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.
Each Friday, we evaluate the price performance of dozens of cannabis stocks by comparing similar companies for subscribers at our premium subscription service, 420 Investor. We discussed this process a bit over a year ago, describing the different sub-sectors that make up the overall cannabis sector.
Today, we break down the market somewhat differently, including 4 tiers of multi-state operators, 3 tiers of ancillary companies, 3 tiers of Canadian licensed producers, Canadian retailers, CBD companies, international operators and biotech companies, for a total of 14 different sub-sectors.
Historically, cannabis stocks have tended to move in unison for the most part, but we suggested last June that we expect returns to vary increasingly from one another, and that has certainly been the case in 2021 thus far.
Since the beginning of Q2, the New Cannabis Ventures Global Cannabis Stock Index has declined by 15.8%, which follows a 41% rally in Q1. While the largest MSOs have returned a similar amount on average since the end of March, the returns have varied greatly, with Green Thumb Industries down just 0.5% but Trulieve down 28%:
Similarly, returns have varied substantially among the second tier of MSOs in terms of revenue, with Harvest benefiting from the Trulieve acquisition:
For the largest Canadian LPs, the returns have varied significantly, with Canopy Growth falling almost twice as much as Cronos Group:
A particularly stark contrast is in the Ancillary-Financial subsector, with Innovative Industrial Properties up 19% but Power REIT down 18%:
While Power REIT has trailed the index slightly and its peers more substantially, it has far outpaced even the best returning CBD company:
We have shared just a few sub-sectors and over only a single time-frame, but the variability of returns is quite apparent looking beyond our examples. Evaluating the year-to-date returns for the largest cannabis companies by market cap further illustrates the point. Of the 14 companies that have a market cap of $2.4 billion or more, only three have outpaced the 18.7% return of the Global Cannabis Stock Index. Of the remaining 11, 7 have positive returns but trail the index, and 4 have actually declined:
These largest 14 companies have lagged the overall market as they have averaged a return of 11% year-to-date, another sign that investors need to focus on stock selection rather than just bet on the largest companies. Smaller companies have provided higher returns in 2021 on average, but picking the right stocks has been important. Being in stocks like GW Pharma and Harvest Health & Recreation prior to the announcements of their acquisition bids certainly has helped provide above-index returns.
The fundamentals and dynamics of the sub-sectors and the stocks within them vary more than ever. Not surprisingly, then, we are seeing variability in stock returns. In our view, cannabis investors are well served to spend time analyzing individual securities rather than taking a more passive approach, such as picking the largest stocks.
Cannabis Stock Research, News and Model Portfolios
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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:
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Alan & Joel