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
- The Ohio medical cannabis program continues to expand.
- Canadian retail cannabis sales hit a record C$313 million in May.
- Health Canada added 7 new licenses, leaving the total now at 732.
- 420 Investor model portfolios have gained 36.3-75.5% year-to-date, while the Global Cannabis Stock Index has gained 15.6%.
Review
Ohio’s medical cannabis market, which has extensive MSO participation, has seen its weekly sales rise to $7.5 million as of mid-July.
Ontario will pause until early 2022 on new cannabis products after the next deadline for submissions in August. Canadian retail sales in May reached a record of C$313 million, up 68% from a year ago. Health Canada added 7 new licenses, leaving the total at 732, including 3 that are expired, revoked or suspended.
During the week, I shared these insights with subscribers at 420 Investor:
- Model Portfolio Composition 07/16/21
- Cannabis Sub-Sector Review – 07/16/21
- Canadian Retailer High Tide Leverages Its Accessories Legacy
- Preview for Tilray’s Q4 Financials
Here are some of this week’s highlights for 420 Investor Focus List names:
- CURLF opened its 5th Maine dispensary
- GRAMF reported that its Caliva Delivery App is now available on the Apple App Store.
- GRWG announced two acquisitions, including two stores in Oregon and one in California
- GTBIF launched Good Green, a line of products dedicated to creating professional opportunities for those impacted by the War on Drugs.
- HBORF announced that its Chairman will serve as interim CEO, and it appointed Sublime CEO Ahmer Iqbal as its COO.
- LOWLF launched a new offering, Farmer’s Eighth, which is 4 grams instead of 3.5 grams for $33. It also began providing processing services in its new facility to a third-party cultivator.
- SHWZ completed the acquisition of Southern Colorado Growers, expanding its cultivation capacity.
- TCNNF announced the opening of an additional two dispensaries in Florida, where it now operates 87.
The Global Cannabis Stock Index broke a three-week losing streak, gaining 1.4% to 51.33:
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 15.6% in 2021 thus far. It currently includes 44 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 $154,852, down 0.6%. The model portfolio, up 47.0% in 2021, gained 35.6% in 2020 and has increased 209.7% since April 2014. 420 Quality ended the week at $220,085, down 1.2% for the week, and is now up 36.3% 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 340.2% since inception compared to the 36.5% decrease in the index. Flying High, which is focused on swing trades, ended the week valued at $442,904, up 0.3%. The model portfolio gained 52.7% in 2020 and is up 75.5% in 2021, and the return since inception in late 2013 has been 4329%.
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 DE, FL, MD, MN, NH, PA and RI and implementation of the CT, NM, NY and VT commercial programs in 2022 and VA in 2024.
