Not All Cannabis Stocks Are Rallying

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,

Cannabis stocks have started 2023 very strongly. The New Cannabis Ventures Global Cannabis Stock Index is up 9.0% year-to-date, well ahead of the 3.5% rally in the S&P 500. Of course, there are a lot of large losses to recover potentially, as the index fell 70.4% in 2022 and is down 88.6% from the peak in February 2021.

While cannabis stocks are performing well, 8 of the 26 names in the index are down so far, including a double-digit percentage loss in the very large Innovative Industrial Properties, which revealed this week some issues with a few tenants. Among the 7 remaining decliners, 5 are American multi-state operators, including 4 of the 5 large ones. Only Cresco Labs of the top 5 in terms of revenue is up so far, and its merger partner, Columbia Care, has dropped over 3% as the spread to the deal ratio of .5579 shares of Cresco Labs for each share of Columbia Care has moved to a massive discount of 33%. Canadian LP Cronos Group has dropped almost 2%, while biotech company Jazz Pharma has dipped a little more than 1%.

On the other hand, 11 of the 26 members are up more than 10%. This group is quite diverse, with 6 Canadian LPs, 3 ancillary companies, 1 MSO and 1 biotech company.

Two weeks ago, we shared our concerns with two factors, the low volume, which persists, and redemptions at the large AdvisorShares Pure US Cannabis ETF (NYSE Arca: MSOS), which has suffered additional reductions in the shares outstanding and has closed fairly regularly at a discount to its net asset value. In the past five weeks, the number of shares outstanding has dropped by 10.7% to 61.39 million. We warned readers here that the ETF is overly concentrated in the 5 largest MSOs three months ago when it had 74% of its exposure there. Now it is over 79%. The ETF has declined 28.0% since that article, and is down 2.3% so far in 2023. Cresco Labs, a 7.9% position currently, is up, but its four largest positions, which make up 71.4% of the ETF, are all down:

The MSOS ETF is a big bet on these four stocks, which are not performing well thus far. If the ETF continues to receive redemptions, it will need to sell those stocks. During this month, it exited Hydrofarm, which rallied sharply afterwards and is up more than 10% year-to-date now.

We are excited to see the improvement in cannabis stock prices, but we remain concerned with some of the dynamics

Alan Brochstein’s model portfolio “Beat the Global Cannabis Stock Index”, is up 19.2% YTD
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New Cannabis Ventures publishes curated articles as well as exclusive news. Here is some of the most interesting business content from this week:

Exclusives

Read the written summary or watch the recorded webinar of the New Cannabis Ventures hosted webinar with multi-state operator TerrAscend from January 19th. For our readers, we also included an easy-to-read Q&A from all three executives that cover the company’s operations and future.

Sales of cannabis in Michigan rose 9% sequentially in December increased 32% from a year ago to a record $221.7 million. Medical sales fell 59.2% from a year ago to $13.4 million, down 1.1% sequentially. However, adult-use sales shot up 54.3% year-over-year to $208.3 million and were up 9.7% sequentially with one more day than in November. Flower prices for adult-use sales have nearly halved from a year ago.

Canadian cannabis sales fell sharply in November from October to C$373.3 million from an adjusted C$390.2 million. Total sales for 2022 increased 17.6% to C$4.09 billion, compared to the first 11 months of 2021. More stores, as well as falling flower prices that bring consumers from the illicit market, have boosted sales. Breaking it down, sales were down 4.3% from October and up 9% from a year ago, in Ontario. Alberta sales fell 5.9% from October, but were up 13% from a year ago. Quebec was down 2.6% from October and down 1% from a year ago, while British Columbia was down 4.2% from October as it grew 17% from a year ago.

NorCal Cannabis Company ultimately wants to become a CPG flower powerhouse, according to its leadership team. In an exclusive interview, Co-founders and Co-CEOs Jigar Patel and Douglas Cortina discussed the evolution of the company’s business model, how the company has navigated a challenging California marketplace, as well as plans for future growth. Looking ahead, Cordina said revenue expectations are in line with last year’s numbers, with its top-line in the $40 million to $50 million range. However, he said, a couple of projects that could come to fruition in the second or third quarter have the potential to drive more revenue.

Acquisitions

SNDL has completed the previously disclosed acquisition of all of the issued and outstanding common shares of The Valens Company Inc., other than those held by SNDL and its subsidiaries, for total consideration of approximately $138 million. In addition, SNDL assumed Valens’ $60 million non-revolving term loan facility. The combined company will operate as SNDL Inc., headquartered in Calgary, Alberta. “SNDL’s existing consumer packaged cannabis business will be transformed by Valens’ high-quality extraction, processing, and manufacturing capabilities,” said SNDL CEO Zach Geoge. The transaction also includes some leadership changes. Tyler Robson, Valens’ former CEO, will become president of cannabis while Andrew Stordeur, SNDL’s former president and COO has left the company. Frank Krasovec was appointed to the board of directors. He is the CEO of Norwood Investments and co-founder and Chairman of DPC Dash, which owns and operates approximately 600 Domino’s Pizza stores in China.

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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