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
- Michigan April cannabis sales grew 149%.
- Health Canada added 4 licenses, leaving the total now at 665.
- 420 Investor model portfolios have gained 47.0-68.7% year-to-date, while the Global Cannabis Stock Index has gained 22.9%.
Review
Three Republicans introduced the Common Sense Cannabis Reform for Veterans, Small Businesses and Medical Professionals Act to the House of Representatives, which would remove cannabis from the Controlled Substances Act and direct the FDA and the Tobacco Tax and Trade Bureau to regulate it. Minnesota’s House passed a legalization measure that will move to its Senate, where passage seems unlikely. A new U.S.-focused ETF launched, the ETFMG U.S. Alternative Harvest ETF. Michigan cannabis sales increased 149% to $154 million in April.
Health Canada added 4 licenses, leaving the total at 665, including 2 that are expired, revoked or suspended.
During the week, I shared these insights with subscribers at 420 Investor:
- Preview for Columbia Care’s Q1 Financials
- Model Portfolio Composition 05/07/21
- Cannabis Sub-Sector Review – 05/07/21
- Previews for Aurora Cannabis, CV Sciences, GrowGeneration, Schwazze, Trulieve and Vireo Health
Here are some of this week’s highlights for 420 Investor Focus List names:
- ACB Q1 revenue dropped 25% from a year ago to $55 million as its adult-use sales fell by more than 50%.
- CCHWF unveiled a new national retail store brand, Cannabist
- CRON launched a Marketing Code representing its commitment to responsible marketing standards
- CURLF reported revenue of $260 million, ahead of expectations and up 170% from a year ago, with adjusted EBITDA of $63 million. It launched a range of medical cannabis products in Germany.
- CVSI Q1 revenue fell 42% from a year ago to $4.8 million.
- CWBHF Q1 revenue grew 9% to $23.4 million
- FLOOF, which still hasn’t reported or pre-announced Q4 financials, touted its pre-announced Q1 revenue of $11.9 million
- GRWG Q1 revenue grew 173% to $90 million, and the company boosted its full-year outlook to $450-470 million.
- GTBIF Q1 revenue grew 90% to $194 million, with adjusted EBITDA of $71 million. It opened its Las Vegas COOKIES store.
- HBORF launched adult-use sales in San Leandro
- HRVSF reported Q1 revenue slightly ahead of expectations at $89 million, up 101%, with $23 million adjusted EBITDA. The company agreed to merge with Trulieve in an all-stock based transaction
- LQSIF will be buying back 3.8 million shares at C$7.80 following its modified Dutch auction tender.
- PLNHF moved to a single class of shares and will become an SEC filer at the end of the year
- SHWZ reported Q1 revenue of $19.3 million, $26.8 million on a pro forma basis.
- TCNNF reported Q1 revenue of $194 million, up 102%, with adjusted EBITDA of $91 million. It will be acquiring Harvest in an all-stock based deal, issuing .117 shares of its own stock for each share of Harvest.
- TLLTF promoted its President, Gary Santo, to CEO, with the current CEO becoming Chairman of the Board.
- TLRY reported very weak Q1 revenue for its legacy business via an SEC filing, with total sales of $48 million, down 8% from a year ago, with an operating loss of $73 million that included a $45 million litigation settlement.
- UGRO reported Q1 revenue of $12 million, up 182% from a year ago
- VFF Q1 cannabis revenue grew slightly to $17.4 million, but the adjusted EBITDA for the entire company was below expectations at $404K
- VREOF Q1 revenue of $13.2 million grew 30% from a year ago, excluding the divested Pennsylvania operations
The Global Cannabis Stock Index sold off sharply this week to 54.55, down 8.2%:
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 22.9% in 2021 thus far. It currently includes 46 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 $162,280, down 7.5%. The model portfolio, up 54.0% in 2021, gained 35.6% in 2020 and has increased 224.6% since April 2014. 420 Quality ended the week at $237,367, down 8.0% for the week, and is now up 47.0% 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 374.7% since inception compared to the 32.5% decrease in the index. Flying High, which is focused on swing trades, ended the week valued at $425,691, down 7.4%. The model portfolio gained 52.7% in 2020 and is up 68.7% in 2021, and the return since inception in late 2013 has been 4157%.
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.
