A Look at Some Beaten Up Cannabis Stocks

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,
Unlike the prior three quarters, where we started strongly and ended weakly, the cannabis sector isn’t doing well in Q2. April was a down month, and May has been too. Quarter-to-date, the New Cannabis Ventures Global Cannabis Stock Index, which set an all-time low this past week and then bounced, is down 5.2%. It is down 17.0% year-to-date.

During Q2, 4 of the 27 names in the index have declined by more than 20%. They have also all declined by more than the index so far in 2023:

While we shared 3 stocks that we think are bargains last week, it’s not always a good idea to buy beaten up stocks in a bear market. Organigram was one of the bargains we shared, and we find the stock extremely attractive right now. It is my biggest position in my model portfolio, Beat the Global Cannabis Stock Index. The stock is trading at just 50% of its tangible book value, and the company has a ton of cash and no debt.

Hydrofarm and Trulieve are big components of my model portfolio as well. Hydrofarm has a lot of debt, but it’s not due until 2027. The valuation seems very low, trading at an enterprise value of just $154 million, which is just 0.54X 2023 projected revenue. 6 analysts have an average 2024 projected adjusted EBITDA of $14 million, and the enterprise value is just 11X that estimate.

Trulieve has seen projected margins come down sharply, but the valuation seems very low. The enterprise value of $1.25 billion is just 3.5X the projected 2024 adjusted EBITDA compared to 10 other large MSOs that trade at an average of 4.7X.

Canopy Growth is a stock that continues to concern us despite the large decline. We wrote about it here in late February, suggesting that the company has gotten much closer to financial trouble. Four weeks later, we shared some smarter ways to invest in Canadian LPs. We shared a target of C$0.59, which is equivalent to US$0.44, based on the enterprise value trading in late March 2024 at 2X projected revenue. The estimate has declined somewhat since that piece almost three months ago. The company is struggling with high and rising debt and an unprofitable business. While it trades below tangible book value at 0.67X, we find it a lot riskier than alternatives like Organigram.

Cannabis stocks seem pretty cheap to us, but we aren’t sure when investor interest will pick up. Of the four most beaten up stocks in the index, we would avoid Canopy Growth and consider Hydrofarm, Organigram and Trulieve.

This week’s newsletter is sponsored by Carbon Chemistry

Carbon Chemistry distributes materials used in cannabinoid production, purification, and distillation. The company’s mission is to provide proven, hand-selected products and trusted materials to manufacturers that ultimately advance their capabilities in cannabis oil production – improving the ease of their process. Carbon Chemistry is here to help your company create quality edibles, drinkables, tinctures, wax, crumble, live resin, diamonds and sauce, and vape cartridges.

To learn more about Carbon Chemistry, a client of New Cannabis Ventures, visit the company’s page that we maintain on its behalf and click Get More Info.

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

Exclusives

Financial Reports

Ayr Wellness Q1 Revenue Increases 4% Sequentially

Columbia Care Q1 Revenue Drops 1% Sequentially

Curaleaf Q1 Revenue Falls 2% Sequentially

Glass House Q1 Revenue Pulls Back 10% From Q4

Greenlane Q1 Revenue Lifts 9% Sequentially

Planet 13 Q1 Was Flat to Q4

SNDL Q1 Cannabis Revenue Lifts 7% Sequentially to C$86.5 Million

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.

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 the Canadian Cannabis LP Index, 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