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.
An indicator for cannabis stocks just changed in a big way.
We were a little early in June getting excited about a coming improvement in cannabis stock prices but we remain very optimistic that better times are ahead. The New Cannabis Ventures Global Cannabis Stock Index is down a lot this year. Even after the lift over the past week, the index is still down 59.5% in 2022. Since the all-time closing low on 9/30, the index has lifted now by 18.3%.
We think the market has likely bottomed, but we remain concerned that the S&P 500, now down 16.2% year-to-date, could break down again. We have been warning our subscribers at our premium service, 420 Investor, that the bear market in stocks could create a headwind for the rally we envision.
The model portfolios at 420 Investor are invested fully, with an overexposure to ancillary stocks. We are neutral relative to the index with respect to Canadian LPs, and we are slightly underweight the exposure to American cannabis operators. Structurally, we have no exposure at the moment to the largest 5 MSOs, but large exposure to 3 Tier 2 names and a 4th name that is smaller.
Valuations are generally very low for cannabis stocks, and we expect fundamental improvement ahead. What changed very dramatically this week is a comparison of the 420 Investor Focus List stock prices to their long-term moving averages. Of the 32 names on the Focus List, there are now 4 that are more than 10% higher than the 150-day moving average and 4 that are between 0.1% and 10% higher.
A week ago, there were only 2 names above the 150-day moving average, Charlotte’s Web and GTI. What we find impressive is that the stocks that surged are generally higher market cap and higher revenue companies. Interestingly, the 420 Investor model portfolios own only 1 of the top 8 names. They own 3 of the bottom 5 names that are all more than 60% below the 150-day moving average. Last week, there were just 3 names, so the extremely oversold list got longer this week too. The median difference for the Focus List dropped from -24.6% last week to -14.6% this week.
We are sharing this information because we think it supports our view that now is the time to begin to look at cannabis stocks. I recently shared my view at Seeking Alpha that cannabis investors may be about to “warm up” to investing in the space. While we think that the overall market ran up too much last week and that it could dip a bit in the near-term, we believe that cannabis stocks will far outpace other types of stocks ahead. Earnings season is almost over, and we expect that investors could begin to deploy capital into the sector over the next two months.
Are you interested in cannabis stocks?
Let us know below, and we will send you a video made by Alan that discusses MSO valuations.
New Cannabis Ventures publishes curated articles as well as exclusive news. Here is some of the most interesting business content from this week:
Curaleaf is looking for long-term growth opportunities and is planning to expand into Europe. Matt Darin took on the CEO role in May, while Joseph Bayern moved into leading a new division. In an exclusive interview, Darin says he’s focused on leveraging the foundation the company has built and taking it to the next level.
Acreage Holdings reported Q3 revenue of $61.4 million, which was flat sequentially, but up 28% year-over-year. Last month, Canopy Growth announced it was creating a holding company to speed up its entry to the U.S. “Acreage is a valuable addition to what Canopy is building, and we believe the time is right to build an even stronger position ahead of federal permissibility as part of a leading North American brand powerhouse,” said CEO Peter Caldini.
Meantime, Canopy Growth Q2 revenue was up 7% sequentially at C$118 million, but fell 10% year-over-year. “We are pressing forward on our path to profitability in Canada and expect Canopy USA will meaningfully enhance our growth and profitability over time once it closes the announced acquisitions of Acreage, Jetty, and Wana,” said Canopy CFO Judy Hong.
AFC Gamma reported Q3 net income was $11.5 million, up from $7.9 million in the same period a year ago. “Given the current broader market environment, we continue to act disciplined in our approach towards deploying capital to new and existing operators,” said CEO Leonard Tannenbaum.
Ascend Q3 revenue was up 14% sequentially and 17.9% year-over-year, at $111.2 million. The company said the gains were primarily driven by an increase in third-party wholesale sales, the conversion of retail stores to adult-use, and new store openings. “The team continues to deliver strong margins by optimizing existing overhead; leveraging our retail organizational structure; and executing on cost saving initiatives,” said Dan Neville, interim co-CEO and CFO.
Aurora Cannabis Q1 revenue slipped 2% sequentially to C$49.3 million. Medical cannabis net revenue was $31.6 million, a 14% decrease from the prior quarter and a 23% decrease from the prior year period. Meantime, consumer cannabis net revenue was $13.7 million, a 9% increase from the prior quarter and a 28% decrease from the prior year period. “International medical cannabis net revenues were slightly uneven in Q1 2023, characteristic of rapidly developing markets,” said CEO Miguel Martin.
Ayr Wellness Q3 revenue rose 9% sequentially to $119.6 million and was up 24% from the same year-ago period. The company said it grew retail market share in six of the seven states where it operates. “Looking ahead, we anticipate further growth from the optimization and ramping of our existing asset base, as well as a number of new catalysts that we expect to begin contributing by early next year,” said Founder and CEO Jonathan Sandelman.
