You’re reading this week’s edition of the New Cannabis Ventures weekly newsletter, which we have been publishing since October 2015. The newsletter includes unique insight to help our readers stay ahead of the curve as well as links to the week’s most important news. We no longer send these by email as we did in the past, but we post this and all of the newsletters on our website here.
Friends,
I have been warming up a lot to cannabis stocks this year, and, while they are up year-to-date, they dropped during this week and closed on Monday’s meltdown down 0.1% year-to-date. After the big rally that has followed, they are up 6.3% year-to-date now as measured by the NCV Global Cannabis Stock Index:
The year has been very volatile since the potential rescheduling news hit late August. The index is up 16.1% since the day before that news hit, but it is down a lot from the peak set on April 30th, when we learned that the DEA is formally recommending that cannabis go from Schedule 1 to Schedule 3. Again, this will wipe out the terrible taxation of 280E if it takes place. This is a very big thing that we have been talking here about since late 2022.
To me, the cannabis stocks generally are cheap call options. The best call options are low in price and offer substantial upside with limited downside. Companies that have a lot of cash, little or no debt and low valuations can work. Many of the cannabis stocks are not good call options despite falling in price so substantially.
Many people make the mistake of thinking that cannabis investing is exclusively about American cannabis companies (the MSOs), but there are lots of ways to take advantage of the bear market in cannabis stocks over the past 3 1/2 years. In addition to MSOs, which have the call option of rescheduling working in their favor, ancillary cannabis companies could benefit greatly too as their customers get stronger financially.
Another option is in Canada, and these call options, while difficult to time, are very cheap. I continue to hold 2 Canadian LPs in my model portfolio that I share with subscribers at my service, 420 Investor, They currently make up 33.5% of the model portfolio. Both are trading below tangible book value despite being up a lot year-to-date. One is debt-free, loaded with cash and receiving more investment from a strategic partner.
I like the MSOs now, some more than others. The challenge for them is that if 280E does not go away, they will face financial pressure, as many are drowning in debt. There are good things happening, though, outside of 280E being potentially wiped out. I spent the past 11 days in New York City and went into two cannabis stores. I remain very optimistic that this will be a strong market. When I was last there in April 2022, I didn’t go in to the one that I saw because the line to get in was too long. As we have written, the New York cannabis market is rapidly improving. New York is just one new market, as other states are legalizing for adult-use. The Canadian market is maturing, but there are international opportunities for these federally legal companies. Perhaps the outrageous cultivation tax in Canada will change for the better.
Call options can be a great way to make money, but investors should remember that they don’t always work out. I think that cannabis stocks are becoming a lot more timely, but I haven’t yet become as bullish as I can be. One of my concerns is that if 280E doesn’t go away, it could be terrible. The rescheduling appears to be on track, and the downside risk of a new President being against rescheduling seems low and getting lower. For those who appreciate that there is still some risk, cannabis stocks are a good place to be right now it seems.
New Cannabis Ventures publishes curated articles as well as exclusive news. Here is some of the most important content from this week:
Financial
Ayr Wellness Q2 Revenue Increases 1%
Cresco Labs Q2 Revenue Falls 7%
Trulieve Q2 Revenue Increases 8%
Capital Raising
TerrAscend Issues Debt at 12.75%
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View the Public Cannabis Company Revenue & Income Tracker, which ranks the top revenue producing cannabis stocks.
Stay on top of some of the most important communications from public companies by viewing upcoming cannabis investor earnings conference calls.
Discover upcoming new listings with the curated Cannabis Stock IPOs and New Issues Tracker.
Sincerely,
Alan
