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
- Connecticut came close but failed to finalize legislation for adult-use.
- Health Canada added 12 licenses, leaving the total now at 692.
- 420 Investor model portfolios have gained 56.2-90.2% year-to-date, while the Global Cannabis Stock Index has gained 33.7%.
Review
Connecticut legislators failed to meet a deadline but will reconvene during a special session to continue efforts to legalize cannabis for adult-use.
Health Canada added 12 licenses, leaving the total at 692, including 4 that are expired, revoked or suspended.
During the week, I shared these insights with subscribers at 420 Investor:
- Model Portfolio Composition 06/04/21
- Cannabis Sub-Sector Review – 06/04/21
- An Initial Look at Narrowly Focused MSO Ascend Wellness
- Preview for Fire & Flower’s Q1 Financials
Here are some of this week’s highlights for 420 Investor Focus List names:
- ACB launched three proprietary cultivars under the San Rafael ’71 brand
- CCHWF closed the acquisition of Green Leaf for $240 million, adding to its operations in Maryland, Ohio, Pennsylvania and Virginia. It also launched an online discovery tool, forage, to streamline and customize the shopping experience over the internet.
- CGC moved closer to acquiring Supreme Cannabis after the transaction was approved by their shareholders
- CRLBF expanded its Good News brand in the adult-use markets of California, Illinois and Michigan with its first CBN product and other edibles as well.
- CURLF unveiled a partnership with Rolling Stone for a Select pre-roll and new proprietary pod system, “The Cliq”, each featuring three strains and flavor profiles.
- GDNSF changed its name from Vireo Health to Goodness Growth Holdings. It provided 2022 guidance for revenue of $140-180 million and adjusted EBITDA of $35-55 million. The company will also be pursuing research and IP development in the psychedelics area.
- GRWG announced its proprietary silicic acid, Power Si, is now being distributed in Canada through a partner. Three insiders sold over $20 million of stock.
- GTBIF shares (1.667 million) held by a private investment company controlled by its CEO were sold at $30 to a new institutional investor in the company.
- HBORF resolved litigation from 2018 by paying $1.5 million in a settlement with a former employee
- PLNHF announced sales of $11.2 million in May, with gross margin exceeding 50%
- SMG funded several social justice organizations through its Hawthorne Social Justice Fund.
- TCNNF completed the acquisition of Solevo Wellness West Virginia for $650K, giving it three additional dispensary permits. It launched Refined Crème, a new high-end cannabis concentrate manufactured using cold ethanol extraction. It added a dispensary in Tampa, its 83rd in Florida.
- TLLTF will receive payment of its outstanding debt from Blackbird early due to the company’s acquisition.
- TLRY launched a new medical cannabis brand, Symbios, targeting lower price points for a broader spectrum of formats and unique cannabinoid ratios.
The Global Cannabis Stock Index tread water on little news this week, rising 0.4% to 59.34:
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 33.7% in 2021 thus far. It currently includes 46 stocks and ended 2020 at 44.39:
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 $175,740, up 0.4%. The model portfolio, up 66.8% in 2021, gained 35.6% in 2020 and has increased 251.5% since April 2014. 420 Quality ended the week at $252,208, up 0.3% for the week, and is now up 56.2% 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 404.4% since inception compared to the 26.6% decrease in the index. Flying High, which is focused on swing trades, ended the week valued at $480,176, up 0.4%. The model portfolio gained 52.7% in 2020 and is up 90.2% in 2021, and the return since inception in late 2013 has been 4702%.
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 AL, 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.
