You’re reading a copy of 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.
Friends,
We think that the upcoming two weeks is an important time for cannabis stocks. The sector has had both a terrible and a turbulent year thus far. While it has lifted 13% since the all-time closing low of 11.26 at the end of September, the New Cannabis Ventures Global Cannabis Stock Index is still down 61.3% in 2022. If the index closes at 12.72 or lower, this will be the second-worst year for the index ever. In 2015, it fell 70.0%.
In addition to the elections on Tuesday, which could change control of the House and/or the Senate, we are in earnings season for Q3. Our view is that if the leading companies of the industry are close to expectations, investors may warm up over the balance of the year or in early 2023 given the big decline so far in 2022. It’s obvious now that investors bet very wrong in 2020 and into 2021 after the Democrats picked up the Presidency and control of both the House and the Senate. With the huge melt-down since February 2021, investors aren’t inclined to buy yet. Hopefully, this changes!
Given our optimism, should investors buy any and all cannabis stocks? Absolutely not. I recently shared my view at Seeking Alpha that cannabis investors may be about to “warm up” to investing in the space.
I gave my reasons for being positive on the sector, but I also discussed my concerns, suggesting that certain stocks and ETFs don’t make sense right now. We have discussed all of this in this newsletter in recent months as well. At our premium subscription service for cannabis stock investors, 420 Investor, my model portfolios are now loaded with ancillary companies at almost double the index exposure. I am slightly underweight MSOs currently, with a heavy favoring of “Tier 2” companies. I am a bit underweight Canadian LPs.
Our biggest concern for cannabis stocks is the extension of the bear market for stocks in general. We think that if the S&P 500 makes a new low, it will weigh on investor sentiment for the sector. Whether or not that ultimately happens, we think that investors should be using this earnings season as a time to consider making investments into high quality cannabis stocks. We offer readers our earnings conference call calendar, which helps investors listen in directly to management and analyst Q&A and the public cannabis company revenue tracker, which ranks the top revenue and incoming producing cannabis stocks. Sign up to our newsletter to receive our thoughts on earnings and elections.
TerrAscend, with a mission to delight its customers, is a leading North American cannabis operator with vertically integrated operations. In its newest market, New Jersey, the company now offers the exclusively sold Cookies brand out of its Apothecarium stores. Additionally, strains from the premium brand will also be available in TerrAscend’s Pennsylvania stores, through a partnership with TRP. TerrAscend will report third quarter 2022 financial results on Monday, November 14th after the market closes. The company will host a conference call and webcast at 5PM ET to discuss its results, provide investors with key business highlights through Q&A to industry analysts.
Get up to speed by visiting the TerrAscend Investor Dashboard that we maintain on their behalf as a client of New Cannabis Ventures. Click the blue Follow Company button in order to stay up to date with their progress.
New Cannabis Ventures publishes curated articles as well as exclusive news. Here is some of the most interesting business content from this week:
Exclusives
Jeffrey Harris, the co-Founder and CEO of springbig, believes going public was the right decision despite the pressure the space has seen. The cannabis software company began trading in June and since then has seen its stock decline. In an exclusive interview, Harris acknowledged there are challenges, but springbig continues to acquire new business and carve out brand recognition in the market. He says they are not only are talking to a number of companies within the industry, but also are looking at other industries to add to the value of its platform.
The Global Cannabis Stock Index, one of seven proprietary stock indices maintained by New Cannabis Ventures, rose sharply in October, up 17.1% to 13.18. The strongest four names in October all rose at least 37% and include Ayr Wellness, Tilray Brands, 22nd Century Group and Trulieve Cannabis. The four weakest were Bright Green, AgriFORCE Growing Systems, Hempacco and BYND Cannasoft Enterprises.
In addition to the Global Cannabis Stock Index, New Cannabis Ventures also maintains a family of indices: The American Cannabis Operator Index rallied substantially in October, gaining 33.9% to 24.53. The Ancillary Cannabis Index recovered some of the ground it lost in September, up 5.6% in October. The Canadian Cannabis LP Index also rallied 18.4% to 97.04 last month. The Canadian Cannabis LP Tier 1 Index, which has been on a roller coaster ride, rose 24.6% in October to 144.26. The Tier 2 Index recovered some of its losses with an 8.0% rally to 128.42. The Tier 3 Index also kicked it up a bit, rising 23.2% in October to 24.55.
