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- Michigan cannabis sales in December were quite strong
- Model portfolios from 420 investors have returned -5.3% to -1.0% year-to-date, while the Global Cannabis Stock Index is down 2.5%
Similar to Illinois, Michigan closed 2021 with a very strong month. Sales for adult use were up 119% from a year ago and 12% from November to $135 million. Combined with medical, overall sales increased 10% sequentially and 66% from a year ago to $168 million.
During the week, I shared these insights with 420 Investor subscribers:
- The risks and opportunities associated with improving the availability of debt capital
- Cannabis Subsector Review – 01/07/22
- Composition of the model portfolio 01/07/22
Here are some of this week’s highlights for 420 names on the Investor Guidance List:
- AYRWF has opened its 44th clinic in Florida.
- The CWBHF has revamped its management team after the recent CEO change and is focused on expanding revenue in the United States and globally.
- GNLN announced that 97% of its products are eligible for shipment by major carriers or freight after obtaining approval from the US Postal Service to ship vaporizers.
- GRWG pre-announced fourth-quarter revenue of $88-90 million, reflecting a 12% drop in same-store sales that will result in an EBITDA loss of $2-4 million.
- OGI’s revenue of C$30.4 million was up 22% from a year ago, with adjusted EBITDA of -C$1.9 million. Both measures were better than expected.
- TCNNF has launched a new line of products, Live Diamonds, created by extraction from frozen flowers using a proprietary blend of propane and butane.
- TLRY cannabis sales fell sequentially, with adult use dropping 30% to $35 million and overall cannabis sales dropping 17% to $58.8 million.
The Global Cannabis Stock Index tested and held its 52-week closing low set in the first week of January, up 0.4% to 32.03:
The index, which lost 26% in 2021 after a 5.2% gain in 2020, is down 2.5% in 2022. It currently comprises 38 stocks and ended 2021 at 32.85:
420 Investor offers three model portfolios for subscribers, two of which are long-term focused and fully invested to beat the global cannabis stock market index, 420 Opportunity and 420 Quality. 420 Opportunity ended the week at $89,929, up 1.0%. The model portfolio, down 13.8% in 2021 after a 35.6% gain in 2020, is down 1.0% in 2022 and has risen 79.9% since April 2014 despite the sharp loss of the index since then. 420 Quality ended the week at $124,914, up 1.1% for the week. It was down 1.1% in 2022 and 21.8% in 2021 after gaining 42.8% in 2020. The model was launched in March 2017 targeting long-term investors looking to invest in major stocks of portfolio’s low-turnover cannabis and has gained 149.8% since inception compared to the index’s 60.4% decline since then. Flying High, which focuses on swing trades, ended the week at $278,697, down 0.9%. The model portfolio has gained 16.6% in 2021 and 52.7% in 2020 and is down 5.4% in 2021. The return since its inception at the end of 2013 has been 2687%.
The cannabis industry has continued to evolve through several ups and downs over the past few years. 2021 started off with massive gains in the fourth quarter, but hit a wall in mid-February, dragging the balance of the year after the market got ahead of itself. Disappointment with the slow pace of federal reform or the move toward legalization has been a factor, but declining cannabis sales growth, regulatory delays in several states, and the implosion of the wholesale flower market in California also played a role. In Canada, while the market has continued to grow, the shift to derivatives has been slow. In addition, the biggest LPs have lost market share and have not been able to scale so far.
The bull market that began in March 2020 after the pandemic and the capital crisis that followed the vaping crisis in 2019 appears to be intact for US cannabis operators, who continue to trade significantly higher than in the summer. 2020 despite steep declines since February’s peak. Looking ahead, the outlook appears strong, with major companies moving to positive operating cash flow and having increasing access to non-dilutive capital, including debt, mortgages and leasebacks. Several states will transition from medical-only use to adult use, including New Jersey, New Mexico, Vermont, and Connecticut in 2022, New York in 2023, and Virginia in 2024. Several other states may also legalize the adult use, including Delaware, Florida, Maryland, Minnesota, New Hampshire, Pennsylvania and Rhode Island. Several states are also expanding their programs, with additional dispensaries coming to Illinois. The medical-only state of Minnesota will add flowers and edibles in 2022, and Ohio is also expanding its program. Increasing competition in some state markets that weighs on profitability is likely to remain a challenge. Also, while many see federal legalization as a positive, it remains a potential risk factor in my opinion.
While stocks of US cannabis companies continue to be held primarily by retail investors, 2021 has seen an increase in institutional investment. Another significant development has been the growth of AdvisorShares Pure US Cannabis ETF (MSOS), which has broadened access to cannabis companies for investors who do not trade stocks OTC. Additionally, a number of ancillary companies have gone public and trade on higher exchanges, providing institutional investors with a way to invest in the industry. We’ve seen several investments in US cannabis companies, mostly by Canadian LPs, but, going forward, strategic investments through creative financial structures will likely extend to CPG companies in 2022.
At the federal level, the FDA (or Congress) could provide some clarification on the regulation of CBD. When it comes to THC, Democrats (Cannabis Administration and Opportunity Act) and Republicans (States Reform Act) are proposing legislation to legalize cannabis. While this is going to be a long process in my opinion due to the complexity (variable state regulations, role of the FDA, social equity, taxation), it is very different from what the developing cannabis industry was facing. just a few years ago: potential crackdowns on state legalization. I remain hopeful that Congress can push through small reforms, including expanded research and SAFE Banking. Enhanced financial reform that would explicitly allow companies operating in state-legal cannabis to trade on higher exchanges would be hugely positive.
Beyond America, cannabis legalization continues to proliferate. Although Canada remains the largest market for federally legal cannabis, many other countries have medical programs, including Argentina, Chile, Colombia, Ecuador, Peru, and Uruguay (fully legal) in South America. Mexico has legalized possession but does not yet have a regulated program, and it may also legalize adult use. Australia’s medical program was slow to get going but has gained ground. New Zealand also has a medical program. In Africa, several countries have legalized medical cannabis. Europe, of course, has seen the widespread adoption of medical cannabis. Germany has been slow to develop but could move to legalization for adult use. Other markets where there is medical cannabis are Denmark, Greece, Italy, the Netherlands, Poland and Portugal. The UK and Israel have medical cannabis, and Israel could move to legalizing it for adult use. Of course, let’s not forget Jamaica!
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