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,
With just two weeks remaining in 2023, the NCV Global Cannabis Stock Index is down 18.8% year-to-date. After the horrible 2022, when the index fell more than 70%, cannabis investors deserved better. The S&P 500 is up 22.9% in price.
After rallying ahead of the index early in the year, the GCSI stumbled and then came back to life on the potential rescheduling news in late August. The index is now only slightly higher than then, though the overall stock market has moved higher.
We have been cautious this year, especially since the rally to begin the year. The issues that concerned us continue to do so, but conditions may improve for the cannabis industry. We warned readers to go slow when things are hot in early February, suggesting patience and investing defensively until trading volumes pick up. The reaction after the news that the DEA might reschedule cannabis sent the market up, and we warned then the large cannabis operators had become riskier. The AdvisorShares Pure US Cannabis ETF (NYSE Arca: MSOS) had closed at 8.30 then, up 18.7% year-t0-date. Now, it is at 6.65, down 19.9% since then and down 4.9% year-to-date.
As we think about how the market will perform in 2024, we continue to be cautious. How the DEA acts on rescheduling will likely drive the outcome. As we have said before, if the DEA reschedules to Schedule 2 instead of Schedule 3, then the 280E taxation won’t end. This would be a disaster for the American cannabis operators. Of course, things could work out very well too on this front. A year ago we discussed the two big potential catalysts for the cannabis sector, 280E going away and the ability of American cannabis operators to uplist, and both of these might take place.
The valuations continue to be very attractive, though we have fundamental concerns if 280E remains in place. As we have discussed before, the MSOs tend to have negative tangible book values, high debt loads and not very much cash flow. The lack of capital available to the industry could hurt those companies with the weakest balance sheets.
Clearly the elimination of 280E taxation on American cannabis operators will be a great thing if it happens, but we think it will be good for the entire sector as well. The ancillary companies that sell goods or services to the cannabis operators will benefit from having a healthier customer. We believe that the cheap Canadian LPs could benefit indirectly as investors feel better about the space.
After the 91.5% decline since the peak in early 2021, cannabis investors deserve an improvement. While we think it could and hope that it will do better, we understand that it may not get better. Investors should be open to the idea that cannabis stocks could go lower if 280E doesn’t go away. They should also diversify their cannabis investments beyond just American cannabis operators unless they know exactly how the potential DEA potential move will play out.
Please note that moving forward, we won’t be emailing the weekly newsletter. Instead, we will continue to publish it on our website for maximum viewership. The newsletter has been a staple of New Cannabis Ventures since October 2015 with co-publication to our website since April 2018. You can read an ongoing archive of the newsletters published, and we will continue to alert them to our many mobile app subscribers. Thank you for reading!
New Cannabis Ventures publishes curated articles as well as exclusive news. Here is some of the most interesting business content from this week:
Exclusives
Illinois Cannabis Sales Were Flat in November
Michigan Cannabis Sales Dip Again in November
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Sincerely,
Alan & Joel
