial Properties Inc comes in. The company acquires properties from medical marijuana growers and leases the properties back to them.

The company targets well-funded medical marijuana companies in the $5.0–$30.0 million range and signs them up for long-term leases of 10 to 20 years.

Then Innovative Industrial Partners Inc does what all good landlords do, increase the rent by three percent to 4.5% annually, providing it with reliable revenue growth and cash flow.

The company currently owns 111 properties representing approximately 8.7 million rentable square feet. Innovative Industrial Properties has committed $2.4 billion (excluding transaction costs) and additional capital costs to fund future construction and tenant improvements.

In September, the company declared a third-quarter dividend of $1.80 per share, for a yield of 8.1%. Since Innovative Industrial Properties began paying dividends in June 2017, it has raised its payout in 14 of the last 22 quarters. (Source: “Dividend History,” Innovative Industrial Properties Inc, last accessed October 12, 2022.)

Analyst Take

Like the broader stock market, marijuana stocks have taken a big hit. With cannabis remaining illegal at the federal U.S. level, cannabis stocks face additional headwinds. 

That doesn’t mean investors should sit on the sidelines, though. There are many excellent cannabis companies churning out solid revenue and earnings growth. There are also some great marijuana stocks that provide reliable, growing, ultra-high-yield dividends.

Photo by Richard T on Unsplash

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