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,
Four weeks ago, we warned readers about Canopy Growth when it was up 0.9% year-to-date. The stock has dropped sharply since then, with the 18.5% decline leaving it down 17.8%. In that piece, I shared a revised target a year out of C$0.59, which is considerably lower than the current price of C$2.62. While the stock has dropped a lot since we called it out, we continue to see substantial downside risk. The target is 77% lower!
Today, we want to offer some replacement suggestions and a smarter way to invest in Canadian cannabis. Since our piece, Canopy Growth’s decline has been more substantial than the peers we find more interesting, but these companies all trade below tangible book value. The three stocks we suggest Canopy Growth owners consider as a replacement include Cronos Group, Organigram and Village Farms. Over the past four weeks, each of these have done slightly better than Canopy Growth, but all have trailed Tilray:
Looking at the year-to-date returns, each of the stocks we are suggesting for consideration are down more than Canopy Growth:
Canopy Growth, loaded with debt that exceeds its cash and burdened by negative operating cash flow, trades at just 1.2X tangible book value. The stocks we are discussing have better balance sheets and cash flows but trade much lower relative to their tangible book values:
- Cronos Group: 0.7X
- Organigram: 0.6X
- Village Farms: 0.4X
Canopy Growth has an outside investor, Constellation Brands, while Cronos Group’s large outside investor is Altria Group and Organigram’s investor is British American Tobacco.
We think that there are many alternative stocks for Canopy Growth that will outperform it, but we find these three suitable for those who want to invest in Canadian LPs.
When you join Alan Brochstein’s 420 Investor waitlist, you will receive access to the top 9 multi-state cannabis operators valuation table for March, 2023.
New Cannabis Ventures publishes curated articles as well as exclusive news. Here is some of the most interesting business content from this week:
Exclusives
The Public Cannabis Company Revenue & Income Tracker, managed by New Cannabis Ventures, saw HEXO Corp. slip from the senior to the junior list for companies that report earnings in Canadian dollars. Three of the largest MSOs have reported so far. Trulieve’s revenue was flat sequentially and fell 1% from a year ago. Green Thumb Industries saw revenue slip 1% sequentially. Cresco Labs experienced a decline sequentially from a year ago. Among ancillary companies, Scotts Miracle-Gro saw weak cannabis-related revenue. Innovative Industrial Properties slightly exceeded expectations and Hydrofarm was significantly ahead of expectations. From the Canadian senior group, retailers Nova Cannabis and Fire & Flower are scheduled to report next week.
Canadian Cannabis sales fell 7.1% to C$395.5 million in January, according to newly published data by Statistics Canada. December was unrevised at C$425.9 million. Sales rose 14.1% from a year ago, down from the reported 20% December growth rate. In 2022, total sales increased 17.9% to C$4.52 billion. More stores and lower flower prices have boosted sales. In Ontario, sales fell 9.5% from December but rose 14% from a year ago. Alberta slipped 5.8% from December but rose 13% from a year ago. Quebec was down 9.3% from December and up 3% from a year ago, while British Columbia was down 3.9% from December, but advanced 22% from a year ago. February sales data will be released April 21st.
Earnings
Planet 13 reported Q4 revenue of $24.8 million, down from $25.6 million in the previous quarter. For the full year, revenue was $104.6 million, down from $119.5 million for full-year 2021. “Over the course of the year, we saw state-wide pricing trends and the overall economic environment impact our revenue,” said Co-CEO Larry Scheffler. “Towards the end of Q4 we saw those pricing compression trends start to stabilize and we remain optimistic about the outlook for 2023.”
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View the Public Cannabis Company Revenue & Income Tracker, which ranks the top revenue producing cannabis stocks.
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Sincerely,
Alan & Joel
