You’re reading this week’s edition of the New Cannabis Ventures weekly newsletter, which we have been publishing since October 2015. The newsletter includes unique insight to help our readers stay ahead of the curve as well as links to the week’s most important news. We no longer send these by email as we did in the past, but we post this and all of the newsletters on our website here.
Friends,
Last week, Village Farms (NASDAQ: VFF) exploded higher after announcing a deal to spin-off its produce business. I have written very favorably about it in this newsletter. This is from August last year, when VFF was trading at $1.09:
We don’t publish as much content here on Village Farms due to its smaller size. When I warned in May about the Canadian LPs, it was up 72.1% year-to-date, and it is lower now but still up a lot from its lows. It’s not just a cannabis company, as the largest business is produce. Despite it not being in the index I am trying to beat (and beating!), my model portfolio has a 17.1% stake. The company has no strategic investor like the other two, and it is not debt free like them. Still, the debt level is low and not due very soon. Beyond trading at a 40% discount to its tangible book value, the stock looks attractive relative to the projected adjusted EBITDA. I think that the Canadian LP part of the company alone is worth more than the current valuation. It is up almost 40% since I called it out in April 2023 in this newsletter.
Well, from last August, it fell and fell and fell, reaching an all-time low of $0.45 in early April. Last week, ahead of its Q1 earnings report, I shared with my subscribers at 420 Investor a year-end target of $1.55. The close on Monday, ahead of its Q1 financials release, was $0.70, already up 55% over the prior five weeks. I still liked it and had a 10.0% position in my model portfolio. The position was quite large considering that it is not in the NCV Global Cannabis Stock Index (due to its low trading volumes).
The company released the financials after the market closed on Monday, also disclosing in a separate press release its deal to sell its produce business to a joint venture in which it is a minority owner, taking in $40 million in cash. The company discussed this deal on the call and said that it would provide pro forma results for Q1 and last year after the deal closes. It is supposed to close by the end of June.
The stock shot up 57% last week and extended its gains further this week, though it closed at $1.06 today, down about 3% from where it was last August when I called it out here. Of course, the Global Cannabis Stock Index has declined a lot more since then, falling 39% to 5.44. I reduced a lot of my position in the model portfolio last week on the initial thrust higher, and I exited the remaining position on 5/20 at 1.17. The stock is up 37.5% year-to-date, while the Global Cannabis Stock Index is down 20.9%. Here is the action year-to-date:
The stock when I exited it on Tuesday was up 52% year-to-date against an overall market that was down nearly 20% when I said goodbye. Take the win! I have learned that before in this cannabis bear market. Remember Organigram? In January of 2024, I celebrated that victory, discussing how research paid off. The stock then was up more than 22% in the first 12 days of the year, and I had called it out as cheap to its larger peers. It was then $1.69, and it went further, hitting $2.91 in March of 2024. Of course, it fell a lot afterwards, hitting $0.85 in April. Cannabis stocks are volatile!
The Village Farms stock is still cheap in my view, but I exited the position in my model portfolio on Tuesday because the deal is not yet closed and the stock has nearly tripled in a short period of time. The CEO and especially the CFO exhibited their confidence last week, according to the SEC filings that show that they added 245K shares between the two of them. I think that Village Farms is a good one to buy on any dip. I currently hold 36.5% of my model portfolio in two Canadian LPs, which is a large overweight relative to the weight in the Global Cannabis Stock Index but down from where it has been.
Too many investors focus exclusively on the MSOs. MSOS, which is stuffed with three of the largest MSOs, is down 32.8% year-to-date and not a good deal in my view as I have discussed here previously. Yes, it is up since I wrote the piece on April 9th suggesting it should be sold, but I suggested in that piece that Canadian LPs were a better buy, which they have been. While I continue to view VFF very favorably, there are other options for investors that make more sense among Canadian LPs and beyond.
Sincerely,
Alan
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