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
- The SAFE Banking Act passed in the House of Representatives.
- Michigan’s Cannabis Sales Soared in March.
- Health Canada added 9 licenses.
- 420 Investor model portfolios have gained 55.8-75.6% year-to-date, while the Global Cannabis Stock Index has gained 32.8%.
Review
The SAFE Banking Act passed again in the House of Representatives, but it is unclear when the Senate may vote upon it. The Florida Supreme Court ruled against a 2022 ballot initiative for adult-use legalization. Ohio will more than double the number of dispensaries. Michigan cannabis sales soared in March, growing 179% compared to March 2020 to $146 million.
Health Canada added 9 licenses, leaving the total at 657, including 10 that are expired, revoked or suspended.
During the week, I shared these insights with subscribers at 420 Investor:
- Fire & Flower Q4 Financials Preview
- MSOs YTD
- Looking at the Pullback in the MSOs
- Vireo Health Remains A Value Story A Year Later
- Model Portfolio Composition 04/16/21
- Cannabis Sub-Sector Review – 04/16/21
I was also interviewed here:
Professionally Cannabis Podcast
Here are some of this week’s highlights for 420 Investor Focus List names:
- APHA issued C$53 million in stock to the Mastronardis, their JV partner at Aphria Diamond, in exchange for changes to the supply agreement
- CGC announced that Southern Glazer’s Wine & Spirits will distribute its CBD drinks in the U.S.
- CRON launched a brand campaign, “A Higher Order”, for its Lord Jones CBD products
- CWBHF gained the ability to bring three proprietary CBD cultivars into Canada
- FFLWF reached 250K members in its Spark Perks loyalty program
- FLOOF announced that it will be late in its Q4 filings. It completed its financial restructuring.
- GRWG acquired Michigan hydroponics store Downriver Hydro, its 7th in the state, with a $10 million annual revenue run-rate
- OGI launched two new high-THC strains under its Edison brand
- PLNHF issued 4.1 million restricted shares to employees. It reported $543K sales on 4/20.
- TCNNF opened its 80th and 81st Florida dispensaries
- TRSSF acquired the 90% it didn’t own in three Keystone Canna Remedies Pennsylvania dispensaries for $63 million.
The Global Cannabis Stock Index sold off sharply on 4/20 but rallied to end the week at 58.94, up 1.6%:
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 32.8% in 2021 thus far. It currently includes 48 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 $169,964, down 3.4%. The model portfolio, up 61.3% in 2021, gained 35.6% in 2020 and has increased 239.9% since April 2014. 420 Quality ended the week at $251,579, down 3.0% for the week, and is now up 55.8% 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 403.2% since inception compared to the 27.1% decrease in the index. Flying High, which is focused on swing trades, ended the week valued at $443,236, down 2.8%. The model portfolio gained 52.7% in 2020 and is up 75.6% in 2021, and the return since inception in late 2013 has been 4332%.
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.
Cannabis stocks overreacted and put in a bottom in March 2020, 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 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 have begun to spur state legalization efforts as well as more favorable regulatory control at the local level. Access to capital has improved dramatically, and the leading companies are generating large and rapidly growing revenue and profits.
There are several potential catalysts ahead, including the FDA providing clarity on CBD regulation, 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 adult-use implementations in California and Massachusetts for adult-use were slow to roll out but are beginning to show great improvement. Michigan and Illinois legalized for adult-use 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, and New Mexico, New York and Virginia have enacted legalization through the legislative process in 2021.
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 MS, WV and VA, possible legalization via the legislatures in CT, DE, FL, MD, MN, NH, PA, and RI and implementation of the NM, NY and VT commercial programs in 2022 and VA in 2024.
