You’re reading 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. We no longer send these by email as we did in the past, but we post this and all of the newsletters on our website here.
Friends,
A little more than 2/3 of 2024 is now behind us, and the New Cannabis Ventures Global Cannabis Stock Index is up only 2.2%. The index has 28 members currently, and it is down a little since the end of Q2. Cannabis stocks have declined over 90% in the past 3 1/2 years and are lagging traditional stocks in 2024 and over the past several years.
Looking at the index, it ended August with 48% ancillary, 22% each MSO and Canadian LPs and a few other sub-sectors. I was (and remain) very overweight MSOs in my model portfolio at 420 Investor:
We have shared frequently in this newsletter that too many traders and investors focus on just one sub-sector, the MSOs. There are opportunities beyond just the American cannabis market’s direct production and sales of cannabis. I was very cautious here earlier in this year regarding MSOs, as they went up too much and too quickly on the possible rescheduling of cannabis, which, if it takes place, will wipe out 280E taxation.
MSO prices have declined a lot. They are down in 2024 now as measured by the NCV American Cannabis Operator Index, which is currently down 7.2% year-t0-date and was down 9.1% at the end of August. The index fell 20.6% from August 16th to August 28th. On August 26th, after the close of trading, the DEA scheduled a hearing for rescheduling on December 2nd, and this resulted in a massive decline the next day. I added MSOs to my model portfolio on this drop, as the move by the DEA was not negative in my view. From the April 30th peak, the index has dropped 41.6%. The index is beaten up, and the stocks look cheaper.
My model portfolio, which is available to subscribers, currently includes 9 names. My exposure to MSOs is currently 41.9%, with the holdings spread among 5 names. Only 1 is a Tier 1 MSO (and part of the index), and there are two Tier 2 MSOs. My Canadian LP exposure, currently 27.1%, is in two names, one of which is not in the index but very cheap. My ancillary exposure is 30.4% and includes 2 names, including my largest holding at 19.7%. Both of these are in the index, and I continue to view their estimates as likely to rise if 280E gets eliminated, as their customers will be in better financial position. I do have 0.6% cash in the model portfolio too.
I started a model portfolio aimed at doing better than the overall cannabis sector in 2013. After I left Benzinga, I rebuilt it at Seeking Alpha at the end of 2022. It did slightly better than the index in 2023, but it is doing exceptionally well this year at up 25.4% year-to-date as of last night. I think the success can be attributed to exposure to more than just a small part of the market. The model portfolio is long-only and limited to a maximum of cash of 20%. The volatility this year has been very helpful to my performance, as I have raised cash to my maximum a few times. Another helpful action has been not just focusing on the names in the index. I currently have 52.5% of the model portfolio invested in names currently outside of that index.
For those readers who want to know which stocks I have liked or currently like, it is not that big of a secret. I contribute an article each week to Seeking Alpha, all of which can be accessed for free (subject to a limit on the number of articles seen). I was cautious early in the year, and now I am very optimistic. Beyond 280E elimination, there are some other things going on that excite me. As I have been saying, the end of the bear market isn’t yet confirmed, but we remain on the path to a new bull market for cannabis stocks in my view. Again, while I am optimistic, I find a few cannabis stocks that should be avoided.
New Cannabis Ventures publishes curated articles as well as exclusive news. Here is some of the most important content from this week:
Exclusive
Ancillary Cannabis Stocks Perform Best Again
August Hurts the Global Cannabis Stock Index
To get real-time updates download our free mobile app for Android or Apple devices, like our Facebook page, or follow Alan on Twitter. Share and discover industry news with like-minded people on the largest cannabis investor and entrepreneur group on LinkedIn.
Use the suite of professionally managed NCV Cannabis Stock Indices to monitor the performance of publicly-traded cannabis companies within the day or over longer time-frames. In addition to the comprehensive Global Cannabis Stock Index, we offer the Canadian Cannabis LP Index, the American Cannabis Operator Index and the Ancillary Cannabis Index.
View the Public Cannabis Company Revenue & Income Tracker, which ranks the top revenue producing cannabis stocks.
Stay on top of some of the most important communications from public companies by viewing upcoming cannabis investor earnings conference calls.
Discover upcoming new listings with the curated Cannabis Stock IPOs and New Issues Tracker.
Sincerely,
Alan
