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 legalized and New Mexico’s legislature approved legalization, which its governor is expected to sign.
- Health Canada added 8 licenses.
- 420 Investor model portfolios have gained 61.5-71.9% year-to-date, while the Global Cannabis Stock Index has gained 42.6%.
Review
In a historic week, New York signed into law and New Mexico’s legislature approved adult-use cannabis legalization acts. MSO Ascend Wellness filed for a Canadian IPO, which follows the recently completed Verano Holdings reverse-merger and the pending Parallel SPAC transaction.
Health Canada added 8 licenses, leaving the total at 634, including 10 that are expired, revoked or suspended.
During the week, I shared these insights with subscribers at 420 Investor:
- Previews for Planet 13 and KushCo Holdings Financial Reports
- A First Look at New York’s Legalization
- Changes to the Global Cannabis Stock Index for April 2021
- Cannabis Sub-Sector Review – 03/26/21
- Model Portfolio Composition 03/26/21
Here are some of this week’s highlights for 420 Investor Focus List names:
- CGC acquired cannabis brand Ace Valley.
- GNLN reported Q4 revenue of $36 million, in line with expectations, and adjusted EBITDA of -$7 million, worse than analysts had forecast. The company will be merging with KSHB in an stock-based deal expected to close in Q2 or early Q3.
- GTBIF was alleged by the Chicago Tribune to be under federal investigation for campaign finance violations, something the company denied.
- HRVSF reported Q4 revenue of $69.9 million with adjusted EBITDA of $9.1 million, both ahead of expectations.
- KSHB paid off its $17 million secured debt. The company agreed to merge with GNLN in a stock-based deal.
- LQSIF announced that it closed the sale of its BC convenience-format liquor stores and will pay off the $78 million convertible debentures.
- OGI launched several new strains. The company paid off its $58.5 million debt with BMO.
- SHWZ reported Q4 revenue of $7 million, down from Q3, and projected 2021 revenue of $105-125 million with adjusted EBITDA of $28-36 million.
- VFF disclosed that two executives have adopted trading plans pursuant to Rule 10b5-1 for a total of 1.5 million shares.
- VREOF opened its Maryland dispensary. The company reached an agreement with Bruce Linton, issuing him 8 million shares in exchange for cancelling all of his outstanding warrants. It completed the sale of its Ohio processing facility to Ayr Wellness.
The Global Cannabis Stock Index fell to its lowest close since February 1st on Tuesday but ended up rallying over the balance of the short week, ending at 63.31, up 2.3%:
in 2017 and 88.8% in 2016, was up 5.2% in 2020. It has gained 42.6% in 2021 thus far. It currently includes 48 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 $174,468, up 5.2%. The model portfolio, up 65.6% in 2021, gained 35.6% in 2020 and has increased 248.9% since April 2014. 420 Quality ended the week at $260,779, up 5.8% for the week, and is now up 61.5% 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 421.6% since inception compared to the 21.7% decrease in the index. Flying High, which is focused on swing trades, ended the week valued at $433,953, up 3.2%. The model portfolio gained 52.7% in 2020 and is up 71.9% in 2021, and the return since inception in late 2013 has been 4240%.
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 2020, 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 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 have begun to spur state legalization efforts as well as more favorable regulatory control at the local level. Access to capital has improved dramatically, and the leading companies are generating large and rapidly growing revenue and profits.
There are several potential catalysts ahead, including the FDA providing clarity on CBD regulation, 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 adult-use implementations in California and Massachusetts for adult-use were slow to roll out but are beginning to show great improvement. Michigan and Illinois legalized for adult-use 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, and New Mexico, New York and Virginia have enacted legalization through the legislative process in 2021.
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 MS, WV and VA, possible legalization via the legislatures in CT, DE, FL, MD, MN, NH, PA, and RI and implementation of the NM, NY and VT commercial programs in 2022 and VA in 2024.
