Cannabis Stocks Melt Down

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,

We weren’t exactly pounding the table last week, but we did express how the pullback in cannabis stocks had warmed us to the sector a little. We did not see this week ahead, for sure! The New Cannabis Ventures Global Cannabis Stock Index fell 11.4% to an all-time low of 6.93, down now 28.6% in 2023:

The entire move from late-August, when the news broke that the Department of Health and Human Services was recommending to the DEA that it move cannabis from Schedule 1 to Schedule 3, has been reversed. While the pullback did spark our interest last week, we warned that there is downside ahead if the move doesn’t play out as many are expecting. If 280E taxation gets wiped out, it’s a very good thing. If not, then we may keep selling off.

We have warned our readers repeatedly that the move could take longer than hoped or that the DEA might go to Schedule 2, which would not wipe out the 280E tax. There could also be a new tax imposed. As we said last week, this remains the case.

So, why is the market selling off? We are facing earnings reports beginning this week, and perhaps the reports won’t be as strong as the Ascend Wellness (OTC: AAWH) (CSE: AAWH) pre-announcement for its Q3 was. That stock did rally on the week, ending up 12.6%, which was a lot better than peers. AdvisorShares Pure US Cannabis ETF (NYSE Arca: MSOS), which does not own AAWH and has 85% of its holdings in just six MSOs, dropped 21.6%.

There was no cannabis-specific news this week that would account for the aggressive selling that took place, but perhaps investors are fearing the appointment of a new House Speaker, who has voted against pro-cannabis bills in the past. While 280E might get wiped out, which would be a huge benefit for cannabis companies, the sector remains under pressure. Trading volumes remain low, and some stocks continue to look very risky due to valuation, capital structure and liquidity.

Last week, we discussed that we had lifted our exposure in the model portfolio at 420 Investor to MSOs, and we boosted it further this week. With the prices so much lower over the past month, they are less risky than during the strong rally into early September. Like we said last week, though, they are still risky. Buying into a meltdown is often not a good idea, and it doesn’t help that the overall stock market is breaking down too.

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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