Watch Out for These Two Signs

You’re reading a copy of 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,

After a very challenging year for cannabis investors, 2023 began with a bounce. The New Cannabis Ventures Global Cannabis Stock Index rallied 3.4%, beating the S&P 500’s gain of 1.9%. This was better than the start to 2021, when the market rallied 1.0% during the first week. For 420 Investor, which is in the process of migrating from Benzinga to Seeking Alpha, the Focus List of 31 names did a lot better, with an average gain of 8.6%. 11 names were double-digit gainers, while 2 produced double-digit declines.

While we are excited to see better prices and remain optimistic that prices will advance substantially this year after big losses over the past two years, we have some concerns that leave us a bit cautious in the very near-term. Our first worry is that the rally took place on such a light trading volume. On Friday, for example, only 7 names traded above $5 million, a very low number historically. Looking at the first Friday of the last three years, there were more names trading above $5 million:

• 2020 – 9
• 2021 – 21
• 2022 – 21

The limited liquidity is a problem for cannabis investors, in our view, and it shows the lack of interest in the sector currently.

The second area of concern we have is the AdvisorShares Pure US Cannabis ETF (MSOS). We were already worried about it, as we wrote here almost three months ago. We warned our readers when it had closed at $9.49 about its very narrow concentration in just five names. Then, the ETF, which has declined 25.2%, had 74% invested in the top 5 multi-state operators. Today, that is now 80%. The ETF’s number of shares has been shrinking too, declining three straight weeks:

The number of shares has declined by 8.9% in three weeks, which is unprecedented in its history since late 2020. The year-over-year change is currently +37.8%, but this growth has slowed dramatically. Two months ago, it was showing annual growth in excess of 115%. Adding to our concern is that the ETF has closed at a pretty big discount to its NAV frequently. ProShares hasn’t released the Q4 data yet, but we can’t remember the ETF trading at more than a 1% discount so frequently. On Friday, it closed at 1.4% below its NAV.

We were bullish about H2 last year, and this proved to be the wrong outlook. We are still bullish, but we aren’t yet celebrating the strong week for cannabis stocks. The lack of trading volume concerned us, and the reduction in shares outstanding with the ETF MSOS worries us too. Our biggest fear has been that the bear market impacting stocks overall reignites, as this could reign in enthusiasm for our sector. We were glad to see the rally in stocks last week and continue to believe that 2023 will be a good year for cannabis stock investors.

Ayr Wellness recently announced that its New Jersey retail locations, formerly known as Garden State Dispensary, are now operating under the AYR dispensary name. The company has opened a large-scale cultivation expansion while launching adult-use sales at three of locations, the maximum currently allowed in the state. The newly transitioned New Jersey locations join Massachusetts and Pennsylvania as AYR-branded stores, with its Florida stores to transition soon this spring of 2023.

Get up to speed by visiting the Ayr Wellness Investor Dashboard that we maintain on their behalf as a client of New Cannabis Ventures. Click the blue Follow Company button in order to stay up to date with their progress.

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

Exclusives

In our previous newsletter, we discussed the December meltdown of the Global Cannabis Stock Index. The rest of the indices we maintain didn’t fare much better. The American Cannabis Operator Index nearly dropped by half – falling 40.8% in December to 14.25. It was down 65.8% year-to-date, slightly ahead of the Global Cannabis Stock Index. The strongest names were Charlotte’s Web, Schwazze, and Upexi – all of which fell, though by less than 24%. The Ancillary Cannabis Index fared better than other sub-sectors in December, dropping 25.1% to 15.02. For all of 2022, it fell 76.6%. The best-performing stocks – though all down – were Turning Point Brands, Chicago Atlantic Real Estate Finance and Leafly. The Canadian Cannabis LP Index did better than its American counterpart falling 19.2% to 72.59. For all of 2022, it fell 62.8%. The Canadian Cannabis LP Tier 1 Index plunged 33.6% in December to 88.14. Tier 2 fell by 14.8% last month and Tier 3 was down 16.2%.

“Land and expand,” that’s how the Leafly team refers to its market penetration strategy. In any given market, the company aims to have 70 to 80 percent market penetration in the retail space, said CEO Yoko Miyashita in an exclusive interview. The company, which connects cannabis retailers, brands and consumers, relaunched its delivery gateway in May to offer consumers an end-to-end delivery experience. It’s also creating partnerships to support the growth of its delivery offering. Miyahita said Leafly has been in investment and growth mode in the last year-and-a-half and is now shifting to optimizing the enhancements it has made to its platform. Still, she said organic growth remains an opportunity.

Illinois adult-use cannabis sales in December rose 10.3% sequentially and increased 4.4% from a year ago. Meanwhile, sales to non-residents decreased to 28.8% of total sales in December compared to 30.1% in November. Medical-use sales were up 11.4% sequentially in December at $31.4 million but down 11.3% from a year ago. Total cannabis sales hit a record $175.3 million, up 10.5% sequentially and up 1.1% from a year ago.

To get real-time updates download our free mobile app for Android or Apple devices, like our Facebook page, or follow Alan on Twitter. Share and discover industry news with like-minded people on the largest cannabis investor and entrepreneur group on LinkedIn.

Get ahead of the crowd! If you are a cannabis investor and find value in our Sunday newsletters, subscribe to 420 Investor, Alan’s comprehensive stock due diligence platform since 2013. Gain immediate access to real-time and in-depth information and market intelligence about the publicly traded cannabis sector, including daily videos, weekly chats, model portfolios, a community forum and much more.

Use the suite of professionally managed NCV Cannabis Stock Indices to monitor the performance of publicly-traded cannabis companies within the day or over longer time-frames. In addition to the comprehensive Global Cannabis Stock Index, we offer a family of indices to track Canadian licensed producers as well as the American Cannabis Operator Index and the Ancillary Cannabis Index.

View the Public Cannabis Company Revenue & Income Tracker, which ranks the top revenue producing cannabis stocks.

Stay on top of some of the most important communications from public companies by viewing upcoming cannabis investor earnings conference calls.

Discover upcoming new listings with the curated Cannabis Stock IPOs and New Issues Tracker.

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