The MSOs Are Pulling Back

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. We post this and all of the newsletters on our website here.

Friends,

This has been a tough week for the largest MSOs, all of which have declined by more than 2.5%:

There was no news, and stocks in general have had a tough week. One piece of news that did not take place may be weighing on these stocks: 4/20 passed without any word from the DEA on rescheduling. It has been almost 8 months now since the potential rescheduling news hit in late August.

There are still a few days left this month, but April has been challenging for cannabis stocks. The five largest public MSOs have all declined by 5.8% or more. The New Cannabis Ventures American Cannabis Operator Index, which includes 13 MSOs, has dropped 10.4%. The index is still up a lot year-to-date at +20.9%. More broadly, the NCV Global Cannabis Stock Index has pulled back 7.4% so far in April and is up 16.6% so far in 2024.

Rescheduling remains the largest potential driver of cannabis stocks. Again, if the DEA follows the recommendation of the Department of Health & Human Services to move cannabis from Schedule 1 to Schedule 3, then the 280E tax will end. This will boost operating cash flow and net income for the cannabis producers and should help the entire industry. Still, we don’t know when this could happen, and the DEA could move to Schedule 2, which would not end the tax.

AdvisorShares Pure US Cannabis ETF (NYSE Arca: MSOS), which has no official index, has rallied less than the American Cannabis Operator Index so far this year, gaining 20.1%. The ETF remains highly concentrated, with its holdings of the largest 5 MSOs at 82.7%. The shares outstanding have not changed this week so far. This is the first week since December 22nd when they haven’t increased. The ETF’s shares outstanding have increased by 33.6% so far this year and 78.2% since August 25th, reflecting investor optimism regarding rescheduling.

MSOS has rallied a lot since late August too, gaining 74.6% from its all-time closing low of $4.82 on 8/28:

It looks like a double-top in price has been set near $10.50, and the ETF appears to be rolling over. It ended 2023 at $7.01, which is 16.7% lower. If 280E remains, it will possibly post an all-time low, as the largest MSOs all have debt and a lack of cash flow to pay it off.  Investors should be aware of how much trading volume there is in this ETF and how concentrated its ownership is.

Earnings season begins in just a few days, and the largest MSOs are scheduled to report on May 8th and May 9th. We will publish previews before the month ends. We reported that Q4 financial reports were not exciting, and we don’t expect Q1 reports will be either. Unfortunately, it’s all about potential rescheduling and potential adult-use legalization in Florida for now.

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

Exclusives

Mergers & Acquisitions

Curaleaf Closes Canadian LP Acquisition for Initial $16 Million in Stock

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Sincerely,

Alan

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