You’re reading a copy of 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.
In early June, we began to express our bullishness on cannabis stocks in this newsletter. The Global Cannabis Stock Index is down significantly since then, but it is up 2% in July from its lowest close ever on June 30th:
The overall cannabis market is still down 54.2% year-to-date. We remain optimistic about cannabis stock prices, and today we want to point out some great action. Our model portfolios at 420 Investor have performed exceptionally well recently. Since month-end, the returns for all three have been in excess of 11%, well ahead of the market.
One of our big weightings has been in ancillary stocks, and we have been increasing our exposure. It is the largest part of the index at 41.3% (we are 31% in one portfolio and 37% in the other long-term focused model portfolio), and the stocks, which all trade on the NASDAQ or NYSE, have been hammered this year. Two that have helped us this month include CEA Industries (formerly Surna), up 22%, and GrowGeneration, up 17%. We find these stocks as well as others to be very inexpensive.
Our biggest relative and absolute exposure is to multi-state operators. The index is 29.3% MSO (multi-state operators) and SSO (single-state operators), but the model portfolios are 41-46%. Some big moves this month have taken place, with 5 of the top 10 stocks advancing more than 15%, including Ascend Wellness (+33%), Columbia Care (+16%), Cresco Labs (+26%), Jushi Holdings (+22%) and Green Thumb Industries (+19%). Our model portfolios currently have about 24% invested in four of these names.
Of those that want to invest in multi-state operators, many pick AdvisorShares Pure US Cannabis ETF, which can be enticing, but not fully correct, as the portfolio valued at $585 million includes a REIT, Innovative Industrial Properties, as a top-10 holding. Other companies that don’t actually produce cannabis products include AFC Gamma, Agrify, Hemp Fusion Wellness, Hydrofarm, Power REIT, RIV Capital and urban-gro. These companies represent just 6.4% of the portfolio, which also has cash of 2.9%.
While the ETF has become more focused on cannabis operators this year, its reliance on ancillary names hurt the performance. Year-to-date, it has dropped 55.5%. This is worse than the overall market, as measured by the 54.2% return in the Global Cannabis Stock Index, but it’s a lot worse than the return of the American Cannabis Operators Index, which has declined 44.2%. The AdvisorShares Pure US Cannabis ETF is having a good July at up 10%, ahead of the Global Cannabis Stock Index but behind the 11.6% return of the American Cannabis Operators Index.
The third part of our portfolio is in Canadian LPs, which are 18.9% of the index but almost 22% of the model portfolios. We have added to Canopy Growth very recently, but it has been a drag and not a helper of our performance. The Canadian Cannabis LP Index is down 2.6% this month. Of the names we hold, Organigram is up over 10%.
We are bullish now for reasons that we have discussed recently. The bear market for stocks is part of the reason for extreme weakness in cannabis stocks this year, but the industry has struggled to produce the expected sales growth. Capital markets are weak, and this is weighing on the ability to find demand for all the supply of stocks. We remain optimistic that the market conditions will improve.
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New Cannabis Ventures publishes curated articles as well as exclusive news. Here is some of the most interesting business content from this week:
Kiva Confections has spent the last year expanding its operations into Canada, added to its leadership team and grown its sales and marketing teams outside of California. So far, the company has done so through licensing partnerships. But in an exclusive interview, co-founder Kristi Palmer said she isn’t ruling out growth through mergers and acquisition and discusses what the future holds for Kiva.
Michigan cannabis sales grew a half a percentage point in June compared to May, despite having one less day. Revenue increased 26% year-over-year to $187.4 million in June, according to state statistics. While medical sales fell 48.4% from a year ago to $21.5 million, year-over-year adult-use sales grew 54.5% to $165.9 million.
Pelorus Equity Group has been increasing financing options in the last couple of years. So far, the REIT has completed more than 69 transactions, deploying more than $435 million into the cannabis space. Two years ago, its ideal loan was $4 million to $7 million. Today, it is $10 million to $30 million. In this interview, Pelorus Equity Group President Rob Sechrist and Managing Partner Travis Goad discuss how the company has grown its team and portfolio.
Tilray Brands, Inc. closed its previously disclosed acquisition from HT Investments MA LLC of the secured convertible note issued by HEXO Corp., which the company said is expected to deliver up to $80 million of shared cost-savings within the next two years. “Closing this transaction with Tilray will provide HEXO with the financial flexibility needed to accelerate our operational turnaround and put us on the path to profitable growth,” said HEXO President and CEO Charlie Bowman.
The Valens Company Inc. reported Q2 revenue increased 4% to C$24 million from C$23.2 million in Q1. The company attributed the increase to double-digit growth in Green Roads’ revenue.
Organigram Q3 revenue rose 20% sequentially to C$38.1 million, the highest in the company’s history and up 88% from C$20.3 million in the same prior-year period.
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Alan & Joel
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