Navigate the fast-moving cannabis sector with 420 Investor, a premium service that sends real-time alerts and explanations of the news below and much more.
Summary
- NJ legalized and Virginia will add flower to its medical program.
- Health Canada added 6 licenses and revoked 3.
- 420 Investor model portfolios have gained 76.7-90.9% year-to-date, while the Global Cannabis Stock Index has gained 50.2%.
Review
New Jersey’s governor signed the adult-use legalization bill into law. Virginia’s medical cannabis program is going to add flower. Another MSO, Parallel, chose the SPAC route to going public.
Health Canada data showed inventory levels remain high for not only flower but also edibles as of November. Health Canada added 6 new licenses this week, leaving the total, including the suspended license of Ten-10 Ventures, at 613, which excludes the revoked licenses of Agrima, Alberta Green Biotech, BC Tweed (2), Bloomera, Budding Gardens, FV Pharma, Hexo’s 4th site, Maricann’s 2nd site, Medican Organic’s 2nd site, Muskoka Grown, Original BC, a small processing facility that belonged to Canopy Growt and Zenalytics Laboratories, the expired licenses of Evergreen Medicinals and Toronto Research Chemicals, two transferred licenses held formerly by James Wagner, a license previously held by Total Cannabis Solutions and the voluntarily cancelled license of Avalite Sciences.
During the week, I shared these insights with subscribers at 420 Investor:
- Indus Holdings Q4 Earning Preview
- Earnings Previews for Cronos Group and Innovative Industrial Properties
- Cannabis Sub-Sector Review – 02/19/21
- Model Portfolio Composition 02/19/21
Here are some of this week’s highlights for 420 Investor Focus List names:
- APHA filed a joint preliminary proxy with Tilray and expects the transaction to close in Q2 after already receiving HSR Clearance
- CGC filed a $2 billion shelf registration
- CRON Q4 Revenue Grew Sharply to $17 million, but adjusted EBITDA worsened to -$53 million.
- CURLF expanded its Select brand to Utah
- CWBHF announced a research collaboration to study the efficacy of a custom-formulated, hemp-derived high-CBD product.
- FFLWF entered the U.S. through a strategic licensing partnership with the ability to acquire the operator in the future
- FLOOF converted an undisclosed amount of vendor debt into its common shares.
- GRWG acquired a chain of four stores in Southern California doing $10 million a year in sales
- GTBIF raised $56 million selling shares at $35.50
- HRVSF sold its two dispensaries in North Dakota
- IIPR growth slowed substantially as the company missed the consensus forecast for revenue and earnings, reporting sales of $37.1 million with AFFO of $1.29
- INDXF announced the acquisition of Lowell Herb Co for $39 million, primarily in shares
- KSHB sold 24 million units at $1.65 to raise $40 million, allowing them to pay off their debt due in April
- SPRWF filed a $150 million shelf registration
- TCNNF opened its 75th Florida dispensary
- TLRY’s Board moved to allow locked up shares to be released as soon as a definitive proxy is filed for the Aphria merger. It also filed a prospectus supplement indicating that it has $159 million remaining on its ATM.
- VREOF will be opening its first Maryland dispensary in March after also completing its production capacity expansion in the state.
The Global Cannabis Stock Index fell for the second consecutive week, decreasing 12.4% to 66.67:
The index, which lost 34.1% in 2019 and lost 54.9% in 2018 after gaining 91.8% in 2017 and 88.8% in 2016, was up 5.2% in 2020. The index has gained 50.2% in 2021 thus far. It currently includes 38 stocks and ended 2020 at 44.39:
420 Investor Model Portfolios
420 Investor offers three model portfolios for subscribers, including two that are long-term focused and fully invested with a goal of beating the Global Cannabis Stock Index, 420 Opportunity and 420 Quality. 420 Opportunity ended the week valued at $195,040, down 10.7%. The model portfolio, up 85.1% in 2021, gained 35.6% in 2020 and has increased 290.1% since April 2014. 420 Quality ended the week at $285,439, down 10.6% for the week, and is now up 76.7% in 2021 after gaining 42.8% in 2020. The model was launched in March 2017 targeting long-term investors seeking to invest in leading cannabis stocks with low portfolio turnover and has gained 470.9% since inception compared to the 17.6% decrease in the index. Flying High, which is focused on swing trades, ended the week valued at $481,831, down 10.8%. The model portfolio gained 52.7% in 2020 and is up 90.9% in 2021, and the return since inception in late 2013 has been 4718%.
Outlook
After a strong rally to begin 2019, the cannabis sector experienced a sharp decline over the next year to unprecedented levels due to several negative developments, including the CannTrust fraud, the surprise termination of Bruce Linton as CEO of Canopy Growth, a disappointing roll-out of legalization in Canada, regulatory confusion in the U.S. regarding CBD and a slow roll-out of legalization in California, the vaping crisis and then financial turmoil and market disruptions due to the COVID-19 pandemic. The sector saw capital available to fund expansion dry up, a situation that continues to leave companies operating with negative cash flow severely challenged, as the availability is limited to stronger operators.
Cannabis stocks overreacted and put in a bottom in March, and they are now benefiting from a perception that the industry offers strong growth prospects, something that wasn’t clear then. A big change has been that the pandemic has caused many regulators to permit previously prohibited types of retail activities, like curbside pickup and delivery. The legal market is rapidly capitalizing on becoming even more convenient than the illicit market, with the ability to order online. High unemployment and large deficits will likely spur state legalization efforts as well as more favorable regulatory control at the local level. Access to capital is now improving quickly.
There are some potential catalysts ahead, including the FDA providing clarity on CBD, progress in the Canadian legalization that commenced in October 2018 and that is beginning to include a broader set of products and the continued growth in German and Israeli MMJ and other international markets that have been slow to develop. The implementations in California and Massachusetts for adult-use were slow to roll out but are beginning to show great improvement. Michigan and Illinois legalized at the end of 2019, and these markets are showing strong growth that could encourage other states to legalize. Voters in Arizona, Montana, South Dakota and New Jersey all approved adult-use legalization in November.
The big themes ahead are likely to be continued cross-industry investment into the sector and more consolidation in Canada and in the U.S., potential federal regulatory reform (SAFE Banking Act and other more comprehensive legislation, which could eliminate 280E taxation and enable trading on higher exchanges for MSOs as well as the broad usage of credit cards for cannabis purchases), steps to enable cannabis research, the roll out of MMJ in Germany, Mexico and in Australia as well as continued advances in South America and potential adult-use legalization in Israel and Mexico, new legal cannabis implementations in AZ, MT, NJ and SD, and MMJ implementations in Virginia and soon Mississippi and West Virginia, possible legalization via the legislatures in CT, DE, FL, MD, MN, NH, NM, NY, PA, RI and VA and implementation of the VT commercial program in 2022.
