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 got pretty cautious on cannabis stocks near the end of 2022. As measured by the New Cannabis Ventures Global Cannabis Stock Index, they are actually lower now. More recently, I have been slowly becoming more optimistic.
We have been in a bear market since early 2021, with prices down over 90% since the top. As I have been pointing out, the chart looks like it may be bottoming. That, though, isn’t enough! The big catalyst that is playing out is rescheduling. This was something that President Biden said he was going to get done in late 2022, and no one seemed to think he would. In August, 2023, news hit that the Department of Health & Human Services had recommended to the DEA that it change cannabis from Schedule 1 to Schedule 3. The market got very excited, but it pulled back when investors realized that the DEA might not do what had been suggested. Well, April 30th, the DEA did say that it was going to do just that, and the market exploded higher.
280E, an onerous tax applied to American cannabis companies, will go away if the DEA delivers on its planned rescheduling, and this will boost cash flows for them. I think that this could be a real catalyst for the industry, as it is suffering from restricted access to capital. In my view, this will also be good for the companies that provide goods or services to them. I really like some of the ancillary stocks!
Earnings season starts this coming week and really picks up the following week. The quarterly financials are not likely to inspire buyers. I think that Tilray Brands (NASDAQ: TLRY) could really disappoint on Monday. The stock is too expensive. It is down year-to-date, but could fall to a new all-time low. It has been very aggressive on M&A, which has made it look like it is growing, but analysts have been chopping their outlooks for adjusted EBITDA. The big MSOs report the following week, and their growth is very muted in the short-run.
I think that beyond rescheduling, there are some positive things happening. Two weeks ago, I wrote about the explosion of legal cannabis sales in the New York adult-use market, and we will get some other states moving from medical-only to adult-use too (Ohio is in the process and Virginia could do so). Perhaps Florida voters will approve it in November, and Pennsylvania is another state that could move towards legalization for adult-use.
I am not calling this a bull market, because it doesn’t feel like one yet. The volumes remain quite low, and there have been no clear level breaks to the upside. I have been suggesting that readers pay close attention, and things are progressing positively except in prices. Last week, I suggested that weakness in stocks will not likely hold back the cannabis sector, and we have seen a tough week for stocks. The Global Cannabis Stock Index is down just slightly since last Wednesday (2.1% as I type with the index at 8.95), while the S&P 500 has dropped 1.9%. The Global Cannabis Stock Index is up in July, and it is up year-to-date by more than 10%. I think that it could go up a lot more. Here is the action so far in 2024:
So, while I am not yet calling it a new bull market, I do think that we are on the edge of one. If rescheduling fails to go through, it will be very ugly. It seems like the crowd has given up on cannabis stocks.
New Cannabis Ventures publishes curated articles as well as exclusive news. Here is some of the most important content from this week:
Exclusives
Canadian Cannabis Sales Growth Has Slowed
Cannabis Q2 Earnings Season Approaches
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Sincerely,
Alan
