Back in October 2018, we wanted our readers to know about Innovative Industrial Properties. Since we first mentioned it, it’s now up almost 100%. Today, we wanted to share your next potential triple-digit winner.
At the National Institute for Cannabis Investors, we talk a lot about cannabis banking. That’s because accessing loans and depositing money are still huge hurdles facing cannabis companies.
But for the progressive financial firms who realize how much money there is to be made working with legal cannabis companies, they will be handsomely rewarded.
And I’ve found the perfect play…
Just like when we talked about Innovative Industrial Properties Inc. (NYSE: IIPR) – which is now up almost 100% since we launched the American Cannabis Summit on October 23, 2018 – we wanted to add another way for you to try and capture another potential triple-digit return.
Of course, timing is everything, so you may have not seen when we first mentioned Innovative Industrial Properties, you may have bought it at a higher price, or you may have simply chose not to buy shares of IIPR.
I’ll also have more on Innovative Industrial next week.
But if you missed out, that’s okay. I wanted to share another play that could offer a similar profit opportunity, as now is the perfect time to strike.
I talked to my friend and banking expert and he tells me that as of right now, there is only ONE publicly-traded bank taking on cannabis customers – the rest are credit unions or privately held banks.
I’ve held off talking about this company too much before because it faced some significant challenges outside of its cannabis business. However, those challenges seem to be behind it, and we could soon see a quick jump in the stock price thanks to some positive headwinds.
Why Severn Bank Makes the Cut
Again, there’s a lot of reasons to get excited about this pick. But first, I want to take a look at the challenges that I mentioned earlier. That way, it will give you a better idea of the pros and cons of owning Severn as a type of back-door cannabis play.
Severn has transitioned from slow growth to faster growth recently, after spending several years recovering from the financial crisis. Year-over-year growth in assets increased from only 2% in 2017 to 20.7% in 2018, with much of that growth in the second half of the year. Deposits showed a similar growth, from 5.3% in 2017 to 29.4% in 2018, mostly in the second half of the year once again.
Thanks to good management, the company has put that money to work profitably, increasing return on equity from 3.1% in 2017 to a more respectable 9% in 2018.
A big part of that was through controlling operating expenses. The bank’s efficiency ratio (lower is better) is the lowest it has been since 2012. From an operating point of view, that makes Severn a more desirable bank than it was just a few quarters ago. The company also now has a full year of stable dividend payments under its belt, after suspending dividends from 2009 to 2018. It currently has a dividend yield of 1.39%, and look for increases in the dividend sometime this year.
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As a bank, the other ongoing challenge Severn has faced is rising interest rates. The common thinking is that rising interest rates benefit banks, but that’s a lot less true of smaller banks than larger ones, and Severn is a small bank.
It even identified rising interest rates as a key risk to the company’s growth, but there’s good news. The U.S. Federal Reserve recently indicated that it would be pausing its interest rate increases until economic conditions justify another bump.
That means Severn can continue to grow and profit without fear that rising rates will hurt the demand for the loans which are powering its growth.
The Boom in Bank Consolidation
One trend in Severn’s favor is an increase in bank consolidation. Analysts and many economists have been calling for larger banks to buy smaller ones for some time now, and it is finally beginning to happen.
In particular, regional banks want to become larger and are buying each other and smaller banks. The reason is consumer driven. Consumers demand advanced services like mobile banking, fast mortgage turnarounds, and instant and personalized customer service. The technology behind all those services is expensive, and smaller banks have a hard time keeping up.
Severn is a logical consolidation candidate, with only six branches but a large market share in one of the richest counties in America – Anne Arundel County, Maryland.
Just from an acquisition offer, shareholders could receive a premium from where the Severn stock price is trading today.
And that brings us to the cannabis business.
Severn’s Bold Cannabis Move
Cannabis has been a big part of the turnaround story at Severn, particularly when it comes to profit growth. Cannabis-related deposits and loans were around 2% of Severn’s total deposits and loans as of September 30, 2018. I expect that number to be around the same when the company makes its full regulatory filing for December later this month.
But cannabis companies also provided 16% of Severn’s non-interest income. Fees are very high in the cannabis industry, and this Maryland bank will continue to profit from them.
Below, you can see how the Severn stock price has been slowly climbing thanks to the recent positive stream of news.
Looking at the chart now, I expect the company to grow at a more normal rate going forward.
I project the stock to make a run at the high seen in that chart of $9.80 per share fairly soon. From the opening price of $8.77 on March 14, that’s a potential return of 11%, which doesn’t include dividend payments.
Not bad for a potential quick buck, but the long-term potential is even better…
Over time, the company should bump up to near its all-time high of $21.14 per share, a level not seen since before the financial crisis. That would be a potential gain of 141%. In fact, getting in early on potential life-changing wealth is what we’ve been talking about in Cannabis Venture Syndicate.
I hope bringing Severn to your attention will help your cannabis portfolio in the long haul, and as soon as I see other under-the-radar picks like this, you will be the first to know.
Until next time,
Executive Director, National Institute for Cannabis Investors
P.S. Here at the Institute, we constantly hear from small, privately held cannabis companies…. And, to be blunt, most of these firms have no chance. However, a few times a year, something extraordinary happens… We come across a startup that’s set to rock the entire cannabis industry. We find what could be the next multibillion-dollar company. Which is why I’m reaching out to you today. I want to take you on a journey – right now – with a company that has the potential to grow 54,000% over the next few years. That’s the equivalent of going from a small $50 million company into a $52.5 billion behemoth, practically overnight. And we’ve uncovered the only way you can get access to this deal right now. This is nothing like buying a public stock. This is not about IPO investing. Today, you’re going to discover the ins and outs of angel investing and venture capital. All you have to do is click here to learn more.
30 responses to “This Cannabis Play Could Climb Over 100%”
March 15 2019