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- Cannabis stocks ended a bad month on a good note.
- Health Canada added 6 new licenses, leaving the total now at 738.
- 420 Investor model portfolios have gained 34.8-71.2% year-to-date, while the Global Cannabis Stock Index has gained 18.7%.
It was a quiet week ahead of the kickoff of earnings season next week.
Health Canada added 6 new licenses, leaving the total at 738, including 3 that are expired, revoked or suspended.
During the week, I shared these insights with subscribers at 420 Investor:
- Model Portfolio Composition 07/23/21
- Cannabis Sub-Sector Review – 07/23/21
- Previews for Canopy Growth, Cronos Group and Scotts Miracle-Gro Quarterly Financials
Here are some of this week’s highlights for 420 Investor Focus List names:
- CGC unveiled two lines of small pre-rolls
- CRON launched a new line of gummies with flavor masking, SOURZ by Spinach
- GNLN pre-announced Q2 at $34.5 million, up modestly from Q1 and slightly behind expectations
- GRAMF announced extended lock-ups by directors and management and also arranged to repurchase up to 1.725 million shares being sold by SISU owners for tax purposes
- GRWG will be buying what it calls the third largest chain of hydroponics stores, HGS Hydro, which has six stores in Michigan that did $50 million of sales in 2020
- GTBIF opened its second store in Virginia
- SMG boosted its quarterly dividend 6.5% to $0.66 per share
- TCNNF won a Class 1 production license in Georgia
- TLRY reported Q4 revenue of $142 million, including a month of legacy Tilray results. The company was forced to adjourn its special meeting to authorize a higher share-count due to insufficient voting.
- VLNCF will be manufacturing LivRelief topicals for Harvest One
The Global Cannabis Stock Index rallied for the second consecutive week, gaining 2.6% to 52.67:
The index, which lost 34.1% in 2019 and lost 54.9% in 2018 after gaining 91.8% in 2017 and 88.8% in 2016, was up 5.2% in 2020. It has gained 18.7% in 2021 thus far. It currently includes 44 stocks and ended 2020 at 44.39:
420 Investor offers three model portfolios for subscribers, including two that are long-term focused and fully invested with a goal of beating the Global Cannabis Stock Index, 420 Opportunity and 420 Quality. 420 Opportunity ended the week valued at $153,686, down 0.8%. The model portfolio, up 45.9% in 2021, gained 35.6% in 2020 and has increased 207.4% since April 2014. 420 Quality ended the week at $217,685, down 1.1% for the week, and is now up 34.8% in 2021 after gaining 42.8% in 2020. The model was launched in March 2017 targeting long-term investors seeking to invest in leading cannabis stocks with low portfolio turnover and has gained 335.4% since inception compared to the 34.9% decrease in the index. Flying High, which is focused on swing trades, ended the week valued at $432,169, down 2.4%. The model portfolio gained 52.7% in 2020 and is up 71.2% in 2021, and the return since inception in late 2013 has been 4222%.
After a strong rally to begin 2019, the cannabis sector experienced a sharp decline over the next year to unprecedented levels due to several negative developments, including the CannTrust fraud, the surprise termination of Bruce Linton as CEO of Canopy Growth, a disappointing roll-out of legalization in Canada, regulatory confusion in the U.S. regarding CBD and a slow roll-out of legalization in California, the vaping crisis and then financial turmoil and market disruptions due to the COVID-19 pandemic. The sector saw capital available to fund expansion dry up, a situation that continues to leave companies operating with negative cash flow severely challenged, as the availability is limited to stronger operators.
Cannabis stocks overreacted and put in a bottom in March 2020, and they are now benefiting from a perception that the industry offers strong growth prospects, something that wasn’t clear then. A big change has been that the pandemic caused many regulators to permit previously prohibited types of retail activities, like curbside pickup and delivery. The legal market is rapidly capitalizing on becoming even more convenient than the illicit market, with the ability to order online. High unemployment and large deficits have begun to spur state legalization efforts as well as more favorable regulatory control at the local level. Access to capital has improved dramatically, and the leading companies are generating large and rapidly growing revenue and profits.
There are several potential catalysts ahead, including the FDA providing clarity on CBD regulation, progress in the Canadian legalization that commenced in October 2018 and that is beginning to include a broader set of products and the continued growth in German and Israeli MMJ and other international markets that have been slow to develop. The adult-use implementations in California and Massachusetts for adult-use were slow to roll out but are beginning to show great improvement. Michigan and Illinois legalized for adult-use at the end of 2019, and these markets are showing strong growth that could encourage other states to legalize. Voters in Arizona, Montana, South Dakota and New Jersey all approved adult-use legalization in November, and New Mexico, New York and Virginia have enacted legalization through the legislative process in 2021.
The big themes ahead are likely to be continued cross-industry investment into the sector and more consolidation in Canada and in the U.S., potential federal regulatory reform (SAFE Banking Act and other more comprehensive legislation, which could eliminate 280E taxation and enable trading on higher exchanges for MSOs as well as the broad usage of credit cards for cannabis purchases), steps to enable cannabis research, the roll out of MMJ in Germany, Mexico and in Australia as well as continued advances in South America and potential adult-use legalization in Israel and Mexico, new legal cannabis implementations in AZ, MT, NJ and SD, and MMJ implementations in AL, WV and VA, possible legalization via the legislatures in DE, FL, MD, MN, NH, PA and RI and implementation of the CT, NM, NY and VT commercial programs in 2022 and VA in 2024.
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