The MSOs Are Quite Risky

You’re reading 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.

Friends,

Last week, we wrote about how the MSOs had posted new highs. This week, they surged again, with the New Cannabis Ventures American Cannabis Operator Index trading to levels not seen in more than a year. In 2022, the year that the index collapsed 65.8%, the index surged during Q4, reaching a closing high on December 2nd of 25.98.

The high this past week fell short of that late 2022 peak, reaching 23.89 on Friday. The index has increased 105.6% since its all-time closing low of 11.20 set on 8/25/23. The reasons it has been rallying are mainly the prospects of cannabis being rescheduled, as we have discussed, and also the potential for Florida, a large state that has a medical cannabis program and lots of dispensaries, voting to legalize for adult-use possibly in November’s election. These are the two primary reasons, in our view, but there is another cause perhaps: People like to buy stocks that are going up. Finally, the MSOs are rallying. Even after being the only sub-sector of the market to post a gain in 2023, the index is up 50.1% in 2024.

The index has 13 members, and here is how they have all performed so far:

We have been expressing caution on the MSOs, but there is one that we have suggested has less upside but also a lot less downside than peers, Planet 13 (OTC: PLNH) (CSE: PLTH). I still own this one in both of my model portfolios at 420 Investor, and we continue to view it as the safest MSO to own. As we explained, it has a substantially better balance sheet than its peers, and it trades reasonably close to tangible book value. Investors seem overly excited about Florida potentially legalizing, but Planet 13 will do very well in the state if this happens.

Since we published the piece on Planet 13 two months ago, it is up about half the group average. Some of its peers have soared, with two that have more than doubled. Only 2 of the 13 stocks have performed worse than Planet 13. We continue to warn that these MSOs, even Planet 13, could face tremendous downside if 280E taxation isn’t eliminated. Of course, they could all rally more too if it is ended.

There has been no news this year that would suggest that the DEA is more likely to reschedule cannabis as was recommended to it. The big rally in the MSOs has left them more vulnerable to much lower prices if rescheduling to Schedule 3 does not take place.  We think that investors should recognize this risk.

New Cannabis Ventures publishes curated articles as well as exclusive news. Here is some of the most interesting business content from this week:

Exclusives

Soaring MSOs Lead Cannabis Stocks Higher in January

Financial Reports

High Tide Q4 Sees Sales Lift 2% Sequentially

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Sincerely,

Alan & Joel

Based in Houston, Alan leverages his experience as founder of online community 420 Investor, the first and still largest due diligence platform focused on the publicly-traded stocks in the cannabis industry. With his extensive network in the cannabis community, Alan continues to find new ways to connect the industry and facilitate its sustainable growth. At New Cannabis Ventures, he is responsible for content development and strategic alliances. Before shifting his focus to the cannabis industry in early 2013, Alan, who began his career on Wall Street in 1986, worked as an independent research analyst following over two decades in research and portfolio management. A prolific writer, with over 650 articles published since 2007 at Seeking Alpha, where he has 70,000 followers, Alan is a frequent speaker at industry conferences and a frequent source to the media, including the NY Times, the Wall Street Journal, Fox Business, and Bloomberg TV. Contact Alan: Twitter | Facebook | LinkedIn | Email