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.
While this year isn’t playing out exactly as we anticipated due to the pandemic’s impact on the world economy, financial markets and the operations of most cannabis companies, we nailed a major forecast we shared as 2019 ended. In our December 22nd edition of this newsletter, we discussed “The Biggest Driver of Cannabis Stocks in 2020“, predicting that revenue and profitability improvement for American MSOs and ancillary companies would result in improved stock performance.
This past week, reports from GrowGeneration and Green Thumb Industries validated our thesis, sending the stocks to multi-month highs. GrowGeneration, which is up 31% year-to-date, posted revenue of $33 million, representing 30% sequential growth and a 152% improvement from a year ago. The company reported positive adjusted EBITDA and raised its growth outlook for the year.
GTI achieved an industry first, generating quarterly revenue in excess of $100 million with a 25% adjusted EBITDA margin. While the stock is down 5% in 2020, this is far better performance than the cannabis sector and also ahead of the S&P 500. Two of its peers report this week and could potentially cross this threshold as well, including Curaleaf, which is projected to have generated revenue of $101 million, and Trulieve, which is expected to have generated revenue of $91 million but has consistently exceeded expectations. Trulieve, of course, has been extremely profitable to date, with its Q4 EBITDA margin an eye-popping 56.5%.
Despite some operational challenges, leading cannabis operators are driving forward, and we think investors could begin to appreciate the resiliency of the industry. We have shared our perspective that the pandemic is ushering in temporary regulations that are making access to cannabis more convenient, and we expect these changes, including delivery and curbside pickup, to become permanent. We are also expecting 2021 to be a banner year for legalization through the legislative process and expect this to be particularly prevalent in the East but also in states like Minnesota.
While we continue to suggest the rising tide won’t lift all boats, as access to capital remains quite constrained, we see an industry where fundamentals appear to be improving. At the same time, the prices of many of the leading companies in our sector have lagged their own growth. Of course, some of this may be that the price was too high in the past. Looking at the two that just reported this past week, GrowGeneration has increased by 60% over the past year, but it has also delivered triple-digit revenue growth, much of it organic, and it trades at 20X projected 2020 adjusted EBITDA. GTI, which has declined by 28% over the past year, trades at about 20X projected adjusted EBITDA as well. Long gone are the days of cannabis stocks trading at 20X forward sales!
It’s quite a challenge to confidently project what lies ahead due to the uncertainty of this unprecedented crisis, but we know that investors crowd into growth stocks during tough times for the economy. This is the first time public cannabis stocks have had to deal with an extremely weak economy, but we expect that investors will appreciate the relative growth ahead, and our expectations aren’t limited to just American operators. We believe the same relative growth characteristics will become evident in Canada, and these companies, which trade on higher exchanges, could see more institutional investor interest.
We are becoming increasingly optimistic and have shared several new ideas with subscribers at 420 Investor. If you are looking to capitalize on the resilience of the cannabis industry and its growth prospects, consider leveraging our research.
Analysts that cover the cannabis industry are starting to present a more optimistic outlook on companies that have shown resilience throughout the downturn. During this event, catch Alan Brochstein’s newest presentation that discusses a brighter future for these type of companies at Benzinga’s virtual cannabis conference, and a lot more from other speakers on June 1st, 2020.
New Cannabis Ventures publishes curated articles as well as exclusive news. Here is some of the most interesting business content from this week:
- Exclusive: Ascend Wellness Projects $400 Million in Revenue as Adult-Use Cannabis Operations Scale
- Aurora Cannabis Net Revenue Increases 35% Sequentially to $75.5 Million
- Charlotte’s Web Generates $21.5 Million Revenue During Q1
- Columbia Care Q1 Revenue Doubles to $26 Million
- Epidiolex Growth Fuels GW Pharma Revenue Above Expectations to $120.6 Million
- Exclusive: Fire & Flower is Working Toward Building a Blue-Chip Cannabis Retailer
- GrowGeneration Reports $33 Million Revenue in Q1 and Boosts Outlook
- GTI Becomes the First American Cannabis Operator to Exceed $100 Million Quarterly Revenue
- Tilray Q1 Cannabis Revenue Grows 9% Sequentially to $30.8 Million
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Alan & Joel