In this week’s Marijuana Market Update, I share with you one of the highest-rated cannabis stocks on my Cannabis Power Ratings system.
It scores a 97 overall on the system and rates well on momentum — something that’s rare in today’s cannabis market.
Real Estate Rebound Points to Cannabis REIT
First, let’s talk about real estate.
We can look at the Real Estate Select SPDR Fund (NYSE: XLRE) to track the performance of real estate stocks.
The sector suffered a strong dip in June.
Despite the Federal Reserve raising interest rates to help combat rising inflation, the sector turned things around.
Since the June drop, XLRE is up over the last three months.
That rise leads me to one of my highest-rated cannabis stocks.
Cannabis Power Stock: Zoned Properties Inc.
Zoned Properties Inc. (OTC: ZDPY) is a real estate investment trust (REIT) that owns, develops and leases property for the cannabis sector.
It finds properties that cannabis operators can buy or lease for cultivation or retail operations.
ZDPY’s properties are mainly in Arizona, but it does have properties for sale or lease in Michigan, New York and Nevada.
In 2021, the company hit a new milestone by closing more than $50 million in commercial real estate transactions.
Now it has shifted focus from the Southwest to emerging cannabis markets in New York and New Jersey.
ZDPY Cannabis REIT Is Top-Rated
Looking at my Cannabis Power Ratings system, we see ZDPY rates a 97 overall.
We are “Strong Bullish” on this cannabis REIT and expect it to beat the broader market by three times over the next 12 months.
It scores a 93 on our momentum factor, but it also scores a 67 on value.
For value, we look at the company’s price-to ratios and compare those against the industry the stock is listed in.
ZDPY has a price-to-sales (P/S) ratio of 4, compared to the broader REIT industry average of 5.15.
Its price-to-book value ratio is 1.42, while the industry average is 2.05.
That tells us ZDPY is undervalued compared to its industry peers.
ZDPY’s Price-to-Sales Ratio
Let’s zero in on the movement of ZDPY’s P/S ratio.
In March 2016, the company was trading with a P/S ratio of more than 58.
The ratio bottomed out in 2020 before a slight uptick last year.
It now sits around 4, and that means ZDPY is an undervalued cannabis REIT.
Investors could find the stock more attractive, which would push its price up.
Now let’s look at Zoned Properties’ momentum:
ZDPY Stock Momentum
In a time when most cannabis stocks are struggling, ZDPY is trending well.
The stock took off over the last 12 months, compared to its real estate investment and services peers, which are down over the same time.
Even when the real estate market cooled, ZDPY was able to recoup a lot of its losses suffered in May 2022.
From its low point earlier this year, ZDPY has gained 22.8% as I write.
Note: In July, the company secured a $4.5 million line of credit which it will use to invest in and acquire additional properties to lease for cannabis operators.
Overall, I like the REIT market, especially in the cannabis space.
I’ve discussed Innovative Industrial Properties Inc. (NYSE: IIPR) and I’m tossing ZDPY into the mix here.
These cannabis REITs have a solid business plan.
They develop properties for cannabis operators, then sell or lease them back to those operators for either an overall profit or a consistent stream of income in the form of lease and rent payments.
Cannabis REITs like ZDPY and IIPR seek out specific properties they know clients are looking for, almost guaranteeing a sale or lease agreement.
Bottom line: In a down cannabis market, these REITs are a nice bright spot.
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Safe trading,
Matt Clark
Research Analyst, Money & Markets