What’s Up With Cannabis Stocks For The Week Ending 4/2/22 – New Cannabis Ventures

Navigate the rapidly changing cannabis industry with 420 Investor, a premium service that sends real-time alerts and explanations of the news below and more.

Summary

  • SAFE Banking passed the Chamber
  • Pennsylvania has issued an extensive recall of vaping products
  • BDSA data showed stronger demand in several eastern markets in December
  • The governor of Mississippi has signed a law to approve medical cannabis
  • The model portfolios of 420 investors have returned -14.4% to -8.3% year-to-date, while the global cannabis stock index is down 12.2%

Review

SAFE Banking again passed the House as part of another bill. Pennsylvania has mandated hundreds of different vape cartridges due to additives. BDSA data showed mixed trends in more mature western markets, but clear evidence of stronger demand for cannabis in December in eastern markets. The Governor of Mississippi enacted a recent law to approve medical cannabis. Ohio announced preliminary results for awarding 73 new dispensary licenses.

During the week, I shared these insights with 420 Investor subscribers:

  • Overview of Canopy Growth’s Third Quarter Financial Results
  • Overview of Valens’ fourth quarter financial results
  • Cannabis Sub-Sector Review – 01/28/22
  • Composition of the model portfolio 01/28/22

Here are some of this week’s highlights for 420 names on the Investor Guidance List:

  • The CCHWF raised $185 million, borrowing over 5 years at 9.5%. $32 million is being used to repay a portion of their 13% senior secured notes. He opened the first of five planned dispensaries in West Virginia.
  • CGC has expanded its Ace Valley brand, introducing two new drinks and a 20mg CBD hard candy.
  • CWBHF has announced that it is ISO certified for the internal testing of its products.
  • FFLWF has restructured its strategic agreements in the United States, changing the purchase price and structure and also allowing it to generate more revenue Hifyre
  • GDNSF has agreed to be acquired by Verano Holdings in an all-stock deal. It also extended its credit facility with Chicago Atlantic to an additional $55 million.
  • GNLN pre-announced fourth quarter revenue of $55.5-56.5 million, with a gross margin of 18-20%.
  • GRWG has acquired Horticultural Rep Group to strengthen its distribution of private label products
  • SHWZ added 3 new VPs from outside the company
  • SMG saw Hawthorne revenue drop 38% in first quarter to $191 million
  • TCNNF Completed Rebranding of Its Three Maryland Dispensaries
  • TRSSF has added 3 new SVPs external to the company.
  • UGRO increased its share buyback authorization by an additional $2 million to $8.5 million.
  • VLNS announced $10 million in cost savings related to the integration of several acquisitions. The company is targeting a positive Q4 for EBITDA.
  • VRNOF will acquire Goodness Growth in an all-stock transaction. It borrowed the remaining $100 million on its 8.5% credit facility

Market performance

The global cannabis stock index posted its best weekly gain since mid-November, rising 7.6% to 28.83:

The index, which lost 26% in 2021 after a 5.2% gain in 2020, is down 12.2% in 2022. It currently comprises 38 stocks and ended 2021 at 32.85:

Model portfolios

420 Investor offers three model portfolios for subscribers, two of which are long-term focused and fully invested to beat the global cannabis stock market index, 420 Opportunity and 420 Quality. 420 Opportunity ended the week with a value of $83,271, up 13.6%. The model portfolio, down 13.8% in 2021 after a 35.6% gain in 2020, is down 8.3% in 2022 and has increased 66.5% since April 2014 despite the significant loss of the index since then. 420 Quality ended the week at $114,999, up 13.0% for the week. It is down 9.0% in 2022 and 21.8% in 2021 after gaining 42.8% in 2020. The model was launched in March 2017 targeting long-term investors looking to invest in major stocks low-turnover cannabis portfolio and has gained 130.0% since inception compared to the index’s 64.4% decline since then. Flying High, which focuses on swing trades, ended the week at $251,960, up 7.6%. The model portfolio has gained 16.6% in 2021 and 52.7% in 2020 and is down 14.4% in 2022. The return since inception at the end of 2013 has been 2420%.

