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The last few weeks have been very good for cannabis stock investors, with the vast majority of pot stocks (those that trade on the US OTC markets) up in value by double- and triple-digit percentages. This doesn’t mean that pot stocks are a sure bet, but it does mean that the cannabis industry is starting to find its sea legs in the months following the big legalization push at the state level.
Last week, more than a dozen states saw cannabis stocks surge on news that the DEA would postpone the implementation of its decision to consider CBD (cannabidiol) as a Schedule 1 drug . That means more time for investors to do their homework on the companies they’re thinking of buying and to further study the legalities of cannabis on a federal level.
Navigate the evolving cannabis industry with 420 Investor, a premium service that sends you real-time alerts and explanations of the news below and more.
- Adult drug sales in Illinois increased 209% in April.
- ASDB data for March showed a recovery in most states.
- Health Canada has added 5 licenses, bringing the total number of licenses to 670.
- Over the past year, 420 Investor’s model portfolios have increased 59.7.2 to 82.0%, while the Global Cannabis Stock Index has increased 33.8%.
Barron’s front page story sparked interest in the MSO earlier this week. Sales to adults in Illinois increased 209% year-over-year, bringing total sales in April up 120% to $150 million. BDSA data for March showed a rebound in most states after a slowdown in sales in February, particularly in California, where year-over-year growth was 26.5%. Alabama was about to approve a medical cannabis program.
Health Canada added 8 new licences, bringing the total number of licences to 665, including 10 expired, revoked or suspended licences.
I shared this information with 420 subscribers of Investor this week:
- Previews of financial reports from Charlotte’s Web, Curaleaf, Green Thumb Industries, Harvest Health and Recreation and Village Farms.
- A strong fourth quarter confirms the optimistic outlook for this Canadian cannabis retailer.
- Cannabis Subsector Review – 30/04/21
- Composition of the portfolio model 30.04.21
Here are some of the most notable names on this week’s 420 Investor Focus list:
- CRLBF has announced the expiration of the HSR Act waiting period for the upcoming Massachusetts acquisition.
- In the first quarter, CRON’s revenue fell 26% from the fourth quarter to $12.6 million, well below expectations.
- CURLF completed the acquisition and processing of a grower and dispensary in Maryland and sold its previous grower and processor to TerrAscend
- GTBIF announced the upcoming acquisition of Virginia-based operator Dharma for $82.5 million in cash and shares, plus undisclosed payments.
- HBORF announced it would be moving to San Leandro to serve the adult market.
- HRVSF has opened two clinics in Florida, the 7th and 8th, and has received approval to reopen the Agrimed facility in Pennsylvania.
- LOWLF increased revenues in the first quarter by 20% compared to the fourth quarter to $11 million and expects revenues in the second quarter to be $14-16 million with positive adjusted EBITDA.
- OGI’s CEO, Greg Engel, has stepped down and the president has taken over the role on an interim basis.
- PLNHF reports record sales of $10.7 million in April.
- Hawthorne’s revenue for the second quarter increased 66% to $364 million. SMG has raised its forecast for the full year to 30-40%.
- The TCNNF has opened its 82nd edition. Tap in Florida and completed the acquisition of Mountaineer Holding in West Virginia for $6 million.
- TLRY settled an arbitration dispute related to a CBD supply contract, paying $25 million upfront and up to $20 million spread over nine months.
- TRSSF opened a second clinic in New Jersey and completed the acquisition of three clinics in Pennsylvania and a cultivation and processing facility in Maryland.
The global cannabis stocks index snapped a string of two-week gains with a 2.9% drop to 59.40 :
Theindex, which lost 34.1 percent in 2019 and 54.9 percent in 2018 after rising 91.8 percent in 2017 and 88.8 percent in 2016, rose 5.2 percent in 2020. For 2021, it has increased by 33.8%. It currently has 48 shares and ended 2020 at 44.39 :
Examples of portfolios
420 Investor offers subscribers three model portfolios, two of which are long-term and fully invested to beat the Global Cannabis Stock Index, 420 Opportunity and 420 Quality. 420 Opportunity ended the week with an estimate of $175,450, down 1.1%. The model portfolio has grown by 66.5% in 2021, 35.6% in 2020 and 250.9% since April 2014. 420 Quality ended the week at $257,898, down 2.2% on the week and up 59.7% in 2021 after up 42.8% in 2020. Launched in March 2017, the model is designed for long-term investors looking to invest in leading cannabis stocks with low portfolio turnover. Since its inception, it has gained 415.8%, compared to a 26.5% decline in the index. Flying High, which focuses on swing trading, closed the week with a valuation of $459,464, up 0.1%. The model portfolio is up 52.7% in 2020 and 82.0% in 2021, a 4495% return since inception in late 2013.
