[ad_1] The post 3 “Backdoor” Marijuana Stocks for In-the-Know Investors appeared first on Millennial Money. It’s been a tough year for cannabis investors. After shares of pot stocks surged last year—with many of them more than doubling in 2020—returns this year have been a bust. How bad? The S&P 500 has risen 17% so far this year, but pot stocks in aggregate (measured by the AdvisorShares Pure US Cannabis ETF (NASDAQ: MSOS)) have sunk 15%. In a year where the S&P 500 just keeps surging to record highs, pot stock investors are getting left behind. Here’s what’s going on with pot stocks today and how you could profit from 3 “backdoor” investing ideas in the marijuana industry. The promise of 2020 meets the legislative reality of 2021 This year started out with the most promise since 2014, the year Colorado officially began selling recreational marijuana, on account of the Democrats taking control of Washington. The party’s 2020 platform called for decriminalizing marijuana at the federal level and leaving alone any local laws in states that had already legalized the substance. In July, the Senate released a draft bill called the Cannabis Administration and Opportunity Act. But some are questioning the bill’s ability to pass, and the New York Times has noted that the bill is unlikely to become law soon. Increasingly, it’s looking like federal marijuana decriminalization is off the table for 2021. But don’t let Washington take your eyes off pot stocks’ long-term potential Regardless of what’s happening in Congress, the public trends on cannabis growth remain firmly in place: Broad public approval: Marijuana’s favorability has skyrocketed among the public. A recent Gallup poll found that nearly 70% of Americans favored legalization, the highest approval ever. Support for medical marijuana is even higher, with a recent Pew Research poll reporting that 91% of respondents approve of legalization. Bipartisan state adoption: Four states voted to legalize recreational marijuana in 2020, followed by four others in 2021 … so far. According to the National Conference of State Legislatures, 18 states—governed by both Democrats and Republicans—have legalized recreational marijuana, with another 18 allowing medical use. All told, nearly three-quarters of states have some form of marijuana legalization. What does this mean for investors? For long-term growth investors with a high-risk tolerance, getting into the marijuana industry is a no-brainer. Cannabis is well on its way to being a major consumer category, with products ranging from edibles to skincare products. At the same time, politicians on both sides of the aisle are warming to legalization (and taxation) as more states are legalizing it without significant issues. At the same time, it’s understandable that many people would be hesitant to invest in an industry that’s still illegal at the federal level. But there’s a way that even investors with a lower risk tolerance can take advantage of all the growth in the marijuana industry: by buying companies that provide ancillary services to cannabis growers and cultivators. These “backdoor” companies are exposed to the upside of the cannabis industry but still have some protection in case regulations change. › Learn more: Read our advice on how to invest with very little money. Scotts Miracle-Gro Gardening company Scotts Miracle-Gro (NYSE: SMG) might fly below the radar of many cannabis investors, but the company has significant exposure to the pot industry. Most commercial growers use hydroponic growing methods to ensure product consistency and to increase yield. The downside to hydroponic cultivation is that it’s relatively expensive. Not only does this method require a lot of money to build grow-houses, but it also requires ongoing costs like lighting and nutrients. Due to the complexity of growing a profitable cash crop, cultivators are willing to pay a premium to work with a company that has a legacy of quality and technical know-how. With a history dating back to 1868, Scotts Miracle-Gro has become the go-to firm for cannabis growers. In 2015, Scotts acquired the General Hydroponics Company for $130 million and combined it with its Hawthorne brand of hydroponic products. At the time, the company downplayed the connection, but General Hydroponics was heavily focused on providing solutions to marijuana growers. Now the company has 45 different brands under its Hawthorne segment and has expanded its host of services to include hydroponic consulting and technical services. Hawthorne has been a true growth story for Scotts Miracle-Gro. In the recent third-quarter results, the company reported 8% overall year-over-year revenue growth, and the Hawthorne division was a big contributor, with year-over-year top-line growth of 48%. Through the first nine months of this fiscal year, Hawthorne has contributed 26% of total revenue, a 5-percentage point increase over the prior year. Scotts continues to look for ways to return cash to shareholders. Last year it paid out a massive special dividend of $5 per share and announced a $750 share-buyback authorization; both were in addition to its regular dividend of $2.64 per year. Like many stocks related to cannabis, shares of Scotts Miracle-Gro have cooled down following their blistering 88% return in 2020. Shares are down 25% so far this year. I think today’s price is an opportunity for you to pick up shares of this marijuana-adjacent stock on the cheap. Value tip: Scotts Miracle-Gro currently trades at 16.5 times forward estimated earnings, compared with the S&P 500’s valuation of 22 times. Innovative Industrial Properties Shares of Innovative Industrial Properties (NYSE: IIPR) have avoided the poor performance that has plagued many weed stocks in 2021. The stock is up 34% year to date, even outpacing the S&P 500. Still, the long-term opportunity here is just beginning. Innovative Industrial Properties is a real estate investment trust, or REIT. The company is a landlord to marijuana growers; it buys their facilities and leases them back to the growers in a transaction it calls a “sale/leaseback.” This might not sound like a big deal, but it’s a lifesaver for many growers. Currently, federal legislation makes it difficult for growers to access traditional banking services like loans