Outlook

The cannabis industry has continued to evolve through several ups and downs over the past few years. 2021 started off with massive gains in the fourth quarter, but hit a wall in mid-February, dragging the balance of the year after the market got ahead of itself. Disappointment with the slow pace of federal reform or the move toward legalization has been a factor, but declining cannabis sales growth, regulatory delays in several states, and the implosion of the wholesale flower market in California also played a role. In Canada, while the market has continued to grow, the shift to derivatives has been slow. In addition, the biggest LPs have lost market share and have not been able to scale so far.

The bull market that began in March 2020 after the pandemic and the capital crisis that followed the vaping crisis in 2019 appears to be intact for US cannabis operators, who continue to trade significantly higher than in the summer. 2020 despite steep declines since February’s peak. Looking ahead, the outlook looks strong, with major companies moving to positive operating cash flow and having increasing access to non-dilutive capital, including debt, mortgages and leasebacks. Several states will transition from medical-only use to adult use, including New Jersey, New Mexico, Vermont, and Connecticut in 2022, New York in 2023, and Virginia in 2024. Several other states may also legalize the adult use, including Delaware, Florida, Maryland, Minnesota, New Hampshire, Pennsylvania and Rhode Island. Several states are also expanding their programs, with additional dispensaries coming to Illinois. The medical-only state of Minnesota will add flowers and edibles in 2022, and Ohio is also expanding its program. Increasing competition in some state markets that weighs on profitability is likely to remain a challenge. Also, while many see federal legalization as a positive, it remains a potential risk factor in my opinion.

While stocks of US cannabis companies continue to be held primarily by retail investors, 2021 has seen an increase in institutional investment. Another significant development has been the growth of AdvisorShares Pure US Cannabis ETF (MSOS), which has broadened access to cannabis companies for investors who do not trade stocks OTC. Additionally, a number of ancillary companies have gone public and trade on higher exchanges, providing institutional investors with a way to invest in the industry. We have seen several investments in US cannabis companies, primarily by Canadian LPs, but, going forward, strategic investments through creative financial structures will likely extend to CPG companies in 2022.

At the federal level, the FDA (or Congress) could provide some clarification on the regulation of CBD. When it comes to THC, Democrats (Cannabis Administration and Opportunity Act) and Republicans (States Reform Act) are proposing legislation to legalize cannabis. While this is going to be a long process in my opinion due to the complexity (variable state regulations, role of the FDA, social equity, taxation), it is very different from what the developing cannabis industry was facing. just a few years ago: potential crackdowns on state legalization. I remain hopeful that Congress can push through small reforms, including expanded research and SAFE Banking. Enhanced financial reform that would explicitly allow companies operating in state-legal cannabis to trade on higher exchanges would be hugely positive.

Beyond America, cannabis legalization continues to proliferate. Although Canada remains the largest market for federally legal cannabis, many other countries have medical programs, including Argentina, Chile, Colombia, Ecuador, Peru, and Uruguay (fully legal) in South America. Mexico has legalized possession but does not yet have a regulated program, and it may also legalize adult use. Australia’s medical program was slow to get going but has gained ground. New Zealand also has a medical program. In Africa, several countries have legalized medical cannabis. Europe, of course, has seen the widespread adoption of medical cannabis. Germany has been slow to develop but could move to legalization for adult use. Other markets where there is medical cannabis are Denmark, Greece, Italy, the Netherlands, Poland and Portugal. The UK and Israel have medical cannabis, and Israel could move to legalizing it for adult use. Of course, let’s not forget Jamaica!

Get a head start by signing up for 420 Investorthe largest and most comprehensive premium subscription service for cannabis traders and investors since 2013.

Alan Brochstein, CFA

Based in Houston, Alan leverages his experience as an online community founder 420 Investor, the cannabis industry’s first and still largest public equity-focused due diligence platform. With his vast network in the cannabis community, Alan continues to find new ways to connect the industry and facilitate its sustainable growth. AT New Cannabis Companies, he is responsible for content development and strategic alliances. Prior to focusing on the cannabis industry in early 2013, Alan, who began his career on Wall Street in 1986, worked as a freelance research analyst after more than two decades in research and portfolio management. Prolific author, with more than 650 articles published since 2007 on Looking for Alphawhere he has 70,000 subscribers, Alan is a frequent speaker at industry conferences and a frequent source to the media, including the NY Times, Wall Street Journal, Fox Business and Bloomberg TV. Contact Alan: Twitter | Facebook | LinkedIn | E-mail

Receive our Sunday newsletter


Comments are closed.