A Couple of More Buy Ideas – New Cannabis Ventures

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,

We have been trying to warn readers all year not to assume that cannabis stocks will rally quickly, and the market, as measured by the New Cannabis Ventures Global Cannabis Stock Index, has been very weak. Unchanged at 7.66 last week, the index has dropped 21.1% so far this year after losing more than 70% last year. Since the peak in early 2021, the index has dropped almost 92%:

Our caution is aimed towards traders, but we know that investors read these newsletters too. We see some incredible bargains in the cannabis sector, and we can understand how investors want to take the near-term risk to pursue them. While we have had some big warnings about a few stocks and ETFs, we have also shared some of the stocks about which we are most optimistic.

We last shared some stocks for investors to consider in the mid-May newsletter, and the average return has far exceeded the 2.5% decline in the index:

While Columbia Care has bounced nicely, I include a substantial position still in the stock in both of my model portfolios that I offer at 420 Investor. While its acquisition price may drop somewhat, it is very cheap to the current implied price at a discount of more than 50%. Though Organigram has declined, it has dropped a lot less than Canopy Growth and Tilray since then:

Looking at the Global Cannabis Stock Index, there are two names that are down substantially in Q2 thus far that should appeal to investors, Hydrofarm and Trulieve.

Hydrofarm, down 37.4% in Q2, has dropped 36.6% so far in 2023 and is down 81.0% over the past year. The stock trades at just 1.17 times its tangible book value. The debt outstanding is about twice as large as its equity value, but it’s not due until 2027. Analysts expect 2024 adjusted EBITDA to be $14 million, so the stock trades at an enterprise value to adjusted EBITDA of just 11X.

Trulieve, down 26.1% in Q2, has dropped 47.2% so far in 2023 and is down 70.6% over the past year. Of the 5 largest MSOs, the 2023 decline is the greatest:

The decline in the stock has been driven mainly by lower projected revenue and adjusted EBITDA in 2023, but the current outlook is for a strong recovery in 2024. The stock is the cheapest among the 5 largest MSOs on an enterprise value to projected 2024 adjusted EBITDA at just 3.5X:

Another important factor is that the AdvisorShares Pure US Cannabis ETF (NYSEARCA: MSOS) has substantially more Green Thumb Industries (26.8%) and Curaleaf (19.4%) than Trulieve (11.3%). If the ETF sees more share redemptions, it is likely to raise funds by trimming its largest positions.

We continue to see the market for cannabis stocks as challenging. We do think that several stocks offer great potential entries for long-term investors, like Hydrofarm and Trulieve as well as Organigram at the lower price.

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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

Cannabis Sales Slip

Illinois Cannabis Sales Stall in May

Michigan May Cannabis Sales Stall

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View the Public Cannabis Company Revenue & Income Tracker, which ranks the top revenue producing cannabis stocks.

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Sincerely,

Alan & Joel

Based in Houston, Alan leverages his experience as founder of online community 420 Investor, the first and still largest due diligence platform focused on the publicly-traded stocks in the cannabis industry. With his extensive network in the cannabis community, Alan continues to find new ways to connect the industry and facilitate its sustainable growth. At New Cannabis Ventures, he is responsible for content development and strategic alliances. Before shifting his focus to the cannabis industry in early 2013, Alan, who began his career on Wall Street in 1986, worked as an independent research analyst following over two decades in research and portfolio management. A prolific writer, with over 650 articles published since 2007 at Seeking Alpha, where he has 70,000 followers, Alan is a frequent speaker at industry conferences and a frequent source to the media, including the NY Times, the Wall Street Journal, Fox Business, and Bloomberg TV. Contact Alan: Twitter | Facebook | LinkedIn | Email