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
- New York moved closer to legalizing.
- Michigan February cannabis sales cleared $105 million.
- 420 Investor model portfolios have gained 52.6-66.6% year-to-date, while the Global Cannabis Stock Index has gained 39.4%.
Review
New York appears to be moving closer to a legislative legalization of cannabis for adult-use. Michigan cannabis sales increased 210% from a year ago to $105 million during February. The FDA issued warning letters to two CBD companies
Health Canada added no licenses, leaving the total at 626, which includes 5 licenses that are expired, revoked or suspended.
During the week, I shared these insights with subscribers at 420 Investor:
- Another Insider Pocket-Lining Cannabis M&A Deal
- Earnings Previews for the Rest of March
- Cannabis Sub-Sector Review – 03/19/21
- Model Portfolio Composition 03/19/21
Here are some of this week’s highlights for 420 Investor Focus List names:
- CRLBF Q4 revenue expanded 6% sequentially to $162 million, with adjusted EBITDA of $116 million
- CURLF introduced Select Squeeze, a fast-acting THC-infused beverage enhancer featuring Nano-emulsification technology.
- CWBHF reached a settlement with AAXLL, which agreed not to infringe on its brand. Its Q4 revenue increased 7% sequentially to $26.9 million, with an adjusted EBITDA loss of $2.1 million.
- GRAMF introduced a value-priced 1-gram strain-specific vape cartridge at $25
- GRWG acquired Agrion.io, which helps support commercial growers by providing a purchasing and logistics platform. It replaced its CFO with the former CFO of Crocs and West Marine. The company reported Q4 revenue of $62 million and increased its 2021 guidance to $4415-430 million revenue and adjusted EBITDA of $48-51 million.
- GTBIF opened stores in Illinois and Pennsylvania. The company terminated its S-1 and filed an S-3 registration statement
- HBORF secured a $12 million two-year revolving credit facility at 5.75% with a commercial bank (and issued 4.1 million warrants at C$3.69).
- LQSIF spin-off Nova Cannabis began trading. The company reported Q4 cannabis revenue of C$17.3 million, up 33%.
- TCNNF paid $6 million in cash and stock to acquire the winner of a West Virginia cultivation license, allowing it to be completely integrated vertically. It also received permission to begin growing in its Massachusetts facility. The company reported Q4 revenue of $168 million, slightly ahead of expectations, and provided guidance for 2021 revenue of $815-850 million with adjusted EBITDA of $355-375 million.
- TRSSF fired its CEO. It reported Q4 revenue of C$65 million with adjusted EBITDA of C$26 million and updated its 2021 guidance for revenue in excess of US$290 million and adjusted EBITDA in excess of US$122 million.
- VREOF reported Q4 revenue of $12.4 million, with adjusted EBITDA of $0.1 million. It closed on a $32.5 million loan with Green Ivy Capital.
The Global Cannabis Stock Index fell sharply, ending the week at the lowest closing level since March 8th, decreasing 8.4% to 61.87:
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. It has gained 39.4% 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 $165,930, down 11.6%. The model portfolio, up 57.5% in 2021, gained 35.6% in 2020 and has increased 231.9% since April 2014. 420 Quality ended the week at $246,511, down 11.6% for the week, and is now up 52.6% 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 393.0% since inception compared to the 23.5% decrease in the index. Flying High, which is focused on swing trades, ended the week valued at $420,432, down 12.6%. The model portfolio gained 52.7% in 2020 and is up 66.6% in 2021, and the return since inception in late 2013 has been 4104%.
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.
