Capitalize On Cannabis Report - 05/29/21

Summary

• The Ohio medical cannabis program has seen growth accelerate.
• Health Canada added 3 licenses, leaving the total now at 677.
• 420 Investor model portfolios have gained 58.6-88.5% year-to-date, while the Global Cannabis Stock Index has gained 34.2%.

Review

Representative Nadler introduced the MORE Act of 2021. Florida's Supreme Court upheld a lower court ruling from 2020 that will keep its vertical integration requirement in place. Ohio weekly medical cannabis sales now exceed $5 million.

Health Canada added 3 licenses, leaving the total at 677, including 2 that are expired, revoked or suspended.

During the week, I shared these posts with subscribers at 420 Investor:

Model Portfolio Composition 05/21/21

Cannabis Sub-Sector Review - 05/21/21

Previews for Canopy Growth and Harborside Financial Reports

The Marijuana Monster of the Midway Continues to Execute

​Here are some of this week's highlights for Focus List names:

• ACB launched its Science & Innovation group focused on IP related to genetics and biosynthesis
• CRLBF Q1 revenue exceeded expectations, growing 10% sequentially to $179 million, with adjusted EBITDA at $35 million
• GNLN announced that its pending acquisition of KushCo cleared HSR review after the expiration of the waiting period.
• GRWG announced an acquisition in California that will add two stores
• HRVSF opened its 10th store in Pennsylvania
• KSHB announced that its pending acquisition by Greenlane cleared HSR review after the expiration of the waiting period.
• PLNHF Q1 revenue increased 42% to $23.8 million, with adjusted EBITDA of $5.2 million
• TCNNF announced the pending opening of its first retail cannabis store in Massachusetts on June 3rd
• TLLTF announced Airo Brands as a customer in Pennsylvania for filled vape products. The company reported Q1 revenue of $46.8 million and adjusted EBITDA of $6.2 million.
• UGRO authorized a $5 million share repurchase program

The Global Cannabis Stock Index rallied for the second straight week, ending the month down but well off the lows as it closed at 59.57, up 7.7%:

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 34.2% in 2021 thus far. It currently includes 46 stocks and ended 2020 at 44.39:

 Model Portfolios

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 $176,717, up 8.5%. The model portfolio, up 67.7% in 2021, gained 35.6% in 2020 and has increased 253.4% since April 2014. 420 Quality ended the week at $256,203, up 8.8% for the week, and is now up 58.6% 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 412.4% since inception compared to the 26.3% decrease in the index. Flying High, which is focused on swing trades, ended the week valued at $475,864, up 10.2%. The model portfolio gained 52.7% in 2020 and is up 88.5% in 2021, and the return since inception in late 2013 has been 4659%.

Outlook

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 CT, DE, FL, MD, MN, NH, PA and RI and implementation of the NM, NY and VT commercial programs in 2022 and VA in 2024.

Here are some of the most interesting stories we published on New Cannabis Ventures this week:

4Front Q1 Revenue Increases 82% to $23 Million

Ayr Strategies Q1 Revenue Increases 74% to $58.4 Million

Cresco Labs Q1 Revenue Increases 169% to $178 Million

HEXO to Acquire Redecan for $925 Million

Hydrofarm to Pay $125 Million for 2nd Nutrient Company Acquisition in 2021

Jushi Q1 Revenue Increases 29% Sequentially to $41.7 Million

Planet 13 Q1 Revenue Increases 42% to $23.8 Million

TILT Holdings Resets With a Unique B2B Cannabis Business Model

Valens Raises $40 Million Selling Units at $3.30

Village Farms Prepares for a Regulatory Shift in the U.S. As It Leads the Flower Segment in Canada

Resources:

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