Navigate the fast-moving cannabis sector with 420 Investor, a premium service that sends real-time alerts and explanations of the news below and much more.
- The SAFE Banking Act was reintroduced in Congress.
- Canadian retail cannabis sales growth slowed in January.
- Health Canada added 3 licenses.
- 420 Investor model portfolios have gained 71.5-90.5% year-to-date, while the Global Cannabis Stock Index has gained 52.2%.
SAFE Banking legislation was reintroduced in Congress.
Canadian cannabis sales in January, according to data released from Statistics Canada, fell 6% from December. Health Canada added 3 licenses, leaving the total at 626, which includes 5 licenses that are expired, revoked or suspended.
During the week, I shared these insights with subscribers at 420 Investor:
- Previews for TerrAscend and Trulieve Q4 Financials
- Ayr Wellness Uses M&A to Become a Leading MSO
- Cannabis Sub-Sector Review – 03/12/21
- Model Portfolio Composition 03/12/21
Here are some of this week’s highlights for 420 Investor Focus List names:
- CCHWF reported its Q4 in line with the pre-announcement, with combined revenue, which includes Ohio, of $82 million and adjusted EBITDA of $9.5 million.
- CGC borrowed $750 million at LIBOR + 8.5% for 5 years from King Street Capital
- CRLBF announced the acquisition of Massachusetts operator Cultivate for $90 million and a potential earnout of up to $68 million, or 4-4.5X projected 2021 adjusted EBITDA
- CRON is now distributing Kristen Bell’s Happy Dance CBD products within at Ulta Beauty
- CURLF inked a deal to open a shop within the Planet 13 SuperStore in Las Vegas for its Select products. It introduced its “Select Fresh” line of fruit-flavored vape cartridges in 10 states.
- CVSI Q4 revenue fell short of expectations at $5.2 million, down 45% from a year ago and 7% sequentially.
- FLOOF completed its $19 million convertible note financing with the closing of a final tranche.
- GNLN launched organic hemp rolling papers and cones under its VIBES brand
- GRAMF filed a business acquisition report for Q4 that indicated revenue on a pro forma basis was $40 million with an adjusted EBITDA loss of $17.7 million
- GRWG announced the acquisition of Char Coir, a growing medium provider with annual revenue in excess of $15 million. It also bought a large store in Santa Ana, California that should add $10 million in annual sales and entered Massachusetts with an acquisition of a store in Agawam that will add about $5 million in annual sales.
- GTBIF opened a dispensary in Paramus, NJ, its second in the state. Its Q4 revenue and adjusted EBITDA were well ahead of expectations, with revenue growing 134% from a year ago to $177 million with adjusted EBITDA of $65.4 million and positive GAAP net income.
- HRVSF settled litigation with Falcon International, a California-based company it had attempted to acquire in 2019.
- TCNNF boosted its senior leadership team with a promotion and two outside hires. It opened its 78th Florida dispensary.
- TRSSF reached a settlement with PharmHouse regarding its take-or-pay contract, describing the pending payments as immaterial. It also received its processing permit in New Jersey.
- VFF Q4 revenue and adjusted EBITDA fell short of expectations, with revenue for the Pure Sunfarms unit growing just 2% sequentially
The Global Cannabis Stock Index retreated modestly after last week’s big gain, decreasing 2.8% to 67.55:
The index, which lost 34.1% in 2019 and lost 54.9% in 2018 after gaining 91.8% in 2017 and 88.8% in 2016, was up 5.2% in 2020. The index has gained 52.2% in 2021 thus far. It currently includes 38 stocks and ended 2020 at 44.39:
420 Investor Model Portfolios
420 Investor offers three model portfolios for subscribers, including two that are long-term focused and fully invested with a goal of beating the Global Cannabis Stock Index, 420 Opportunity and 420 Quality. 420 Opportunity ended the week valued at $187,766, down 2.0%. The model portfolio, up 78.2% in 2021, gained 35.6% in 2020 and has increased 275.5% since April 2014. 420 Quality ended the week at $277,007, down 1.8% for the week, and is now up 71.5% in 2021 after gaining 42.8% in 2020. The model was launched in March 2017 targeting long-term investors seeking to invest in leading cannabis stocks with low portfolio turnover and has gained 454.0% since inception compared to the 16.5% decrease in the index. Flying High, which is focused on swing trades, ended the week valued at $480,774, down 1.3%. The model portfolio gained 52.7% in 2020 and is up 90.5% in 2021, and the return since inception in late 2013 has been 4708%.
After a strong rally to begin 2019, the cannabis sector experienced a sharp decline over the next year to unprecedented levels due to several negative developments, including the CannTrust fraud, the surprise termination of Bruce Linton as CEO of Canopy Growth, a disappointing roll-out of legalization in Canada, regulatory confusion in the U.S. regarding CBD and a slow roll-out of legalization in California, the vaping crisis and then financial turmoil and market disruptions due to the COVID-19 pandemic. The sector saw capital available to fund expansion dry up, a situation that continues to leave companies operating with negative cash flow severely challenged, as the availability is limited to stronger operators.
Cannabis stocks overreacted and put in a bottom in March, and they are now benefiting from a perception that the industry offers strong growth prospects, something that wasn’t clear then. A big change has been that the pandemic has caused many regulators to permit previously prohibited types of retail activities, like curbside pickup and delivery. The legal market is rapidly capitalizing on becoming even more convenient than the illicit market, with the ability to order online. High unemployment and large deficits will likely spur state legalization efforts as well as more favorable regulatory control at the local level. Access to capital is now improving quickly.
There are some potential catalysts ahead, including the FDA providing clarity on CBD, progress in the Canadian legalization that commenced in October 2018 and that is beginning to include a broader set of products and the continued growth in German and Israeli MMJ and other international markets that have been slow to develop. The implementations in California and Massachusetts for adult-use were slow to roll out but are beginning to show great improvement. Michigan and Illinois legalized at the end of 2019, and these markets are showing strong growth that could encourage other states to legalize. Voters in Arizona, Montana, South Dakota and New Jersey all approved adult-use legalization in November.
The big themes ahead are likely to be continued cross-industry investment into the sector and more consolidation in Canada and in the U.S., potential federal regulatory reform (SAFE Banking Act and other more comprehensive legislation, which could eliminate 280E taxation and enable trading on higher exchanges for MSOs as well as the broad usage of credit cards for cannabis purchases), steps to enable cannabis research, the roll out of MMJ in Germany, Mexico and in Australia as well as continued advances in South America and potential adult-use legalization in Israel and Mexico, new legal cannabis implementations in AZ, MT, NJ and SD, and MMJ implementations in Virginia and soon Mississippi and West Virginia, possible legalization via the legislatures in CT, DE, FL, MD, MN, NH, NM, NY, PA, RI and VA and implementation of the VT commercial program in 2022.