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.
After a bear market that started in early 2021, it sure feels like a bull market! The NCV Global Cannabis Stock Index has rallied 11.7% to start the year. It is up 22.1% since late August, when the news broke that the Department of Health & Human Services was recommending that the DEA move cannabis from Schedule 1 to Schedule 3:
Not all cannabis stocks have rallied so much. Leading the way has been the MSOs, and this makes some sense. The American cannabis industry is handicapped by an onerous tax, 280E, which forces them to pay tax on gross profits and not net profits. Here is the action in the leading MSOs since August 29th:
The largest MSOs have rallied too much, in our view. One thing that I watch is AdvisorShares Pure US Cannabis ETF (NYSE Arca: MSOS), and it is up by 30.1% to begin 2024 to 9.12 from 7.01 and is up by 88.7% since 8/29. Of course, it has dropped a lot over the past three years:
In 2024, through 1/25, the number of shares outstanding has expanded by 7.5% to 93.21 million. This is up 48.2% since the end of 2022. As poorly as it is run, with 45% in the top 2 holdings and over 80% in the largest 5 MSOs, it has no competition. In fact, Horizons ETFs, part of Mirae Asset and the creator of the first cannabis ETF, recently announced that it is closing its US Marijuana Index ETF in March, just before it would have celebrated its 5th anniversary.
Despite the inflow of money, the two top picks of MSOS, the same two as always, are lagging the other largest MSOs in 2024, and this is causing MSOS to lag the NCV American Cannabis Operator Index, which is up 36.1% :
Investors deserve better than an ETF that is not well diversified. As we have shared, the MSOs, especially the largest ones, face a lot of downside risk if 280E doesn’t go away. Investors should keep in mind that there are other cannabis companies besides the MSOs, like ancillary ones or Canadian LPs. In our view, certain of these offer upside but a lot less downside than the MSOs.
New Cannabis Ventures publishes curated articles as well as exclusive news. Here is some of the most interesting business content from this week:
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Alan & Joel