This Cannabis Stock Catalyst is Kicking In

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.

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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:

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.

Get ahead of the crowd! If you are a cannabis investor and find value in our Sunday newsletters, subscribe to 420 Investor, Alan’s comprehensive stock due diligence platform since 2013. Gain immediate access to real-time and in-depth information and market intelligence about the publicly traded cannabis sector, including daily videos, weekly chats, model portfolios, a community forum and much more.

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 a family of indices to track Canadian licensed producers as well as the American Cannabis Operator Index.

View the Public Cannabis Company Revenue & Income Tracker, which ranks the top revenue producing cannabis stocks that generate industry sales of more than US$7.5M per quarter.

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

Discover upcoming new listings with the curated Cannabis Stock IPOs and New Issues Tracker.


Alan & Joel

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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