After a strong recovery in early 2019, the cannabis sector fell sharply to unprecedented levels the following year due to several negative events, including the CannTrust scam, the unexpected resignation of Bruce Linton as CEO of Canopy Growth, the disappointing start to legalization in Canada, confusion over CBD regulation in the US and the slow start to legalization in California, the vaping crisis, and then the financial turmoil and market disruption caused by the COVID-19 pandemic. In the industry, the capital available to fund expansion has dried up, a situation that continues to put heavy pressure on companies with negative cash flow, as the availability of capital is constrained by stronger market participants.
Cannabis stocks overreacted and reached their bottom in March 2020. Today they benefit from the perception that the sector offers good growth prospects, which was not the case then. One important change is that the pandemic has forced many regulators to allow previously prohibited retail activities, such as takeout and delivery. The legal market is growing rapidly and is becoming even more convenient than the illegal market because orders can be placed online. High unemployment and large deficits have fueled states’ legalization efforts, as have more favorable regulatory controls at the local level. Access to capital has improved dramatically and large companies are generating significant and rapidly growing revenues and profits.
There are several potential catalysts, including the FDA providing clarity on CBD regulation, the progress of legalization in Canada that began in October 2018 and is gradually covering a wider range of products, and the continued growth of German and Israeli MMJ and other international markets that have been slow to develop. Adoption of adult use in California and Massachusetts has been slow, but is beginning to show significant improvements. Michigan and Illinois legalized adult-use drugs in late 2019, and those markets are showing strong growth that could prompt other states to legalize. Voters in Arizona, Montana, South Dakota and New Jersey approved adult drug legalization in November, and New Mexico, New York and Virginia introduced legalization in the legislature in 2021.
Key issues for the future are likely to include continued cross-sector investment in the sector and further consolidation in Canada and the United States, potential federal regulatory reform (SAFE Bank Act and other broader legislation that could eliminate the 280E tax and allow OCMs to trade on higher exchanges as well as the widespread use of credit cards to purchase cannabis), measures to enable cannabis research, the introduction of MMJ in Germany, Mexico, and Australia, and continued progress in South America, and the possible legalization of cannabis for adult use in Israel and Mexico ; Introduction of new legal cannabis in AZ, MT, NJ and SD, and introduction of MMJ in MS, WV and VA; possible legalization by legislators in CT, DE, FL, MD, MN, NH, PA and RI; and introduction of commercial programs in NM, NY and VT in 2022 and in VA in 2024
Stay ahead of the crowd by subscribing to 420 Investor, the largest and most comprehensive subscription service for cannabis dealers and investors since 2013.
Based in Houston, Alan draws on his experience as founder of the 420 Investor online community, the first and still largest integrated analysis platform focused on publicly traded cannabis stocks. Through his many connections in the cannabis community, Alan continues to find new ways to bring the industry together and promote sustainable growth. At New Cannabis Ventures, he is responsible for content development and strategic alliances. Until early 2013, Alan, who began his career on Wall Street in 1986, worked as an independent analyst and then for more than two decades in research and portfolio management. Alan is a prolific writer with over 650 articles published on Seeking Alpha since 2007, where he has 70,000 subscribers. He is a frequent speaker at industry conferences and appears regularly in the media, including the NY Times, Wall Street Journal, Fox Business and Bloomberg TV. Get in touch with Alan: Twitter | Facebook | LinkedIn | E-mail
In this section:
cl, Cresco Labs, CRLBF, CRON, Cronos Group, cura, Curaleaf, curlf, Green Thumb Industries, gtbif, Gti, gtii, Harborside, HARV, Harvest Health and Recreation, hbor, HBORF, HRVSF, Lowell Farms, LOWL, LOWLF, OGI, Organigram, Planet 13, Planet 13 Holdings, PLNHF, PLTH, Scotts Miracle-Gro, smg, tcnnf, TER, Terrascend, Tilray, TLRY, TRSSF, TRUL, trulieve.
Cronos’ first quarter revenue decreased by 26% compared to the previous quarter
TerrAscend opens second medical dispensary in Maplewood, New Jersey
Hawthorne Horticulture Division of Scotts Miracle-Gro’s 2Q sales up 66% to $364 million
Lowell Farms first-quarter revenue up 17% to $11 million
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