The global market for legal cannabis is expected to hit $102.2 billion by 2030, growing at an impressive annual rate of 25.7%, according to Grand View Research. This growth is likely to continue even without federal backing in the U.S., but changes could occur if President-elect Donald Trump secures a second term.

Trump’s recent support for state legalization and his appointments of pro-cannabis figures such as Robert F. Kennedy Jr. for health and human services and Matt Gaetz for attorney general suggest a potential shift in federal cannabis policy. However, these nominations might struggle in the Senate confirmation process.

Even if these specific individuals don’t get confirmed, Trump’s advocacy for marijuana banking reform and public support indicates a more favorable regulatory future.

Two marijuana stocks stand out as likely beneficiaries of these changes in the industry landscape. Let’s take a closer look at these promising options within the cannabis sector.

A struggling cultivator poised for recovery

Tilray Brands (NASDAQ: TLRY), a leading Canadian cannabis company, has experienced a 42.8% drop in stock price this year, possibly presenting a good buying opportunity for long-term investors. Due to this fall, Tilray’s shares are currently valued at just 1.3 times its trailing sales, which is remarkably low for a leader in a rapidly growing market.

Why should investors consider Tilray? The company’s diverse business model distinguishes it from its competitors focused solely on cannabis. Tilray has successfully branched into craft beer and spirits, ensuring steady revenue while solidifying its presence in the cannabis sector.

Wall Street analysts anticipate a revenue growth of more than 20% for Tilray in fiscal years 2025 and 2026, largely due to its strategic shift towards alcohol as the cannabis market matures.

Recent earnings reports highlight this transition, showing a 13% increase in year-over-year growth with record quarterly revenue of $200 million, supported by robust performance in both its cannabis and alcohol sectors. The company also improved its gross margin by over 500 basis points, indicating better operational efficiency.

Additionally, Tilray’s international efforts are paying off, particularly with a 50% increase in revenue from German medical cannabis flower following its recent legalization.

In the long run, Tilray faces both significant opportunities and risks. Its early entry into European markets combined with various revenue sources could position it favorably for future growth.

However, as a smaller company with a market capitalization of $1.22 billion, it might experience stiff competition from major pharmaceutical and tobacco companies entering the U.S. market.

For investors ready to handle short-term volatility and looking at a long-term investment horizon, Tilray’s current valuation presents an interesting, albeit risky, opportunity in the expanding legal cannabis market.

A cannabis REIT offering consistency and yield

Innovative Industrial Properties (NYSE: IIPR) offers a conservative method to engage with the cannabis market. As a real estate investment trust (REIT) focusing on licensed cannabis facilities, it provides consistent rental income along with potential for property value appreciation. Its shares have seen a modest rise of 4.74% in 2024 as of now.

What sets this cannabis REIT apart? Innovative Industrial Properties boasts a strong financial position, with only an 11% debt-to-asset ratio and no debt due until 2026, allowing for significant operational flexibility.

The REIT has built a valuable portfolio of 108 properties across 19 states, boasting a lease rate of 95.7% and a weighted average lease duration of 14 years. These factors contribute to a substantial 7.43% dividend yield, with shares trading at 17.7 times earnings projections.

The company’s third-quarter results reflect its operational robustness amidst industry challenges. Revenue fell by 1.7% year-over-year to $76.5 million, impacted by property transitions and lease reclassifications, yet adjusted funds from operations remained stable at $64.3 million.

Management has shown its ability to effectively handle tenant challenges, maintaining high occupancy rates by managing property releases as necessary. The company’s triple-net lease framework and diverse tenant mix across multiple states provide further risk protection for investors focused on income and cannabis industry growth.

Should you consider investing in these two cannabis leaders?

Both Innovative Industrial Properties and Tilray Brands present attractive options for investing in the growth of the cannabis industry, especially with the possibility of federal reforms under Trump’s anticipated second term.

Tilray offers direct investment in cultivation and brand growth with high upside potential, while Innovative Industrial Properties provides reliable income alongside more modest appreciation prospects. Keep an eye on potential key factors for 2025, such as the Senate confirmation of pro-cannabis officials,

There has been progress regarding banking reform legislation and ongoing efforts for legalization at the state level.

Nonetheless, it’s important for investors to understand that investing in cannabis comes with considerable risks, which go beyond the usual market ups and downs. The continued federal prohibition poses a major obstacle, and any possible delays in reform initiatives could negatively impact these stocks.

Additionally, both Tilray Brands and Innovative Industrial Properties are facing specific challenges. Tilray Brands must contend with competition from well-funded entities like tobacco behemoth Altria, while Innovative Industrial Properties deals with issues related to tenant stability.

George Budwell does not own shares in any of the stocks mentioned. The Motley Fool recommends Innovative Industrial Properties and Tilray Brands. The Motley Fool has a disclosure policy.

The Motley Fool collaborates with YSL News to provide financial news, analysis, and insights aimed at empowering individuals to manage their finances effectively. Their content is produced independently from YSL News.

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