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 post this and all of the newsletters on our website here.
Friends,
Last week, we shared a negative view regarding Canopy Growth with a suggestion that readers exit, and it fell by 16.8%. I have been cautious regarding Trulieve as well, and it has been very weak too. Both of these companies announced capital-raising shelf filings on Thursday. Despite their pullbacks, both stocks are up a lot in 2024 still.
We continue to warn that many cannabis companies may need to sell stock. When we wrote on May 2nd, which was right after the huge rally on 4/30 that was a recent peak, we discussed that a new bull market may be starting but that MSOs may sell stock to fix their balance sheets even if rescheduling takes place. We concluded that piece by suggesting that it is not the time yet for investors to bet big. Instead, they should be paying attention and perhaps buying dips.
Well, this has been one big dip! Since 4/30, the New Cannabis Ventures Global Cannabis Stock Index has declined 21.6%:
The index is still up decently in 2024, gaining 13.3% thus far. That’s a lot worse than the 44.5% it was up as of 4/30, but it is ahead of the S&P 500 as well as the Russell 2000.
Too many people got too excited about this potential rescheduling ahead of the right time. The AdvisorShares Pure US Cannabis ETF (NYSE Arca: MSOS) is up only 8.8% now year-to-date. The ETF has seen a surge in the number of shares outstanding by 38% year-to-date, though it has been flat for the past three weeks. I discussed the big bet that went bad two weeks ago, and MSOS has declined by 6.1% since then and by 32.2% since April 30th. This ETF continues to be very appealing to some, but it isn’t diversified at at all. The five Tier 1 MSOs make up 83% of the ETF. I don’t include any of these in my model portfolio.
I have been following the cannabis stocks closely since 2013, and this remains to me a very challenging situation. My model portfolio at 420 Investor is up 22.8% year-to-date, which has been aided by my cautiousness. Not picking stocks in a non-diversified way and paying attention to the entire cannabis market have helped. I currently am fully invested in 9 cannabis stocks. My exposure is 48% MSOs (4), 22% ancillaries (3) and 29% Canadian LPs (2). These 9 stocks have returned -55.6% to 38.8% in 2024 are up an average of -9.3%, much lower than the Global Cannabis Stock Index. 5 are down year-to-date, and 5 are also down over the past year. That average return of -3.7% is below the GCSI return over the past year of 18.3%.
Our cautious commentary here about the market prospects since the end of 2022 has been very different from other cannabis-focused media and folks in the industry and the investment in the industry. We did point out two big things that needed to happen in our sector 18 months ago: the elimination of 280E taxation and the ability of American cannabis operators to trade on higher exchanges. While the uplisting has made no progress, the potential rescheduling is on track to wipe out the 280E tax. Again, this would be very helpful, but it is not yet a done deal.
We have not been bearish in our commentary regularly, nor have we been bullish that often. Cannabis stocks have been in a bear market since February of 2021 and remain down substantially. The Global Cannabis Stock Index has dropped 90% since its peak then, and popular ETF MSOS is down 85%. We have tried to call out when cannabis stocks are more attractive, like we did in October, when they dropped a lot from the first big spike in Q3 when the potential rescheduling rumor hit.
We are trying to point out that cannabis stocks have become a lot more attractive, but we are not saying that they can’t go lower. Again, 280E is still intact, though it appears likely to go away. Cannabis stocks are volatile, and the sector has no strong ETFs or funds that are worth pursuing. The sector is filled with retail investors and lacking institutional support. Cannabis stocks are cheaper, but may remain quite expensive, and we are not afraid to call them out. At the same time, we often share some ideas that seem to cheap relative to peers. Again, while this may not be the close to the start of a new bull market, we feel like we are getting closer. Readers should pay close attention and should consider buying dips like we are experiencing.
New Cannabis Ventures publishes curated articles as well as exclusive news. Here is some of the most important content from this week:
Exclusives
April Had 4/20 But Not High Cannabis Sales Growth
Global Cannabis Stock Index Plunges
Illinois Reports April Cannabis Sales
May Was Rough On All Cannabis Sectors
Capital Raising
AFC Gamma Exits $84 Million Acreage Holdings Loan
To get real-time updates download our free mobile app for Android or Apple devices, like our Facebook page, or follow Alan on Twitter. Share and discover industry news with like-minded people on the largest cannabis investor and entrepreneur group on LinkedIn.
Use the suite of professionally managed NCV Cannabis Stock Indices to monitor the performance of publicly-traded cannabis companies within the day or over longer time-frames. In addition to the comprehensive Global Cannabis Stock Index, we offer the Canadian Cannabis LP Index, the American Cannabis Operator Index and the Ancillary Cannabis Index.
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
