This is a copy of the December 9th edition of our weekly Newsletter, which we have been publishing since October 2015.
As we head into the final weeks of 2018, cannabis stocks are setting new lows for the year as measured by the Global Cannabis Stock Index, which has lost over 47% this year thus far. To put the decline into perspective, it follows gains of over 92% in 2017 and 89% in 2016, leaving the index, despite the correction this year, up 91% since the end of 2015:
The poor returns for the sector can be attributed to many factors, but perhaps the simplest explanation is that the market got way ahead of itself a year ago following the first investment by Constellation into Canopy Growth and going into California’s legalization. Weakness in the overall market, disappointment over Canada’s legalization and lots of capital raising in both Canada and the U.S. have played a role as well.
Despite the rough year for the market, a few stocks currently in the index that were trading a year ago have advanced substantially in 2018, reminding investors that not all stocks in a sector move the same. Bucking the trend in Canada have been TerrAscend (111%), Cronos Group (75%), Canopy Growth (40%), Neptune Wellness Solutions (36%), HEXO Corp (27%) and Organigram (18%). TerrAscend benefited from the closing of its recapitalization by Canopy Growth, Canopy Rivers and JW Asset Management, which moved the stock up more than 100% last November when it was announced. Cronos Group and Canopy Growth both advanced on the back of massive strategic investments. Neptune repositioned the company to capitalize on extraction. HEXO and Organigram both emerged as regional players well prepared for the adult consumer market and as potential acquisition candidates.
In the U.S., the big winners include CV Sciences (713%), Marimed (474%), iAnthus Capital (116%), CannaRoyalty, which is doing business as Origin House (63%), Innovative Industrial Properties (55%) and KushCo Holdings, formerly Kush Bottles (42%). CV Sciences not only experienced explosive growth, but it also worked through a legal situation with the SEC. Marimed, which reported 98% sales growth last quarter, was under the radar and benefited from investment by Navy Capital. iAnthus Capital bounced back sharply from pressure in Q4 last year due to a capital raise, and entered Florida and New York markets after backing from Gotham Green Partners. Origin House closed some key acquisitions and repositioned itself as an operator focused on California and Canada. Innovative Industrial Properties was successful raising and deploying capital, with revenue in Q3 rising 152%. KushCo Holdings generated sales growth of 177% in the fiscal year ending in August and provided guidance for sales to more than double organically in the year ahead.
The weakness in stock prices in Q4 has left many stocks at levels that likely offer investors the opportunity to experience better performance in 2019. Most of the winners, in fact, have given up a lot of their gains. The pattern of early-in-the-year gains followed by weak prices over the balance of the year has created powerful incentives to sell losers to offset those gains, pressuring the stocks with substantial losses further. At the same time, with abundant losses, taxable investors are also able to sell some winners without having to worry about the burden of taxes. This process will end soon, and investors would be wise to position themselves for better times, in our view. We have been focused on the tremendous growth in revenue this year, but next year will see an acceleration for many names.
Green Peak Innovations is a vertically integrated medical cannabis company that is expanding in Michigan. On December 7th, the company announced it has approval for all 12 medical cannabis cultivation licenses in the state and plans to complete the licensing process early 2019. To learn more about our client, visit the company’s page on NCV and click the green Get More Info button.
New Cannabis Ventures publishes curated articles as well as exclusive news. Here is some of the most interesting business content from this week:
- Acreage Holdings to Build Nationwide Cannabis Manufacturing and Distribution Platform with $160 Million Form Factory Acquisition
- After Sharp Share Price Decline, Curaleaf to Repurchase up to $50 Million of Subordinated Voting Shares
- Altria Buys 45% of Cronos Group for C$2.4 billion with Option to Take Controlling Stake
- Exclusive: American Cannabis Operators Decline 5.8% in November
- Aphria Details its Latin American and Jamaican Operations
- Ascend Wellness Closes $40M Funding Round
- Exclusive: Canadian Cannabis Producers Decline 14.8% in November
- Canopy Growth Enters Cannabis Vaporizer Market with C$220 Million Acquisition of Volcano Manufacturer
- Canopy Rivers Boosts Italian Hemp Stake to 49.9% with $17 Million Investment
- DNA Genetics Raises $35 Million
- Exclusive: Global Cannabis Stocks Decline 10.0% in November
- Green Growth Brands Wins 7 Nevada Cannabis Licenses
- springbig Closes $5M Equity Round Led By Altitude Investment Partners
- Supreme Cannabis Partners with Wiz Khalifa to Create Premium Cannabis Products
- Exclusive: This Cannabis Company that Doesn’t Touch the Plant Expects to Double Sales to More Than $110 Million
- TILT Holdings Acquires Cannabis Distributor BlackBird for $50 Million
After the tremendous success of the first Cannabis Capital Conference in Toronto this summer, we are excited to be working with Benzinga again for its next event that is designed for North American cannabis investors and entrepreneurs, which will take place next month in sunny Miami Beach.
Get your ticket and be sure to use code “420ALAN”
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Alan & Joel