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
- Mexico and New York made legalization progress.
- Health Canada issued 7 licenses.
- 420 Investor model portfolios have gained 74.6-92.9% year-to-date, while the Global Cannabis Stock Index has gained 56.5%.
Review
New York appears to be getting closer to legalizing for adult-use. Florida’s medical cannabis program surpassed 500K and continues to show accelerating growth in units sold.
Mexico moved a step closer to adult-use legalization with the Chamber of Deputies approving it and sending it to the Senate, which previously had passed similar legislation. Health Canada added 7 licenses, leaving the total at 623, which includes 5 licenses that are expired, revoked or suspended.
During the week, I shared these insights with subscribers at 420 Investor:
- Earnings Previews for the Week Ending 3/19
- Assessing Columbia Care’s Florida Litigation
- Single-State Operators Are Appealing in This Environment
- Cannabis Sub-Sector Review – 03/05/21
- Model Portfolio Composition 03/05/21
Here are some of this week’s highlights for 420 Investor Focus List names:
- CRLBF moved closer to acquiring Bluma Wellness following the expiration of the HSR waiting period and expects to close in Q2 upon Florida regulatory approval.
- CURLF slightly missed revenue expectations for Q4, blaming COVID-19, but was slightly ahead on adjusted EBTIDA. It provided guidance for 2021 of $1.2-1.3 billion in revenue. The company announced that it will be expanding globally by buying EMMAC for $285 million, mainly with stock. Executive Chairman Boris Jordan made a prior investment into EMMAC in 2020.
- CWBHF launched THC-free CBD oil tinctures
- FFLWF entered a marketing partnership with BDSA
- FLOOF continued to make progress addressing its debt burden, getting some vendors to convert debt to equity and selling an additional C$8.8 million of new convertible debt.
- GRWG announced it is building two super stores in Southern California
- GTBIF announced the opening of its first store in California, Essence Pasadena
- HBORF announced that it completed a $5 million investment into another California operator, Loudpack, and has engaged the company for services as part of a strategic partnership
- HRVSF opened its 9th Pennsylvania dispensary
- OGI sold 19.9% of the company to global tobacco company BAT for C$296 million and will collaborate on product development
- SMG raised $500 million selling 10-year notes at 4%
- SPRWF launched its sugarleaf gummies
- TCNNF partnered with Morehouse School of Medicine for cannabis research and education and will also partner with minority-owned TruGenomix for gene sequencing services
- TLRY received approval to launch products in New Zealand
The Global Cannabis Stock Index broke a three-week losing streak as it bounced sharply, increasing 13.8% to 69.48:
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 56.5% 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 $191,603, up 7.2%. The model portfolio, up 81.8% in 2021, gained 35.6% in 2020 and has increased 283.2% since April 2014. 420 Quality ended the week at $281,954, up 7.0% for the week, and is now up 74.6% 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 463.9% since inception compared to the 14.1% decrease in the index. Flying High, which is focused on swing trades, ended the week valued at $487,010, up 10.6%. The model portfolio gained 52.7% in 2020 and is up 92.9% in 2021, and the return since inception in late 2013 has been 4770%.
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.