Chicago Atlantic Real Estate Finance saw its Q3 revenue grow 13% sequentially to $12.93 million. “Having previously made the strategic decision to limit growth in the REIT portfolio until we had sourced more accretive sources of capital, we exceeded our expectations for the third quarter, improved book value and raised our full year outlook on the strength of improved portfolio yields and a sequential reduction in expenses,” said Executive Chairman John Mazarakis.
Cronos Group Q3 revenue fell 10% sequentially to $20.9 million, but ticked up by $0.5 million year over year. The increase was primarily driven by a rise in net revenue in the Rest of World segment driven by growth in the Israeli medical market and higher extract sales in the Canadian adult-use market. Cronos said it remains on track to achieve the previously identified $20 million to $25 million in operating expense savings for 2022.
Curaleaf Q3 revenue rose 1% sequentially to $340 million and was up 7% year-over-year. The company said it was its 19th quarter of consecutive retail growth and that it is on pace to increase new product revenue 75% year-over year. “In the third quarter we proved once again that Curaleaf’s diverse geographic and channel revenue mix is a key distinguishing factor driving our performance, one that allows us to withstand regional challenges and still deliver on revenue targets,” said CEO Matt Darin.
Glass House Brands Q3 revenue skyrocketed 72% sequentially to $28.3 million from $16.5 million and increased 65% from $17.2 million in the same period a year ago. “In just one quarter, we nearly matched the total amount of wholesale biomass we sold in all of calendar 2021,” said Co-founder, Chairman and CEO Kyle Kazan.
GrowGeneration reported Q3 revenue declined $45.2 million, or 38.9%, to $70.9 million, compared to $116.0 million for the same period a year ago. “I am proud of how resilient our team has been throughout this year as GrowGen – and the entire hydroponics category – has faced significant industry and economic headwinds,” said co-founder and CEO Darren Lampert.
Hydrofarm Q3 revenue fell 24% sequentially to $74 million and was down from $123.8 million a year ago. Chairman and CEO Bill Toler said the results were below last year “due to the persistent and well acknowledged industry recession.” However, he added, “Our underlying performance was generally in-line with our internal expectations.”
iAnthus Capital Holdings revenue fell 10% sequentially to $39.4 million and saw a decrease of 20% from the same period in the prior year. The company reported gross profit of $16.2 million, a sequential decrease of 18% when compared to Q2 2022 and a decrease of 38% from the same period in the prior year.
MariMed Q3 revenue ticked up 3% sequentially to $33.9 million from $33.2 million. Last month, the company opened its first medical dispensary in Annapolis, Maryland, marking the beginning of the company’s fully vertical operations in that state. “Fueling our confidence are several new and expanded assets in our existing markets that will come online in 2023,” said President Jon Levine. “Additionally, we look forward to our entry next year into additional high-growth cannabis markets, including Ohio, Missouri, and Michigan.”
Nova Cannabis reported record sales of C$58.9 million, up 4.6% sequentially and 52.4% year-over-year. “Our encouraging results come despite hyper-competitive cannabis retail markets across the country along with inflationary pressures and capital markets disruption,” said CEO Marcie Kiziak.
Planet 13 Q3 revenue fell 10% sequentially to $25.6 million and was down 22% from $33 million a year ago. “We anticipated this downturn and undertook proactive steps last quarter as well as exercised financial discipline to maintain positive operating cash flow and protect our cash position,” said Co-CEO Larry Scheffler.
Schwazze Q3 revenue fell 2% to $43 million, but rose 36% year-over-year. In the last year, Schwazze has added 15 cannabis dispensaries, 10 in New Mexico and five in Colorado, as well as four cultivation facilities in New Mexico, one in Colorado and one manufacturing asset in New Mexico. “This is a proof point that we are well on our way to building Schwazze into a unique regional powerhouse,” said Chairman and CEO Justin Dye.
Trulieve Q3 revenue fell 5% sequentially to $301 million, but was up 34% from the same period last year with 94% of revenue from retail sales. The company operates 178 retail dispensaries and more than 4 million square feet of cultivation and processing capacity in the United States. “We navigated macroeconomic pressure, changes to dosing limits in our core state of Florida, and the impact of Hurricane Ian, while making further progress streamlining the organization,” said CEO Kim Rivers.
Village Farms Q3 cannabis revenue was flat sequentially at $35.5 million, while total cannabis net sales rose 14% year-over-year, representing 50% of total Village Farms sales. The company said total Canadian cannabis market share grew steadily throughout the quarter and continued in October, marking four straight months of expansion. “The strong performance in our Canadian cannabis business in the third quarter reflects the successful execution of our growth strategy and investments as we achieved another sales record, outstanding growth in retail sales,” said CEO Michael DeGiglio.
WM Technology Q3 revenue fell 13% sequentially to $50.5 million and slipped ever so slightly from $50.8 million in the same quarter a year ago. The company also announced that Doug Francis, co-founder and executive chair, will be taking a more active role in leading the company. He succeeds Chris Beals who stepped down. “We have significant opportunities to expand our moats and build the future rails for the cannabis industry while working to get back to our operating culture of driving profitable growth and cashflow,” said Francis.
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Alan & Joel