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,
The market has really melted down in December, with the NCV Global Cannabis Stock Index posting a new all-time closing low on Thursday of 10.81, 4.0% below the prior low from 9/30. With the recovery on Friday to 11.02, the index is down 2.1% in Q4 and 19.4% in December. The index has now lost 66.5% in 2022.
The NCV Ancillary Cannabis Index is down even more, losing 76.0% this year and 22.9% in December thus far. The NCV American Cannabis Operator Index continues to outpace the market, dropping 57.2% in 2022, but it is having a rough December at -25.9%. The NCV Canadian Cannabis LP Index has dropped just 7.8% in December, leaving it down 57.6% in 2022.
December has been very hard on the largest cannabis operators in the U.S. The five largest operators have dropped an average of 26.1% and are down 59.3% year-to-date, both a bit worse than the American Cannabis Operators Index:
We have warned previously that investing in ETFs like AdvisorShares Pure US Cannabis ETF (NYSE Arca: MSOS) could be dangerous due to heavy exposure to the largest operators, and that ETF, which is now down 65.8% in 2022, has lost 26.2% in December. It posted a new all-time low this week.
Verano didn’t begin trading until early 2021, but none of the other largest operators have taken out their lows from early 2020. We have added one of the largest operators to our model portfolios at 420 Investor after having minimal exposure to any of the names for a while. For investors, we think that the sell-off in the largest names could be an opportunity to invest, but we continue to find attractive stocks in other parts of the market. Among American cannabis operators, we find more value in some of the names that are just smaller than the top 5. Among Canadian operators, we include in our model portfolios two LPs that are trading below tangible book value.
The part of the market we find most attractive remains the ancillary stocks. We have found some stocks that are at substantial discounts to tangible book value, and we note that some of the leading companies are down more than 80% in 2022. We think that investors should appreciate how challenging this year has been for some ancillary companies as their customers have looked to cut spending.
The performance of cannabis stocks this year has been horrible, extending the weakness in 2021 that began in February. We are optimistic that the market will perform better in 2023.
Real-Time Push Notifications for Important News
New Cannabis Ventures publishes curated articles as well as exclusive news. Here is some of the most interesting business content from this week:
Exclusive
Acreage Holdings is expected to close on its acquisition by Canopy Growth as soon as the end of next year. As 2022 comes to a close, CEO Peter Caldini spoke with New Cannabis Ventures about its transformation, right sizing and what the future holds, including its push toward adult-use opportunities. The multistate operator said the northeastern U.S. is a focus and it is positioning for success in a number of states that have adult-use markets or are preparing to launch adult-use.
Cannabis Sales
Cannabis sales in Michigan were down in November 2.9% in November compared to October, but rose 33.2% from a year ago to $203.4 million. Medical sales were down 57.5% from a year ago to $13.6 million, and fell 9.9% sequentially. On the flip side, adult-use sales jumped 57.2% year-over-year to $189.8 million, down 2.3% sequentially with one less day than in October. Flower pricing for adult-use has fallen significantly with the average price of $1,522 per pound falling 7.3% sequentially and 50.1% year-over-year.
Cannabis sales in Illinois reached $158.7 million in November, down 0.8% sequentially, but up 4.2% from a year ago, the fastest since June. Adult-use cannabis sales dipped 0.8% sequentially in November, to $130.5 million, but were up 8.1% from a year ago. Medical sales fell 1.0% sequentially in November to $28.2 million and were down 10.5% from a year ago.
Earnings
Fire & Flower Q3 revenue rose 8% sequentially to C$43.8 million, but fell 3% from $45.4 million in the prior year. The company said growth was driven by its retail and digital segments sales, but were offset by a moderate decrease in wholesale & logistics. CEO Stéphane Trudel said, “Fire & Flower will benefit from favorable financing to execute on our plans for growth with a $5 million private placement, in addition to the non-dilutive $11 million loan that has been secured.” Trudel came to the company in June from Alimentation Couche-Tard Inc., after CEO Trevor Fencott stepped down.
HEXO Q1 revenue fell 16% sequentially to $C35.8 million and was down 29% from a year ago. “Our laser focus on tackling the balance sheet, pulling back on those unprofitable products where our strengths in premium cultivation were not being leveraged and expanding further into opportunities where we know we can win, is paying off across the business,” said President and CEO Charlie Bowman.
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Sincerely,
Alan & Joel
