You’re reading a copy of 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.
Cannabis stocks rallied again for the second week in a row, rising 3.4% despite the S&P 500 slipping. While the New Cannabis Ventures Global Cannabis Stock Index is down 12.2% in 2023, it is up so far in Q2 by 0.4%.
The market seems to be moving on what we think is something that isn’t likely to be a big driver, SAFE Banking. Last week, we discussed how even if it were to pass, its impact on the large publicly traded companies wouldn’t be great. We discussed two more important things that could happen that would be greater drivers, the elimination of the 280E tax and the ability to uplist from the OTC to a higher exchange.
So, what’s an investor to do on this rally? Sell? Well, if one is a trader, perhaps, but, as we have been saying for a while: Cannabis stocks are very cheap. Looking at the 2024 adjusted EBITDA estimates, the five largest companies by market cap and revenue look very inexpensive:
5X is a very low valuation compared to stocks generally as well as to these stocks historically. Even the most expensive one, Curaleaf, at 6.3X offers significant upside in our opinion.
Another way to look at the sector is by price to tangible book value. Most of the largest MSOs have negative tangible book value. The best one of these is GTI, which closed on Friday at 3.8X, which is no bargain. One that we like, Planet 13 Holdings, trades at just 1.4X. Some of the large Canadian LPs that have no debt and lots of cash, Cronos Group and Organigram, trade at the bargain levels of 0.7X and 05.X, respectively.
Low valuations don’t suggest that investors buy for making quick gains! The valuations are low, but they have been getting lower. The trading volumes remain very low, which means that a few people chasing cannabis stocks can really push the prices in the short-term, even if they are not right about why they are buying.
We really like the valuations here for the cannabis sector, but we don’t believe that there is any evidence that this rally has legs yet. We look forward to the industry doing better and investors finally appreciating the potential ahead.
This week’s newsletter is sponsored by Carbon Chemistry
Carbon Chemistry widely distributes materials used in cannabinoid production, purification, and distillation. Our mission is to provide proven, hand-selected products and trusted materials to manufacturers that ultimately advance their capabilities in cannabis oil production – improving the ease of their process. We are your industry allies in the process of quality edibles, drinkables, tinctures, wax, crumble, live resin, diamonds and sauce, and vape cartridges. We make your process easier.
To learn more about Carbon Chemistry, a client of New Cannabis Ventures, visit the company’s page that we maintain on its behalf and click Get More Info.
New Cannabis Ventures publishes curated articles as well as exclusive news. Here is some of the most interesting business content from this week:
We broke down April performance for three of the proprietary indices that we offer at NCV. Each index did better in April than the Global Cannabis Stock Index, which we detailed on April 28th.
Acreage Holdings reported Q4 revenue that fell 1% from a year ago. Sequentially, revenue fell 6% to $57.5 million.
Curaleaf Holdings, the largest MSO by revenue or by market cap, rallied sharply this week, gaining 9.4% after reporting its Q4 earnings. During the quarter, the company, which is still down 34.8% in 2023, revised how they reported, moving from IFRS to GAAP. Revenue during Q4 fell by 4% sequentially
Green Thumb Industries reported its Q1, with revenue falling 4% sequentially to $248.5 million. Cash flow from operations was very high during the quarter, as the company didn’t need to make any quarterly tax payments.
Scotts Miracle-Gro’s Hawthorne Gardening unit saw sales plunge 30% sequentially during its fiscal Q2. The drop from a year ago was 54%.
StateHouse Holdings reported its Q4, and it was able to stay on the senior list we maintain despite revenue dropping 17% sequentially. Revenue increased 70% from a year ago due to mergers.
Turning Point Brands saw its Q1 revenue from Zig-Zag Products drop 10% sequentially. This represented an 8% decline from a year ago. The company reduced its inventory, as it had planned.
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View the Public Cannabis Company Revenue & Income Tracker, which ranks the top revenue producing cannabis stocks.
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Alan & Joel