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As we ramp up our coverage of the publicly-traded cannabis industry on Seeking Alpha, I have expanded upon a topic that we have shared in this newsletter regarding the largest cannabis ETF, AdvisorShares Pure US Cannabis ETF (NYSE Arca: MSOS). We are optimistic that cannabis stock prices will do better, but we view MSOS as not the best way to invest in the sector. It is overly invested in the five largest multi-state operators, which we find imprudent generally and at this time too.

Why Cannabis Stocks Will Do Better

Cannabis stocks have had a very tough year! The New Cannabis Ventures Global Cannabis Stock Index has declined 59.3%, which is a lot more than the broad stock market. The cannabis sector has struggled fundamentally, with demand less than expected as supply has been increasing. Looking ahead, we have New Jersey, which just launched this year, and Illinois likely to add more stores, which should help boost demand. New York and Virginia are scheduled to legalize adult-use ahead as well. Finally, California has been a very challenging market but could rebound. All of the western states with mature adult-use programs are struggling, but we expect growth to resume.

In our view, the steep decline in prices across the sector over the past almost two years and the weak sentiment has left the valuations very appealing for many cannabis stocks. This has been a hard time for new investors to enter the market due to the broad weakness in stocks and bonds since the beginning of the year. The turn of the calendar may help a better investor perspective.

Cannabis Stocks Have Been Rallying

We think that the overall bear market ending could really influence the timing of a recovery in cannabis stocks. If the S&P 500 crashes again, like it did in September, it will likely create a delay in the recovery of cannabis stocks. If stocks are stable or advancing, more investors are likely to embrace the sector. We just got through earnings for Q3 that were in line with expectations, which we think sets us up for better times. The elections weren’t really an issue this year. Two of the five states, all small, that were voting for adult-use, Maryland and Missouri, passed, while three failed.

Additionally, the rally may have in-fact already started! The NCV Global Cannabis Stock Index has soared 18.7% from its all-time low set at the close on 9/30, a much more dramatic move than the S&P 500, which has rallied 10.6%. The rally has been driven by a couple of news items, including the move by Biden to pardon federally convicted cannabis consumers and the potential acceleration by Canopy Growth to close three acquisitions in the U.S. We continue to view these as potential signals for other things to happen. We want most to see 280E taxation go away and to see American multi-state operators be able to uplist to higher exchanges. Our optimism, though, isn’t based on an expectation that either of these will happen.

These Stocks Should Perform The Best

For those readers that want to know the exact stocks we think will perform best and why, I do share those with subscribers at our premium service for cannabis investors, 420 Investor. I currently am underweight American multi-state operators, Biotech and Canadian LPs and very overweight Ancillary Stocks in the two model portfolios that are set up to beat the NCV Global Cannabis Stock Index, 420 Opportunity and 420 Quality:
In the model portfolios, I own substantial positions in “Tier 2” multi-state operators but none of the largest ones. I also own a smaller one. These stocks have generally outpaced the market this year and don’t appear to be as cheap as the other sub-sectors, especially the largest ones.

I have shifted my weighting in Canadian LPs a bit lower recently. My positions are in three companies, all of which are doing well fundamentally but trading at or below tangible book value. I don’t own Aurora Cannabis, Canopy Growth or Tilray.

The part of the market that appeals the most right now is the ancillary stocks, and I have upped my exposure to substantially higher than the index weighting. These companies aren’t struggling with competition. Instead, they are dealing with weak customers. We find the valuations very low. In fact, in my model portfolios, I own some ancillary stocks that are trading at substantial discounts to their tangible book value. Investors seem to be looking for a recovery in the largest multi-state operators, as Trulieve is up 49% quarter-to-date substantially above the return of the Global Cannabis Stock Index. Green Thumb Industries and Curaleaf are up more than 32%, and both Cresco Labs and Verano Holdings are up more than the Global Cannabis Stock Index. We think that as things get better, the ancillary companies will really benefit.

To us, the ancillary stocks are very appealing. The NCV Ancillary Cannabis Index, which has declined now 81% since its launch in March 2021, has dropped more than 70% in 2022. The 10 stocks in the index all trade on the NYSE or NASDAQ and don’t pay 280E taxes. At 420 Investor, I currently own 2 of these 10, with holdings in 5 others.

High-performance cannabis cultivation facilities powered by urban-gro.

