The cannabis industry is gaining popularity with increasing demand for cannabis’ medical and recreational use. Furthermore, with the rapid legalization of cannabis across major U.S. states, the industry is expected to grow in the next few years. Adding to the positives, the cannabis industry provides approximately 520,000 jobs in the United States–a number that is set to exceed 800,000 by 2026.

Fresh discoveries of medicinal benefits from cannabis should drive the industry’s growth further. According to Research and Markets, the global cannabis products market is projected to grow at a 23% CAGR to $80 billion in 2026. Therefore, fundamentally strong ancillary cannabis stocks should benefit.

While Wall Street analysts trimmed their price targets for ancillary cannabis stocks GrowGeneration Corp. (GRWG) and Innovative Industrial Properties, Inc. (IIPR), they still expect them to rally more than 80% in the coming months. So, it could be wise to add these stocks to one’s watchlist.

GrowGeneration Corp. (GRWG)

GRWG in Denver, Colo., and its subsidiaries own and operate retail hydroponic and organic gardening stores in the United States. It markets and distributes nutrients, growing media, advanced indoor and greenhouse lighting, environmental control systems, vertical benching, and accessories for hydroponic gardening and other indoor and outdoor growing products. On May 2, 2022, Stifel analyst W. Andrew Carter lowered GRWG’s price target to $8.50.

On March 1, 2022, Darren Lampert, GRWG’s Co-Founder and CEO, said, “We opened two greenfield locations in the Los Angeles metro area in 2021, and for next year, we are looking to open 15 to 20 locations across new and existing states.”  

GRWG’s sales came in at $90.58 million for the fourth quarter, ended Dec. 31, 2021, up 46.3% year-over-year. Its gross profit came in at $23.09 million, up 44.8% year-over-year. Furthermore, its net cash and cash equivalents provided by operating activities came in at $5.16 million for the period ended Dec. 31, 2021, compared to a $213,000 loss for the period ended Dec. 31, 2020.

For its fiscal year 2023, analysts expect GRWG’s revenue to be $512.89 million, representing a 20.3% year-over-year rise. The company’s EPS is expected to increase 366.7% to $0.28 in 2023. The stock has declined 36.9% in price over the past month to close yesterday’s trading session at $5.21. However, Wall Street analysts expect the stock to hit $9.63 in the near term, which indicates a potential 84.8% upside. 

Innovative Industrial Properties, Inc. (IIPR)

IIPR in San Diego, Calif., is a self-advised Maryland corporation focused on acquiring, owning, and managing specialized properties leased to experienced, state-licensed operators for their regulated medical-use cannabis facilities. On May 6, 2022, Piper Sandler analyst Alexander Goldfarb lowered the price target on IIPR to $200.00.

On April 13, 2022, IIPR acquired a Maryland property that comprises approximately 84,000 square feet of industrial and greenhouse space. Paul Smithers, IIPR’s President and CEO said, “We are thrilled to introduce District Cannabis to our tenant roster, a company that has truly distinguished itself in Maryland for its premium product quality and focus on sustainable cultivation techniques.”

For the first quarter, ended March 31, 2022, IIPR’s total revenues came in at $64.50 million, up 50.4% year-over-year. Its net income came in at $35.05 million, up 35.2% year-over-year. Also, its EPS was  $1.32, up 25.7% year-over-year.

Analysts expect IIPR’s revenue to increase 40.8% year-over-year to $288.08 million in its fiscal year 2022. Its EPS is expected to increase 33.6% to $6.08 in 2022. The stock has declined  31% in price over the past month to close yesterday’s trading session at $130.38. However, Wall Street analysts expect the stock to hit $260.80 in the near term, which indicates a potential 100% upside.

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