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- Ohio data indicated an increase in sales
- The model portfolios of 420 investors have returned -20.3% to -19.3% since the start of the year, while the Global Cannabis Stock Index has lost 18.4%
Data from Ohio suggests sales are $8 million per week.
During the week, I shared these insights with 420 Investor subscribers:
- Scotts Miracle-Gro First Quarter Financial Results Overview
- Cannabis Subsector Review – 01/21/22
- Composition of the model portfolio 01/21/22
Here are some of this week’s highlights for 420 names on the Investor Guidance List:
- CGC has refreshed its Tweed brand with new products and formats and a new look.
- CRLBF has launched Khalifa Kush products in cookie dispensaries across California. He also opened his 14th dispensary in Florida.
- FFLWF Completed Acquisition of Pineapple Express Delivery and Launched E-Commerce Stores for Multiple LPs
- GRWG opened its 63rd location, a 25K store in Ardmore, Oklahoma.
- PLNHF announced that its Form 10 filing with the SEC will become effective on February 10.
- SHWZ has completed the $3.5 million acquisition of Drift, which owns two dispensaries in Boulder.
- TCNNF has completed the rebranding of all of its Pennsylvania stores. He announced a new brand, Miami Mango, through a partnership. It borrowed an additional $75 million at 8% (maturity 6/10/26).
- TLRY has expanded its medical cannabis product offering in Australia and launched an online training platform for professionals.
- VLNS has launched two new brands, Versus (value) and Contraband (ultra-premium).
The Global Cannabis Stock Index fell sharply along with broader equity markets, falling 5.2% to 26.79:
The index, which lost 26% in 2021 after a 5.2% gain in 2020, is down 18.4% 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 index, 420 Opportunity and 420 Quality. 420 Opportunity ended the week with a value of $73,273, down 6.5%. The model portfolio, down 13.8% in 2021 after a 35.6% gain in 2020, is down 19.3% in 2022 and is up 46.5% since April 2014 despite the significant loss in the index since then. 420 Quality ended the week at $101,797, down 6.4% for the week. It was down 19.4% in 2022 and 21.8% in 2021 after gaining 42.8% in 2020. The model launched in March 2017 targeting long-term investors looking to invest in major stocks of low-turnover cannabis in the portfolio and has gained 103.6% since inception compared to the index’s 67.2% decline since then. Flying High, which focuses on swing trades, ended the week at $234,391, down 4.2%. The model portfolio has gained 16.6% in 2021 and 52.7% in 2020 and is down 20.3% in 2022. The return since inception at the end of 2013 has been 2244%.
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 looks 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 have seen several investments in US cannabis companies, primarily 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. Both 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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