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.
Like most of the people reading this, we want to see cannabis stocks rally. We find them attractively priced, but we have expressed some concerns that persist, like very low trading volume. The New Cannabis Ventures Global Cannabis Stock Index is up 9.1% year-to-date, which is better than the overall stock market, but the volume has been very light. Even this week, when cannabis stocks gained despite the weakness in the broad stock market, there wasn’t much volume. On Friday, there were only 9 names traded above $5 million, a very low number historically.
The market has been quite volatile over the past several months due mainly to anticipation of federal action. One of the drivers of a rally was President Biden’s pardoning action, but this proved to be pretty meaningless. Then, the market got overly excited about SAFE Banking perhaps passing. We continue to believe that cannabis stocks don’t need any federal legal changes to advance, though there could be a huge boost to cannabis stocks if the 280E taxation goes away or if the exchanges permit American cannabis companies to uplist. If Canopy Growth is able to hold onto its NASDAQ listing and purchase three American cannabis companies, then the largest American cannabis companies will likely be able to uplist too.
From our perspective, cannabis stocks are so cheap that they don’t need much of anything to rally. Here is where the very largest American cannabis producers are trading on an enterprise value to projected 2023 adjusted EBITDA basis:
The average projected sales growth rate of the group in 2023 is a strong 18.4%, and adjusted EBITDA growth is expected to exceed 41%.
We think that just meeting the expectations without analysts lowering their outlooks will go a long way towards pushing the market higher. Q4 earnings season for the American cannabis companies begins at the end of February and isn’t yet fully scheduled. Those that want to see the timing as it develops can watch our calendar for earnings calls.
Investors looking at cannabis stocks see the low valuations, but they also see stocks that have been under intense pressure. Contrarians may like that combination, but most investors want to see improving prices before they get involved. So, if we want to see more volume to have confidence that a big rally will play out, it will take some time. Earnings season may play a key role if leading companies generate revenue and profitability close to expectations.
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New Cannabis Ventures publishes curated articles as well as exclusive news. Here is some of the most interesting business content from this week:
January cannabis sales in Michigan fell 6.5% sequentially but increased 35.9% from a year ago to a record $207.3 million. Medical sales plummeted 59.6% from a year ago to $11.3 million and were down 15.8% sequentially. Adult-use sales fared much better, growing 57.3% year-over-year to $196.0 million, although they were down 5.9% in January compared to December. Meantime, with more supply in the pipeline, flower pricing for adult-use has declined significantly. In January, the average price of $1,282 per pound fell 11.6% sequentially and dropped 47.5% from a year ago. Overall sales rose 82.1% in 2021 to $1.79 billion and were up 27.9% in 2022 at $2.29 billion.
iPower Inc. Q2 revenue fell 26% sequentially but grew 12% year-over-year to $19.3 million compared to $17.1 million. The company attributed the annual increase to off-loading excess inventory built up in recent quarters. “With an improved supply chain, we made the strategic decision to increase our marketing spend to significantly reduce our inventory,” the company said in a news release. The reduction will help iPower eliminate extra warehousing space and the costs associated with it.
TILT Holdings has completed its previously announced $15 million sale-leaseback transaction for its Pennsylvania cultivation and manufacturing facility. Net proceeds will be used toward the repayment of debt and working capital. The company also announced a series of transactions that alleviates its near-term debt maturity and further reduces the company’s non-revolving debt to $46 million, down from $86.7 million in December 2021. “Anytime a company can reduce its long-term debt by almost 50% over a 12-month period, is remarkable,” said Gary Santo, TILT’s CEO. “Our ability to withstand unprecedented sector headwinds and overcome the lack of access to traditional banking products and inefficient capital markets is a true testament to the strength and perseverance of our team.”
Forian Inc. is getting out of the cannabis business. The company said it is selling its cannabis software subsidiary, Bio-Tech Medical Software, Inc. to Alleaves, Inc., a provider of ERP software solutions to the cannabis industry for $30 million in cash. The company said it is going to focus on its healthcare information business, a key driver of its growth.
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Alan & Joel