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.
Summary
- November data in Canada and the U.S. showed year-over-year cannabis sales growth to be robust but slowing.
- Arizona adult-use sales commenced.
- Health Canada added 6 new licenses.
- 420 Investor model portfolios have gained 41.2-48.1% year-to-date, while the Global Cannabis Stock Index has gained 34.9%.
Review
BDSA data showed a slowing growth rate across all eight states in its coverage for November, with year-over-year growth still robust. Adult-use sales commenced in Arizona.
StatsCan data showed that November retail sales in Canada grew 93% from a year ago but fell 3% sequentially, reflecting similar year-over-year slowing growth evident in the U.S. during the month. Health Canada added 6 new licenses this week, leaving the total, including the expired license of Toronto Research Chemicals, the suspended license of Ten-10 Ventures and the revoked licenses of BC Tweed (2), FV Pharma and Zenalytics Laboratories, at 587, which excludes the revoked licenses of Agrima, Alberta Green Biotech, Bloomera, Hexo’s 4th site, Maricann’s 2nd site, Medican Organic’s 2nd site and a small processing facility that belonged to Canopy Growth, the expired license of Evergreen Medicinals, two transferred licenses held formerly by James Wagner, a license previously held by Total Cannabis Solutions and the voluntarily cancelled license of Avalite Sciences.
During the week, I shared these insights with subscribers at 420 Investor:
- Cannabis Investors May Be Overlooking This Opportunity
- Cannabis Sub-Sector Review – 01/15/21
- Model Portfolio Composition 01/15/21
Here are some of this week’s highlights for 420 Investor Focus List names:
- ACB raised $125 million selling units at US$10.45
- APHA announced it will be launching SweetWater beers in Colorado in February
- CRLBF hired a Pepsi veteran to be its COO. It closed its recent $125 million capital raise as well.
- CURLF made its initial adult-use sales in Arizona
- FFLWF expanded same-day delivery across Ontario
- HBORF sold C$27 million of units and provided guidance for 2021
- HRVSF made its initial adult-use sales in Arizona
- LQSIF announced plans to spin-out its Nova Cannabis, merging it with YSS and raising C$40 million. The company will be focusing on the value segment, rebranding most of its stores to Value Buds
- TCNNF continues to report dispensary openings that trail the Florida regulator’s disclosure of new dispensary approvals, which now total 73 as of 1/14 (with Trulieve reporting 72 actually open)
The Global Cannabis Stock Index consolidated recent strong gains, decreasing 1.5% to 59.90:
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. It has gained 34.9% in 2021 thus far. The index currently includes 38 stocks and ended 2020 at 44.39:
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 $150,238, up 3.5%. The model portfolio, up 42.6% in 2021, gained 35.6% in 2020 and has increased 200.5% since April 2014. 420 Quality ended the week at $227,992, up 5.0% for the week and now 41.2% in 2021, and it gained 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 356.0% since inception compared to the 25.9% decrease in the index. Flying High, which is focused on swing trades, ended the week valued at $373,822, up 0.4%. The model portfolio gained 52.7% in 2020 and is up 48.1% in 2021, and the return since inception in late 2013 has been 3638%.
Outlook
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.
After the stocks overreacted and put in a bottom in March, 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 is beginning to include a broader set of products and the continued growth in German MMJ and other international markets that have been slow to develop. The implementations in California and Massachusetts for adult-use have been disappointing but are beginning to show great improvement. Michigan legalized in December and Illinois legalized in January, 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, FL, MD, MN, NH, NM, NY, PA and RI and implementation of the VT commercial program in 2022.
