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 no longer send these by email as we did in the past, but we post this and all of the newsletters on our website here.
Friends,
The Global Cannabis Stock Index has had a rough start to September. After soaring 45.5% in August and being up 54.2% so far in Q3 at month-end, the index has dropped from 7.74 to 6.99, a decline of 9.7% in just two days. The index is now up just 1.6% year-to-date. Large cannabis ETF MSOS, which is still up 21.0% year-to-date, has dropped 17.2% since the end of August.
There are 23 stocks currently in the Global Cannabis Stock Index, and they are now up quarter-to-date 39.2%. The range of returns is from -19.6% to +186.0%:
There are three stocks that have more than doubled since the end of June, and 13 others that are double-digit gainers. 2 stocks, both added to the index at the end of June, have been double-digit decliners.
The three leading stocks are Canadian LPs, and this newsletter has called out the top two bullishly several times this year. Of course, I warned here that Tilray is a dangerous stock on August 20th, and, while it has dropped a lot from its recent peak, it is still higher than then (and remains dangerous in my view).
Today, I want to share some my caution on several of these names and to explain why I am concerned. I have written articles about some at Seeking Alpha that are bearish after having been bullish (Tilray and Village Farms), and I continue to be very negative on the MSOS ETF (bad diversification). I will mention the stocks that are in the Global Cannabis Stock Index that concern me alphabetically:
- Aurora Cannabis (ACB): I used to follow this one closely, but it is no longer on my Focus List at 420 Investor. The company blew it in the adult-use market in Canada, but it has expanded internationally in medical cannabis. I don’t think the CEO has done a good job, and the stock, which is up 15.4% year-to-date, doesn’t appear to be attractively valued.
- Canopy Growth (CGC): I do follow CGC closely and have been very negative on it for a while. It has become exclusively cannabis, but it continues to burn cash in its operations and to struggle with a lot of debt. The stock is down 49.1% year-to-date, and I project it will post a new all-time low.
- Glass House Brands (GLASF): I don’t include this one on my Focus List, but I do pay attention to it as it is one of just three MSOs in the index. I like the CEO, but I think the stock is overvalued. It has been helped by two investors who very loudly support the stock. GLASF is up 21.7% year-to-date.
- Rythm (RYM): This one, which last week was known as Agrify, has had a tough start to September, but it is up 23.0% year-to-date. I have written here before about it, and I have watched it, though it is not on my Focus List. I am interested because Green Thumb Industries has such a large stake in it. While I like the idea of pursuing hemp-based THC beverages, the company has a lot of work to do to justify its massive valuation.
- SNDL (SNDL): I don’t include this one on my Focus List either, but I have spoken to the CEO, who I like. The company owns what I consider bad MSOs, and it trades above tangible book value now. It is up 40.5% year-to-date.
- Tilray Brands (TLRY): I started liking TLRY a bit too early after disliking the stock for a long time. I appreciate the better balance sheet and like what the company is doing with THC beverages in the U.S., but the stock, now down 10.9% year-to-date, seems very expensive. The share-count has exploded! My target for a year from now is substantially below where the stock is trading, and the company gets no benefit from rescheduling.
- Trulieve (TCNNF): Up 44.7% year-to-date, the stock looks cheap relative to projected adjusted EBITDA. I think that the margins expected by the analysts are too high, and I am very cautious about Florida, where it is quite large. I also don’t like the balance sheet, which has a lot of tax-related liabilities. If 280E taxation sticks around, this one will fall sharply.
- Village Farms (VFF): While it has come down a lot from its recent peak, it is still up 234.6% year-to-date. I think it is a good company and like the transformation, but the stock seems way ahead of itself. The company could get a medical cannabis license in Texas, but it may not as well. I loved it below $1! While I don’t expect it to down that much, I think it could fall a lot.
I covered here just the stocks that are in the Global Cannabis Stock Index, though there are stocks that are not in the index that bother me as well. I have written about some of them at Seeking Alpha, and I recently shared a post on my blog about several cannabis stocks that concern me.
If I didn’t mention a stock as concerning me, I don’t want readers to assume that I like the name at its current price. My model portfolio at 420 Investor holds 19.3% cash, which is near the maximum of 20%, and positions in two Canadian LPs, two MSOs and three ancillary names. I am trying to create a portfolio that has less downside risk than the Global Cannabis Stock Index.
Any trader or investor who is counting on 280E taxation to go away may see this happen. I don’t presume that it will, but best of luck to all those who are betting that it will!
Sincerely,
Alan
This week’s newsletter is sponsored by Paul E. Saperstein Co.
On September 16th, equipment from Community Growth Partners is being auctioned in Northampton, Massachusetts at 11 am ET. All bids must be delivered online. Find out more about the 219 items being auctioned.
Interested parties may contact Michael Saperstein at 617-227-6553 or by email at msaperstein@pesco.com.
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