2 High-Octane Cannabis Stocks to Buy in October for Aggressive Investors

Cannabis stocks always seem to present some level of risk along with their potential reward. Experienced investors, soured by past boom-and-bust cycles for the nascent industry, may have sworn off the industry.

Still, the cannabis sector continues to show growth. Regulated sales are estimated to rise to more than $43 billion by 2030, roughly twice 2025's estimated $29.1 billion.

There are at least two solid cannabis stocks that appear to be turning things around: Innovative Industrial Properties (NYSE: IIPR) and Trulieve Cannabis (NYSE: TRLV). The former is the preeminent real estate investment trust (REIT) serving the industry, and the latter has consistently been one of the most profitable cannabis retailers.

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Both companies present obvious risks

Innovative Industrial provides lease-buyback capital for U.S. cannabis companies, but many state-licensed cannabis operators face tight margins, high tax burdens, and little access to the banking system -- meaning they're often short of cash. When tenants default or require lease restructuring, the REIT faces revenue pressure and non-paying properties that can be difficult to re-rent quickly.

Trulieve sells cannabis through its retail outlets. Increased cultivation capacity and competitive pricing in key adult-use states are driving down wholesale prices, putting downward pressure on retail and wholesale gross margins.

Despite these concerns, there are solid reasons aggressive investors may want to buy these stocks now.

Both stocks appear to be on the rebound

Trulieve's shares are up more than 28% so far this year (as of Oct. 1), and Innovative Industrial's shares are up about 4% (though they gained as much as 30% earlier this year). Both companies have clear trends that are benefiting their businesses.

Trulieve's new listing on the New York Stock Exchange gives it significantly enhanced trading liquidity and institutional visibility compared to most of its over-the-counter peers in the U.S. Its new listing enabled its inclusion in several indexes in September, likely meaning more institutional buyers of its stock.

Trulieve operates with industry-leading gross margins, which were at 60% as of the second quarter. If Section 280E tax burdens recede, as expected under Schedule III rescheduling or federal reform, Trulieve's underlying cash flow will experience one of the largest percentage improvements in the sector. The rule barred cannabis companies from deducting business expenses from their income stream.

In the second quarter, Trulieve reported revenue of $271 million, down 10%, but adjusted earnings per share (EPS) were $0.11, up from a loss of $0.04 in the same quarter a year ago. The company is one of the largest cannabis retailers, with 208 locations.

Innovative Industrial owns 108 properties across 19 states. The company, after a couple of years of instability, seems to be clearing its books of struggling tenants. In its second quarter, the REIT reported revenue of $63.3 million, little changed year over year, and adjusted funds from operations (AFFO) per share of $1.83, up 7% from the same quarter a year earlier.

Both companies are relatively shareholder-friendly

Innovative Industrial has a dividend that yields more than 14% at its current share price. That's very attractive to investors, though concerning, because its AFFO dividend payout ratio is nearly 104%, which is unsustainable in the long run.

The company has paid 38 consecutive monthly dividends and has never cut its payout. Its dividend payouts are supported by triple-net lease structures, where tenants cover taxes, insurance, and maintenance, providing steady cash flow for income-focused portfolios. The key, of course, will be whether Innovative Industrial can boost AFFO to pay that dividend.

Trulieve doesn't offer a dividend, but it has been active with stock buybacks, which can prop up a stock's price. It recently announced a stock repurchase of as much as $50 million, or 8.5 million subordinate voting shares, whichever is less.

Their finances are conservative

If you're going to take an aggressive stance on a stock, it is best to do so with a company that isn't risk-prone itself.

Innovative Industrial consistently maintains a debt-to-gross-assets ratio of about 10%-12%, which is exceptionally conservative for commercial real estate REITs, where leverage of 40%-60% is common. The majority of the company's debt is locked into long-term, fixed-rate senior notes, such as its $300 million 5.5% senior notes due in 2026. It does not face floating interest rate exposure on its primary debt obligations.

While rising interest rates are a concern for REITs, Innovative Industrial has structured its debt maturities far into the future, meaning it is not forced to refinance under high-interest-rate conditions.

Among multi-state operators, Trulieve stands out for maintaining one of the cleanest debt profiles and highest cash reserves in the cannabis sector.

Trulieve routinely holds more than $300 million in cash and cash equivalents, resulting in a net debt position that is far lower and safer than that of peers such as Curaleaf (OTC: CURLF), Cresco Labs (OTC: CRLBF), and Green Thumb Industries (OTC: GTBIF).

Rather than accumulating short-term maturities, Trulieve has aggressively paid down or retired senior secured notes early using its operational cash flow.

Trulieve's net debt relative to its annualized earnings before interest, taxes, depreciation, and amortization (EBITDA) is a manageable 2.0 times, lower than that of all of its main competitors except Green Thumb.

Not for every investor

Neither stock is a slam-dunk pick. Innovative Industrial's dividend is unlikely to grow any time soon, considering its high payout ratio. It could even be cut, sending income-oriented investors scurrying for the exits.

Trulieve is seeing increased pressure on its margins, and any delay in shifting it to the less onerous Schedule III will hurt profitability.

However, if you believe in the industry's growth, these are two of the best stocks to pick because each company has strong financials and a history of conservative management. They are both built for the long haul.

James Halley has positions in Innovative Industrial Properties. The Motley Fool recommends Innovative Industrial Properties. The Motley Fool has a disclosure policy.