Disappearing Cannabis Cash

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 post this and all of the newsletters on our website here.


This week has been another rough one for MSOs, though we are not at all surprised. Another Tier 1 name reported, the fifth of five companies, and the four Tier 2 companies reported as well. Through Thursday’s close, the New Cannabis Ventures American Cannabis Operator Index has declined 6.9% and was now down 16.4% so far in March. It is up 6.4% year-to-date. While the performance has slipped recently, it’s still better than for other sectors. The NCV Global Cannabis Stock Index was down 0.2% year-to-date through 3/14.

Looking at the 9 largest MSOs by market cap or revenue, several have now declined in 2024 through 3/14:

Trulieve has soared from a very low price, rising 87.3%, while four names have declined. The average return for these 9 stocks in 2024 has been 6.5%, which is in line with the American Cannabis Operator Index.

We will be providing a review of Q4 earnings season very soon, but I would like to weigh in on the earnings reports of the leading MSOs here. These stocks are all down tremendously over the past few years. As we have pointed out for more than a year now, the elimination of 280E would be a major positive for this group of stocks and the cannabis industry as a whole. The potential rescheduling of cannabis by the DEA from Schedule 1 to Schedule 3 would result in this happening, but we still aren’t sure if it will happen or when. As we have been expressing recently, investors, in our view, seem overly excited by the prospects.

It seems like the MSOs are playing “follow the leader” and copying what Trulieve did last November. Recall that the company filed for a refund of its federal taxes. This was the big move made by several MSOs over the past few weeks. The cash flows can look better to investors, but they need to understand that 280E taxation is still the law. If the taxes remain, the companies will need to pay those taxes.

We have shared our perspective that investors should be cautious regarding the balance sheets of most of the large MSOs, and this remains a key concern. If 280E remains, the capital markets will continue to be challenging for the MSOs. Two have sold stock in the past few months, and both stocks are down substantially from where they sold shares. Borrowing money remains a challenge, and if 280E doesn’t go away, it could become even more difficult.

The tangible book values of the MSOs slipped during Q4. Only one of the 9 largest MSOs has a substantially positive value, and Green Thumb Industries trades at a big multiple of its tangible book value. The rest have more liabilities than tangible equity, especially Curaleaf at -$748 million.

I look at the current ratios too, and they are alarming in some cases. The current ratio divides current assets by current liabilities, and it can help assess the liquidity of a company. AYR Wellness, which has a large negative tangible book value, was just below 1X at year-end. Curaleaf was at 0.85X. TerrAscend was at just 0.5X. Verano Holdings, which hasn’t yet filed its 10-K, appears to be just below 1X.

Hopefully, 280E gets eliminated, but it might not. The moves that MSOs are taking to recapture the taxes that they have paid makes the balance sheets and cash flow statements look better, but they also elevate the risk of 280E remaining in place. Paying those taxes, if they remain in place, will burden these companies.

Cannabis investors need to be aware of the potential risks in their investments. MSOs are not the only sub-sector, and some ancillary names and Canadian LPs have better balance sheets than the MSOs. They also trade on higher exchanges and don’t pay the 280E taxation.

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

Exclusive Articles

Michigan Cannabis Sales Bounce Back

Financial Reports

Ascend Q4 Revenue Increases 25%

AYR Wellness Generates Flat Revenue in Q4

Cannabist Q4 Revenue Slips Sequentially

Cresco Labs Q4 Revenue Declines

GrowGeneration Q4 Revenue Falls Less Than Expected

TerrAscend Q4 Dips From Strong Q3

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.

Use the suite of professionally managed NCV Cannabis Stock Indices to monitor the performance of publicly-traded cannabis companies within the day or over longer time-frames. In addition to the comprehensive Global Cannabis Stock Index, we offer the Canadian Cannabis LP Index, the American Cannabis Operator Index and the Ancillary Cannabis Index.

View the Public Cannabis Company Revenue & Income Tracker, which ranks the top revenue producing cannabis stocks.

Stay on top of some of the most important communications from public companies by viewing upcoming cannabis investor earnings conference calls.

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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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