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,
The AdvisorShares Pure US Cannabis ETF (NYSE Arca: MSOS) hit an all-time low of $4.00 in November, and it is testing it in early December. Closing yesterday at $4.13, it is down 41.1% in 2024. This is quite a fall compared to the overall cannabis market, which has declined 9.1% as measured by the New Cannabis Ventures Global Cannabis Stock Index. Of course in 2023, MSOS was up 0.3% compared to the 16.4% loss for the GCSI.
Looking at the action since the end of 2020, which was just ahead of the peak in cannabis stocks, MSOS is down 88.7%. The Global Cannabis Stock Index has dropped 83.4%. While I like MSOs in general (a massive overweight in my model portfolio at 420 Investor of 67.9%) and like the idea of buying stocks that are beaten up with a great prospect ahead, I still don’t care for the MSOS ETF. My distaste for it is due to the same things that bothered me when I first called it out here in late 2022 and shared a piece at Seeking Alpha in November of 2022, exactly two years before the all-time low. I explained why MSOS is not a good way to invest in cannabis. It lacks diversification, and it’s not really actively managed. Since that Seeking Alpha article was published, it has declined 64.2%.
Looking at the ETF’s composition, it has 84.7% exposure to the five Tier 1 MSOs, which is tremendously higher than their share of the market by revenue or by market cap:
I include #4 and #5 in my model portfolio but do not hold the first three. Investors who like these top holdings can just buy them. Of course, some investors can’t do so due to the fact that they all trade OTC.
In addition to the two I mentioned above, I include two of the remaining names. I currently hold 6 MSOs in the model portfolio (30% currently), but the weight of these two totals just 1% of the ETF.
I am not trying to convince anyone to buy this ETF, but it could go up in my view. After the negative election result in Florida, it tanked, leaving a big open gap above that if filled would return 65%:
Last week, I pointed out that the overall market has not taken out its all-time low on the GCSI from October 2023, and it still has not. That $4 low MSOS set on 11/11 is key to watch in my view, as we could be forming a potential double-bottom for MSOS. The prior all-time low for MSOS was $4.78 in late August of 2023.
Of course, there is more to picking stocks than just looking at charts. Even the MSOs that are very large part of MSOS (70% in the top 3!) that I don’t include in my model portfolio at 420 Investor are cheap in my view. I continue to believe that MSOs will soar once rescheduling takes place (eliminating 280E taxation). The DEA has held the initial hearing and has scheduled testimony from January into early March.
So, I am kind of on the same team right now with MSOS, though playing it very differently with a big bet on mainly 2nd Tier MSOs. There continues to be other parts of the market with appeal too. Cannabis investors have had their wallets and patience stretched, but hopefully this massive bear market of almost four years ends soon.
New Cannabis Ventures publishes curated articles as well as exclusive news. Here is what we published this past week:
Exclusives
Ancillary Cannabis Stocks Hold Prices the Best
Cannabis Stocks Extend Losses in November
Illinois Cannabis Sales Increase Slightly in October
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Sincerely,
Alan
