These cannabis stocks aren’t very popular, but have great potential

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Many investors may not recognize the names, but they should get more consideration

To have great potential, there is no need to always have to have the vast popularity that many marijuana companies have today. While it’s true that NewLake Capital Partners, Village Farms International and Hydrofarm Holdings Group are not the big-name companies as others in the industry, there’s no doubt that these three small-cap stocks have what it takes to show significant growth. If your idea is to look for companies that aren’t caught up in the vagaries of marijuana prices or sales, these three options are ideal.

The NewLake business model is not what we usually see in the various cannabis companies. This real estate investment trust (REIT) is responsible for leasing cultivation facilities, dispensaries, and processing facilities to cannabis companies. Its priority is to provide capital through leaseback to industry-related businesses, something very similar to what the well-known company called Innovative Industrial Properties does, which has proven to be quite successful. While it is true that cannabis companies have several drawbacks in obtaining bank financing due to federal regulations, this is not so much the case for NewLake because of the way it operates.

In the case of Village Farms, the stock is turning out to be quite a bargain, especially for its one-year price-to-sales ratio of 2.36. It recently announced its purchase of Balanced Health Botanicals, a Colorado-based CBD company, for $75 million. Moves like these have led this company to have a deeper relationship with the industry, driving its revenue up 47.9% year over year, according to its second-quarter report.

And then there is Hydrofarm, which provides controlled environment equipment that is particularly useful for marijuana, although its hydroponic products are used for a multitude of crops. Hydrofarm has built its business through mergers and acquisitions and management recently said they plan to continue to look for more ways to grow the company through this strategy. Hydrofarm is coming off a second quarter with green numbers in which it reported revenues of $133.8 million, an increase of 46.7% year-on-year, and it is believed that this trend will continue.