2 Actually Profitable Pot Stocks To Buy Before Trump's Cannabis Rescheduling

A pending federal rescheduling directive (Dec. 18 Executive Order instructing rescheduling from Schedule I to III) could materially improve cannabis profitability by removing IRC 280E, but implementation is uncertain. Green Thumb Industries reported Q3 revenue of $291 million (+1.6% YoY) and EPS of $0.10 versus $0.04 a year earlier, with retail sales down 1% and prepackaged goods up 8%; the company operates 108 RISE dispensaries across 14 states. NewLake Capital Partners, a cannabis-focused REIT, reported Q3 revenue of $12.6 million (+0.3% YoY), AFFO per share $0.52 (+2% YoY), an 11.47% quarterly dividend yield and an AFFO payout ratio of 82%; it owns 34 properties across 12 states, carries $8 million of debt and >$24 million cash but has 24.1% exposure to Curaleaf. Investors should weigh downside execution and concentration risks against potentially significant upside from regulatory change and strong REIT cash yields.

Analysis

Market structure: Rescheduling momentum (Schedule 1→3) shifts cash-flow upside toward operators with scale (GTBIF) and landlords with long, triple-net leases (NLCP). Winners: large profitable operators (GTBIF), cannabis REITs with low leverage and sticky cash rents (NLCP); losers: highly-levered operators and single-tenant landlords with concentrated tenant risk (e.g., heavy CURLF exposure). Interest-rate sensitive REIT spreads should compress on visible margin uplift, tightening IG and high-yield spreads by a few 10s of bps if federal tax relief (280E repeal) materializes.

Risk assessment: Tail risks include regulatory rollback or multi-year DOJ/DEA delay (binary; >50% value hit for leveraged operator equities), tenant bankruptcies (Curaleaf default >20% value shock to NLCP), and slower-than-expected state rollouts. Immediate (days): volatility around regulatory headlines; short-term (weeks–months): repricing on DEA/AG milestones and state adult-use launches; long-term (quarters–years): permanent margin expansion if 280E is removed. Hidden dependency: NLCP's dividend sustainability depends on tenant credit (monitor CURLF performance and AFFO >0.45/share).

Trade implications: Establish a modest tactical long in NLCP (2–4% portfolio) to capture an ~11% yield with covered-call overlays; pair this long NLCP vs short IIPR (dollar-neutral) to exploit relative AFFO payout and leverage differences. For GTBIF, use long-dated call spreads (12–18 month LEAP debit spread sized 0.5–1% portfolio) to express asymmetric regulatory upside while limiting capital at risk. Reduce broad cannabis beta and rotate 1–3% into state-rollout-exposed consumer CPG suppliers if margin proof arrives.

Contrarian angles: Consensus understates landlord credit risk — an NLCP dividend is attractive but overstated if Curaleaf weakens; price-in a 15–25% downside scenario for NLCP if Curaleaf defaults. Reaction is underdone on optionality: GTBIF’s profitability makes it a structural winner if 280E repeal occurs, so options markets may be mispriced for long-dated regulatory upside. Historical parallel: alcohol re-regulation events show multi-year rerating, but only after sustained legal clarity — do not treat headlines as immediate valuation certainties.

Key Decisions for Investors

• Establish a 2–4% long position in NewLake Capital Partners (NLCP) to collect ~11% yield; overlay monthly covered calls at a 5–10% OTM strike to harvest premium while monitoring Curaleaf (CURLF) — reduce NLCP by 50% if CURLF equity drops >25% in 30 days or CDS widens >200bps.
• Initiate a dollar-neutral pair: long NLCP (equal dollar) / short Innovative Industrial Properties (IIPR) (equal dollar) sized 1–3% net exposure to exploit NLCP's lower AFFO payout (82% vs IIPR ~90%) and lower leverage; rebalance quarterly and tighten stops at 15% move against either leg.
• Buy GTBIF directional exposure via 12–18 month call spread (debit) sized 0.5–1% portfolio (caps cost, captures binary regulatory upside). Increase to 2% only if DOJ/DEA issues formal rescheduling guidance within 90 days or if 280E amendment text is introduced to Congress.
• Hedge concentrated tenant risk: buy protective puts on CURLF (3–6 month) or allocate 0.5% to credit protection if Curaleaf bond spreads widen >150bps; liquidate or cut NLCP position to <1% if Curaleaf default probability (implied by CDS) doubles within 90 days.