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,
Cannabis stocks have shot up in the first two weeks of the year, and the Canadian LP market is leading the way. The New Cannabis Ventures Canadian Cannabis LP Index has rallied 20% in two weeks. It was down 62.8% in 2022, less than the overall market, but still a big drop.
While we are optimistic about the potential for big gains this year in cannabis stocks, we continue to be a bit cautious for the reasons we discussed last week. liquidations in the large AdvisorShares Pure US Cannabis ETF (NYSE Arca: MSOS), which lost another 800K shares this past week, and the light volume thus far.
My model portfolio is very invested currently, but it is underweight relative to its index, the New Cannabis Ventures Global Cannabis Stock Index, in Canadian LPs. The index is currently 33.8% in 8 LPs, and the model portfolio owns 3, totaling 24.6%.The three included all trade below tangible book value, and two of them, Cronos Group and Organigram, have large investments held by strategic partners. Altria owns a chunk of Cronos Group, which was just added and is the smallest position at 3% of the model portfolio, and BAT owns 20% of Organigram, which is currently the largest position in the model portfolio. The third name that is owned, Village Farms, is also in the index but has no external investor.
We don’t see a lot of value in the two largest LPs by market cap, Canopy Growth and Tilray. Canopy Growth has a lot of debt, and it may not be able to move forward on its plans to acquire three American cannabis companies and still maintain its NASDAQ listing. If it can’t close, investors will likely be disappointed, and if it can close, then investors can expect other American cannabis companies to also uplist. The stock currently trades at 1.3X tangible book value, but it is burning cash and enduring large operating losses.
Tilray, which reported its fiscal Q2 this past week, is shrinking and too diversified in my view. My target for the end of May, based on the falling outlook for FY24, is now $3.03, a price that is 4% lower than where it closed Friday. The stock currently trades at 3.2X tangible book value.
While the Canadian LP market has rallied 20% year-to-date, the 8 LPs in the Global Cannabis Stock Index are doing worse than the sector, up an average of 16.8%:
The group’s average return is up more than the Global Cannabis Stock Index, and no names are down. The best names in my mind all trade below tangible book value, but this metric isn’t the only consideration. Cronos currently trades at 0.83X tangible book value, Organigram is at 0.95X, and Village Farms is at 0.62X. In its most recent quarter, Organigram generated positive operating cash flow as it grew revenue 43% from a year ago with positive adjusted EBITDA. Cronos Group is smaller in the market with lower growth and an operating loss that remains large. Village Farms grew 14% from a year ago in Q3, and it generated a breakeven operating loss. Aurora Cannabis, Canopy Growth, HEXO Corp. and Tilray are all shrinking with large operational losses. SNDL trades below tangible book value, but it is very retail-focused currently within and outside of cannabis with a large operating loss in Q3.
We don’t see the Canadian market as improving. In fact, the growth is the lowest since it was legalized for adult-use. In October, the market expanded by just 9.5%, and Hifyre projects that the November growth, which will be released on January 20th, will be just 9.3%. We see a lot of opportunity in other sub-sectors, but we find a few Canadian LPs worthy of being considered currently.
A Leading Ancillary Cannabis Company and House of Brands
Greenlane is the premier global platform for the development and distribution of premium cannabis accessories, packaging, vape solutions, and lifestyle products. Operating as a powerful family of brands, third-party brand accelerator, and omni-channel distribution platform, providing unparalleled product quality, customer service, compliance knowledge, and operations and logistics to accelerate our customers’ growth. The stock is up more than 60% so far in 2023, but it trades at a tiny fraction of its tangible book value.
Get up to speed by visiting the Greenlane 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.
Exclusives
New Cannabis Ventures will be hosting a free exclusive webinar with the senior management team of TerrAscend on Thursday at 11:30 A.M. ET. The management team will share a presentation and then respond to questions. Sign up to take part in this unique event! We will send a recording to you when it is complete.
Cannabis sales ticked down 2.8% in November compared to October according to cannabis data analytics firm BDSA. A breakdown of 11 the markets looks like this: Eastern markets saw year-over-year growth ranging from -13.1% in Maryland to 37.4% in Florida. In Western markets, year-over-year growth in November ranged from -23.8% in Nevada to -2.5% in Arizona. In total, BDSA estimates that sales across the 11 markets totaled $1.60 billion during the month.
The 1937 Group was one of the few companies out of thousands to win a cultivation license, retail licenses and a transportation license. Now, the company is in the process of building out its two cultivation facilities and five to six retail locations in the Chicagoland area. In an exclusive interview, Group Chairman and CEO Ambrose Jackson talks about building out the company’s footprint, looking to new markets and becoming a leading social equity operator.
Earnings
Organigram Q1 revenue fell 5% sequentially to C$43 million, but was up 43% from $C30.4 million in the same prior-year period. CEO Beena Goldenberg said the company achieved a record harvest and the lowest cost of cultivation in the company’s history. “With the expected completion of the expansion at our Lac-Supérieur facility and continuous improvements in automation and cultivation, we have built a long-term platform to serve increasing market demands and generate value,” added CFO Derrick West.
Tilray Q2 cannabis revenue dropped 15% sequentially to $49.9 million. The company said the increase was the result of numerous cost-savings programs, coupled with the revenue resulting from its strategic alliance with HEXO in the current year and in inventory provision in the prior year. “Tilray Brands’ re-positioning as a global diversified portfolio of brands will drive our ability to seize top-line opportunities across geographies and business lines,” said Chairman and CEO Irwin D. Simon. “In the U.S., this includes investing in, acquiring or building compelling and profitable lifestyle CPG brands across craft beverage-alcohol and wellness consumer products that are cannabis adjacent, resonate powerfully with consumers, and are strongly positioned in key markets.”
urban-gro said it expects to enter the new year with record consolidated backlog of approximately $87 million, a sequential increase of approximately $20 million from Q3 2022. The company defines the backlog as “unrealized revenue represented by contractually committed construction design-build, equipment systems, and service orders.” The company also reaffirmed its Q4 guidance with revenue of approximately $17 million and adjusted EBITDA of approximately ($1.5) million. “We have demonstrated through our record backlog entering 2023 and reaffirmed fourth quarter 2022 financial guidance that we can continue to deliver growth in the face of broader market headwinds due to our integrated solutions and sector diversification efforts,” said Chairman and CEO Bradley Nattrass.
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Sincerely,
Alan & Joel
