You’re reading 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. We no longer send these by email as we did in the past, but we post this and all of the newsletters on our website here.
Friends,
A year ago, I wrote that the cannabis sector was still in a bear market. Since then, the New Cannabis Ventures Global Cannabis Stock Index has increased slightly, rising 1.2% since 10/6. This is less than what cash earned, and it is a lot less than the rally in the S&P 500. Here is what the action has looked like over the past year:
Our caution was right initially, as the index plunged in October. After that early weakness, our outlook picked up, though we remained cautious. It all depended upon rescheduling in our view, and that was not a done deal. In late April, the market peaked at 11.72. This was when the DEA confirmed that it was going to move to reschedule cannabis, which would wipe out the 280E taxation.
On that spike, we pointed out in early May that it was not a good idea to bet big on cannabis stocks yet. Our bullishness in Q4 and our caution in Q2 have played out well. So, what is a cannabis investor supposed to do now?
We have been a lot more bullish on cannabis stocks, but rescheduling is not yet a done deal. The DEA announced in late August that there will be a hearing on December 2nd. The market crumble that took place made little sense, and it has been stabilizing since then.
As I look to 2025, I continue to believe that the elimination of 280E taxation, if it happens as is expected, should be a catalyst for MSOs, but there are other issues weighing on the market. For instance, we will have new President. It seems clear that Harris is for reform that could improve the industry, and Trump has been speaking favorably. Of course, the control of the House of Representatives and the Senate could change. I don’t view the federal government as likely to have a big impact on cannabis beyond any changes to the Farm Act of 2018.
Cannabis remains a state-by-state market, and I continue to believe that New York will grow very strongly. Perhaps California will resume its growth too. A state that I worry about is Florida, as voters may not provide the 60% yes votes to legalize for adult-use, which would be horrible, as the state’s medical program is seeing patient growth slow and dispensary growth pick up. Not surprisingly, prices have been going down in Florida. I believe that investors (and some analysts) have an overly optimistic view on the outcome for the stocks if it passes.
Issues at the state level are quite important, but another thing that has been weighing on MSOs has been executive turnover. Among the nine Tier 1 and Tier 2 names, Ascend Wellness, AYR Wellness and Curaleaf have made CEO changes recently.
I continue to believe that cannabis investors should seek opportunities across the market and not exclusively in the sub-sector of MSOs. My model portfolio at 420 Investor has an overweight in MSOs (34% weighting), so I am bullish, but I am also very bullish on some ancillary stocks (28% weighting, which is under the index exposure). I believe that the MSOs will see their businesses improve if 280E gets eliminated, and this should result in more purchases of goods and services that ancillary companies provide. I don’t believe that Canadian LPs will benefit at all from rescheduling, but I do like some of them too (37% weighting in two names).
Above I pointed out that the market is marginally higher than it was a year ago, but perhaps the calendar isn’t the right thing to use. Today is the Jewish New Year (Happy Rosh Hashanah!), and measuring from the 11.11 close in the Global Cannabis Stock Index on 9/15/23, the end of the last Jewish year (5784), the index has dropped 23%. Let’s all hope that the DEA goes forward with rescheduling soon!
New Cannabis Ventures publishes curated articles as well as exclusive news. Here is what we published this past week:
Exclusives
Ancillary Cannabis Stocks Continue to Lead the Sector
Cannabis Stocks Move Higher in September
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Sincerely,
Alan