With a strong balance sheet cash and no debt, urban-gro, which is a NASDAQ-listed company, continues to maintain its growth mode due its diversification strategy. Although cannabis is the future for urban-gro, the company has been able to smartly leverage M&A to drive revenue in other sectors. It operates in the cannabis sector, food-focused vertical farming and the commercial space. In the cannabis industry, urban-gro is able to get clients to market one harvest earlier than they would have if they weren’t working with a single point of responsibility, according to Chairman and CEO Bradley Nattrass.

Get up to speed by visiting the urban-gro Investor Dashboard that we maintain on their behalf as a client of New Cannabis Ventures. Click the blue Follow Company button in order to stay up to date with their progress.

New Cannabis Ventures publishes curated articles as well as exclusive news. Here is some of the most interesting business content from this week:


With operations in eight states, Ayr Wellness is looking to become the largest scale cultivator of high-quality cannabis. With a new president, Davide Goubert, appointed in October, Ayr is focused on growing in the states where it exists, including Florida, New Jersey and Massachusetts. In an exclusive interview, Chairman and CEO Jonathan Sandelman discusses the company’s plans for continued growth.

When urban-gro uplisted to the NASDAQ in Q1 of 2021, the company’s plans were to offer complete design and build capabilities for indoor CEA facilities. Nearly two years later, urban-gro’s customer mix is approximately 50% CEA and 50% commercial. Cannabis clients still account for the bulk of its CEA business, approximately 85%. In an exclusive interview Chairman and CEO Bradley Nattrass said he anticipates that the company will experience even more demand for design-build projects in the CEA cannabis space.

Michigan cannabis sales dipped 1% sequentially to $209 million, but increased 28.1% from a year ago. Medical sales plunged 57.2% from a year ago to $15.1 million, down 9.4% sequentially. Adult-use sales expanded 51.4% year-over-year to $194.4 million, down 0.5% sequentially with one more day than in September.


4Front Q3 revenue rose 14% sequentially to $32.5 million. “Our growth in Massachusetts in the third quarter is a clear example of our strategy coming to fruition, as we capitalized on our low-cost production methodologies to improve the quality of our grow and drive sales volumes across all product categories,” said CEO Leo Gontmakher. “Our operations in California and Illinois are also shaping up to be significant growth markets for us heading into the new year.”

Auxly Q3 revenue dropped 27% sequentially to C$19.8 million and fell 19% from the same period last year. Q3 revenue comprised approximately 36% in sales of dried flower and pre-roll cannabis products, with the rest from oils and cannabis 2.0 product sales. “This quarter was transitional for the company as we took insights from and listened to our consumers to understand their evolving needs and preferences so that we could begin to deliver on quality improvements across our vape, dried flower and pre-roll portfolio, while also implementing pricing reductions,” said Hugo Alves, CEO.

Charlotte’s Web Q3 revenue declined 10% sequentially to $17 million and decreased 28.1% from Q3 2021. The company said the decrease primarily was due to lower comparable customer shipments, ongoing consumer shifts from tinctures to lower-priced gummies and formats, and lower relative traffic to the company’s e-commerce store. “We have also restructured our sales organization and streamlined operations…We believe this positions us for sustained improvement in top line growth and profitability as our key initiatives continue to gain traction,” said CEO Jacques Tortoroli. Charlotte’s Web also announced a $56.8 million investment from a subsidiary of BAT, which provides the company with incremental capital to fund growth initiatives, including the company’s expanding portfolio of botanical wellness products.

Columbia Care Q3 revenue inched up 2% sequentially and was flat year-over-year to $133 million. The company anticipates a challenging environment in the next year, but CEO Nicholas Vita said, “we are encouraged by the ongoing resilience we’ve seen throughout our markets and by the enthusiasm of the cannabis community.”

Cresco Q3 revenue dipped 4% sequentially and 2% year-over-year to $210 million. On November 4, the company announced planned divestitures of Cresco and Columbia Care assets in New York, Illinois and Massachusetts to entities controlled by entertainer Sean “Ditty” Combs for a total purchase price of up to $185 million. “In the quarter, we took actions to reduce costs to position ourselves for long-term improvement. This included the closing of underperforming facilities and the sell through of related inventory,” said Charles Bachtell co-founder and CEO.

Greenlane Q3 revenue fell 28% sequentially and was down 31% year-over-year to $28.7 million. In October, the company announced its president would take the helm as CEO effective January 1, 2023, while Nick Kovacevich, Greenlane’s CEO, will step into a chief corporate development role. “While work on cost-cutting and liquidity initiatives continue, we are also focused on key initiatives to improve the commercial side of the business. The recent partnerships with GreenDirect in Puerto Rico, and Leaf Trade, demonstrate how we will continue to leverage scalable partnerships to improve our presence in strategic markets without heavy capital investment requirements,” said Kovacevich.

