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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.
Friends,
The peak of earnings season for the cannabis industry has passed, and the news that came out hasn’t helped. Last week, the New Cannabis Ventures Global Cannabis Stock Index fell 4.4% and is down 8.6% in August and 20.2% year-to-date.
The weakness doesn’t surprise us, and it didn’t really have much to do with the earnings reports. We have updated the Public Cannabis Company Revenue & Income Tracker that we maintain, and we will get a piece out later this week about the big earnings news. We warned readers again in the July 23rd edition that we are concerned about the cannabis sector, and the GCSI has dropped 1.5% since then after rallying 7.8% into month-end.
Our reasons that we shared for caution in the near-term remain the same: low trading volumes and the MSOS ETF. Trading volumes have been and remain low. If holders of cannabis stocks want to sell quickly for any reason, the prices could be pressured. As far as MSOS, it closed at an all-time low on Friday of $5.01 and is down 28.3% year-to-date. It remains extremely concentrated in just six names (86.4%), with 45% in just Curaleaf and GTI.
We said a few weeks ago that there are a lot of reasons cannabis stocks can go up, but the two we think are most important, the elimination of 280E and the ability of American cannabis operators to move from the OTC to the NASDAQ, aren’t happening yet and are tough to predict.
As we have been conveying, cannabis stocks are very cheap. I share with 420 Investor subscribers a Beat the Global Cannabis Stock Index model portfolio that is pretty fully invested, though I caution members of the community not to expect quick gains. It hasn’t been quick, as I started liking the stock in January after its capital raise crushed the stock, but the move was very big on Village Farms this week, up 51.7% this week. It remains far below tangible book value as do some other Canadian LPs. This is an area that I think should have excited investors, but it has not.
Given our concern for cannabis stock prices in the short-term, beyond the two catalysts we have been discussing, there is another potential driver of higher prices: M&A. We still are very concerned about Tilray, now up 68% in Q3, but a big part of the rally has been its M&A. Sadly for the sector, though, the pending purchase had nothing to do with cannabis. We are watching closely Altria British American Tobacco, both of which have large stakes in Canadian LPs, to see if they step up and buy the very cheap stocks in which they are invested.
If there is no increase in M&A in the sector, and if 280E elimination and NASDAQ listing don’t happen, we think the sector could break down further. The low close on the Global Cannabis Stock Index was 7.41 in late June, and this level could get tested and potentially break. A 4.4% decline, which is what the index suffered this week, would put it at that level. The overall stock market has been very strong this year, but the trend there may be changing. We think that weakness in the broad market could pressure our sector further.
We think that the MSOs have the most risk. The vast majority have negative tangible book value, and asset sales are tough right now. These companies have a lot of debt and unpaid taxes, and their free cash flow is not high enough to pay these obligations. The break in the MSOS ETF is a very negative sign of collapsing courage in sub-sector investors, and things could get worse. We hope that this bear market, now 2 1/2 years old, ends soon.
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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:
Exclusives
Michigan Cannabis Sales Set a Monthly Record in July
Financial Reports
Ascend Wellness Q2 Revenue Increases to Record $123 Million
Cannabis Fuels Strong Growth at Village Farms in Q2
Canopy Growth Q1 Cannabis Revenue Jumps 12% Sequentially
Cronos Group Reports Weaker Q2
Curaleaf Q2 Revenue Lifts 1% Sequentially
GrowGeneration Misses Revenue Forecast and Cuts Outlook
GTI Q3 Revenue Increases 2% Sequentially to $252 Million
Hydrofarm Q2 Revenue Increases 1% From Q1
Trulieve Q2 Revenue Slips 3% Sequentially to $281.8 Million
Verano Reports 3% Sequential Revenue Growth in Q2 to $234.1 Million
WM Technology Q2 Revenue Bounces to $50.9 Million
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 & Joel
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