October wasn’t too spooky for Illinois adult-use cannabis sales. They ticked up 0.7% sequentially and 6.6% from a year ago to $131.5 million. However, sales to non-residents decreased from 31.5% in September to 30.9%. Medical use sales were up 1.6% sequentially in October at $28.5 million, but down 10.6% from a year ago.
In the United States, cannabis sales in 11 markets decreased 2.2% in September compared to August according to cannabis data analytics firm BDSA. In Eastern markets, year-over-year growth ranged from -13.1% in Maryland to 24.9% in Florida. In Western markets, year-over-year growth ranged from -24.7% in Nevada to -1.7% in California compared to September a year ago.
Financing
Entourage Health Corp. has increased its existing credit facility by $30 million. The Canadian cannabis company said the money will be used for general working capital purposes as the company continues to grow and expand. An affiliate of the LiUNA Pension Fund of Central and Eastern Canada is providing the funding. “We have consistently demonstrated sustainable topline growth and retained our market positioning, even as market conditions continue to challenge many in the sector,” said CEO and Executive Chairman George Scorsis. “This $30 million in financing, which does not dilute our shareholder base, provides favorable terms that continue to support our disciplined drive for profitable growth and is a testament to the confidence of our employees, customers, patients, and shareholders that we are executing to plan.”
Acquisitions
Sean “P. Diddy” Combs is getting into the cannabis industry. Cresco Labs is divesting certain of its assets in New York, Illinois, and Massachusetts to Combs for $185 million. The divestiture is required for Cresco to close its previously announced acquisition of Columbia Care. It will be Combs’ first investment in cannabis and will create the country’s first minority-owned and operated, vertically integrated multistate operator.
Safe Harbor Financial has entered into an agreement to acquire Rockview Digital Solutions, d/b/a Abaca, a cannabis financial technology platform, for $30 million. Abaca works with FDIC-insured bank partners to enable traditional banking services for operators ranging from single dispensaries to multistate and national operators. “With their ecosystem of cannabis banking and finance platform, proprietary technology, strong financial institution and banking relationships, and experienced founder-led management team, we believe Abaca is the ideal platform to help us take a large step forward in scaling our capabilities and service offerings in building the complete cannabis fintech ecosystem,” said Safe Harbor Founder and CEO Sundie Seefried.
Earnings
Green Thumb Industries Q3 revenue increased 3% sequentially and 12% year-over-year to $261 million, despite inflation and economic uncertainty. Last month, the company announced plans to expand its medical cannabis retail footprint in Florida through leasing arrangements with Circle K. “As we near the end of 2022, we are optimistic about the future of the U.S. cannabis market and proud of Green Thumb’s leadership position in the industry,” said Green Thumb Founder, Chairman and CEO Ben Kovler.
Hawthorne Gardening at Scotts Miracle-Gro Q4 revenue increased 9% sequentially to $168.5 million. The company said it is reducing the operating footprint in the Hawthorne segment by closing points of distribution. Hawthorne segment sales decreased 49% year-over-year. “As we look to the year ahead, we are committed to further improving our operating and financial performance by capitalizing on the strengths of the U.S. consumer business and right-sizing Hawthorne for the realities of today,” said Jim Hagedorn, chairman and CEO.
HEXO Q4 revenue fell 7% sequentially to C$42.5 million. However, the company’s net revenue in FY22 of C$191.1 million was up from C$123.8 million in the fiscal year ended July 31, 2021. In July, Tilray Brands closed on its $155 million investment in HEXO. “The fourth quarter was a period of strategic realignment for HEXO,” said Charlie Bowman, president and CEO of HEXO. “We focused on making the changes that will enable HEXO to maintain and expand our strong position within the Canadian cannabis market.” The company said going forward it will focus on producing the core brands and products that customers want.
Cannabis REIT Innovative Industrial Properties reported total revenue of approximately $70.9 million in Q3, a 1% increase from prior quarter and a 32% increase year-over-year.
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Sincerely,
Alan & Joel