InterCure Q3 revenue rose 6% sequentially and was up 63% year-over-year to NIS (New Israeli Shekels) 101 million. It was the 11th consecutive quarter of sequential profitable revenue growth. “We continued to execute on our international expansion plans building our footprint organically and exploring strategic acquisitions in key markets, to meet the solid demand for our high-quality branded products,” said CEO Alexander Rabinovitch.

Jushi Q3 revenue remained flat sequentially, but rose 34.9% from the previous year at $72.8 million. During the quarter the company added two new stores in Virginia, moved closer to full-scale production at its grower-processor facilities in Pennsylvania and Virginia, and expanded its product portfolio. “As we look out to 2023 and beyond, we anticipate that our sales growth and improved profitability will be driven by the growth of the Virginia market, increased production and sell-through of high quality products produced at our grower-processor facilities, and our portfolio of assets focused in markets that are well positioned to take advantage of future state-level regulatory developments,” said Founder, Chairman and CEO Jim Cacioppo. Jushi also announced proposed debt financing of $68 million at 12% with warrants. It plans to use the net proceeds to redeem its outstanding existing 10% senior secured notes due January 2023. If there are remaining proceeds, they will be used for general corporate purposes.

SNDL Q3 cannabis revenue rose 4% sequentially to $78 million. The company operates in four segments, liquor retail, cannabis retail, cannabis operations and investments. The company operates 183 locations under Spiritleaf and Value Buds. “Our regulated products platform has shown resiliency in the face of stiff industry and macroeconomic headwinds, and our vertically integrated cannabis business is in the early stages of providing the scale and results that we believe are required for SNDL to be a strong member of a future oligopoly in Canada,” said CEO Zach George.

TerrAscend Q3 revenue inched up 3% sequentially and rose 36.4% year-over-year to $67 million. The company attributed the sequential growth to strong results in New Jersey and a partial quarter benefit from the acquisition of Pinnacle. That was partially offset by a decline in wholesale sales in Pennsylvania and challenging retail trends in Pennsylvania and Michigan.

The Parent Company’s Q3 revenue fell 28% sequentially to $19.6 million. The company also announced that it has completed its acquisition of 100% of the equity of Coastal Holding Company, LLC, a retail dispensary license holder and operator founded in Santa Barbara in 2018, for $36.6 million. “In the coming months, we expect to bring several new and exciting products and formats to market, expand our brand portfolio, and further connect with consumers,” said Troy Datcher, Chairman and CEO.

TILT Holdings Q3 revenue fell 14% sequentially to $40.5 million and was down from $53.4 million in the same period a year ago. “The macro-economic challenges facing operators in the cannabis sector have been well documented over the course of 2022,” said CEO Gary Santo. “At the same time, we have seen an improvement in the gross margin profile of our hardware business and are excited to be debuting several innovative new hardware devices.” TILT expects to end the year on a strong note as the company prepares to enter New York in 2023 and is currently adjusted EBITDA and cash flow positive.

Verano Holdings Q3 revenue increased 2% sequentially and 10% year-over year to $228 million. During the quarter the company added 11 MUV dispensaries across Florida and added to its growing portfolio of products. “In the face of economic headwinds, industry dynamics and legislative uncertainty, we delivered revenue growth and strong adjusted EBITDA margins, underscoring our focus on superior operations and efficiency,” said Founder, Chairman and CEO George Archos.

To get real-time updates download our free mobile app for Android or Apple devices, like our Facebook page, or follow Alan on Twitter. Share and discover industry news with like-minded people on the largest cannabis investor and entrepreneur group on LinkedIn.

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Alan & Joel

Exclusive article by Alan Brochstein, CFA
Alan Brochstein, CFA
Based in Houston, Alan leverages his experience as founder of online community 420 Investor, the first and still largest due diligence platform focused on the publicly-traded stocks in the cannabis industry. With his extensive network in the cannabis community, Alan continues to find new ways to connect the industry and facilitate its sustainable growth. At New Cannabis Ventures, he is responsible for content development and strategic alliances. Before shifting his focus to the cannabis industry in early 2013, Alan, who began his career on Wall Street in 1986, worked as an independent research analyst following over two decades in research and portfolio management. A prolific writer, with over 650 articles published since 2007 at Seeking Alpha, where he has 70,000 followers, Alan is a frequent speaker at industry conferences and a frequent source to the media, including the NY Times, the Wall Street Journal, Fox Business, and Bloomberg TV. Contact Alan: Twitter | Facebook | LinkedIn | Email

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