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Cabot Cannabis Investor Issue: August 30, 2023

One down, one to go.

Cannabis stocks soared today (August 30) on news that Health and Human Services (HHS) recommends cannabis get downgraded to Schedule III under the Controlled Substances Act, from Schedule I.

I predicted this a few days ago on the Cabot website, and in my last Cabot Cannabis Investor update on August 9.

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One down, one to go.

Cannabis stocks soared today (August 30) on news that Health and Human Services (HHS) recommends cannabis get downgraded to Schedule III under the Controlled Substances Act, from Schedule I.

I predicted this a few days ago on the Cabot website, and in my last Cabot Cannabis Investor update on August 9.

Some of this move will probably fade, as all big moves do. But the HHS recommendation signals what I have been saying for months: Politicians in Washington, D.C. are serious about favorable cannabis reform. They are just slow in getting around to it.

The next big move for the group will be sparked by progress on banking reform, possibly by year end. (More on this below.)

To be sure, actual rescheduling to level III will take time. It requires approval by the Food and Drug Administration (FDA) and Drug Enforcement Agency (DEA), a division of the Justice Department. We also need government confirmation of a Bloomberg news report that says the recommendation is in the works.

But the progress this week on rescheduling is a big deal. That’s because Schedule I status prohibits cannabis companies from deducting most expenses against taxes, under Section 280E of the Internal Revenue Service code. Deductions would be permitted with Schedule III status, which would also clear the way for interstate commerce in cannabis.

How long will it take to get full rescheduling? That’s tough to know but it may be quicker than you think. HHS, FDA and DEA are “moving expeditiously,” says Shane Pennington, an expert in controlled substances regulation who is an attorney at Porter Wright Morris & Arthur in Washington, D.C. “The amount of political support at the state level and nationally on both sides of the aisle for some reform is very high. It is long overdue,” he says.

There is a lot of pressure in the right direction. Culturally, cannabis continues to gain greater acceptance. We know this from ongoing legalization among states, opinion polls, and the increasing number of workplaces and sports leagues that accept private use of the drug in personal time. (More details on these trends in the news roundup section below.)

Howard Sklamberg, who chaired the FDA’s Marijuana Working Group for several years, agrees the timeline could be fairly quick. “This is not on the normal time table,” says Sklamberg who now advises clients on FDA regulatory matters at the law firm Arnold & Porter. That’s because regulators are “aware of the importance of the issue and the White House interest in the issue, and they are aware of the election cycle.”

Sklamberg says that beyond reducing taxes for cannabis companies, the shift to Schedule III status could favorably influence discretionary decisions on cannabis issues by courts, lawmakers and other regulators.

The attorneys made the comments in an interview with the Substack channel Mindset Value.

The Next Shoe to Drop

Here is more on the other key potential federal reform on the table: the Secure and Fair Enforcement Act (SAFE banking).

This would allow banks to serve cannabis companies. That would let dispensaries move away from operating in cash only, and it may also clear the way for cannabis companies to list on U.S. exchanges. The latter would be a game changer since it would vastly improve access to capital at lower costs.

For insights on the prospects here, let’s turn to Charles Bachtell, the CEO and founder of Cresco Labs (CRLBF), one of the cannabis companies that does the most lobbying in D.C.

“I’ve spent a lot of time in D.C. this year,” says Bachtell. “There are a lot of constructive conversations happening, and the right leaders are actively engaged around SAFE and the rescheduling of cannabis. There are solid indicators that progress is being made.” He says federal reform on both of these issues is more likely than not, and he thinks meaningful progress is possible by year end. This would be a big catalyst for the group.

On SAFE banking, Bachtell says, “There’s an understanding of the need for safe harbor language all the way up through the U.S. exchanges and how that is important to unlock access to capital for existing incumbents and, of course, for new entrepreneurs to enter the space.”

A potential sticking point in SAFE banking has been a provision called Section 10. This part of the bill would make it more difficult for regulators to stop banks from serving customers suspected of carrying out illegal activity.

“The provision could hinder efforts by bank regulators to address payment fraud and the use of bank accounts by fraudsters to receive money stolen in hacks and scams,” says the National Consumer Law Center, a consumer advocacy group. But Bachtell suggests this hurdle will be overcome. “It does look like there’s a path to managing the Section 10 reform,” he says.

“The next 30 to 45 days are going to be pretty telling both for the SAFE act and rescheduling,” concludes Bachtell. “The long-term cannabis growth story remains unchanged. Cannabis is still positioned to be one of the largest consumer products categories in the U.S.”

What to Do Now

I’m not sure it makes sense to chase this move today. Big moves in the stock market often tend to fade. But it makes sense to buy any weakness. We see from the news today that the Biden administration is serious about cannabis law reform.

Consider any of the names in our main portfolio (details below). I personally have a lot of exposure to exchange-traded funds like ETF AdvisorShares Pure US Cannabis (MSOS) for the broad exposure, and the leveraged version, AdvisorShares MSOS 2x Daily ETF (MSOX).

Stocks in my new Cannabis Plus Insider Portfolio continue to hold up and perform well. They are all buys at current levels. As a reminder, this portfolio is made up of companies that do not touch the cannabis plant but have exposure to cannabis in other ways. The fact that they do not touch the plant means they are not held hostage by politicians. Stocks in this portfolio also have to have compelling insider buying, based on how I interpret the insider buy signal. I’ve followed insiders on a daily basis for over two decades. To find the best signals, I use factors like size, C-suite buying, clusters, and the insiders’ track records, among others. You can see the names in this new portfolio below.

Cannabis News Updates from Around the World

* Even the conservative investment analysis shop Morningstar thinks cannabis stocks are a buy because they are too cheap. In a mid-August note on Curaleaf (CURLF), Morningstar analyst Kristoffer Inton said “shares are very undervalued even after considering our very high uncertainty rating.” He has a fair value estimate of $17 on Curaleaf stock. That means he thinks it is worth that amount now, based on discounted cash flow analysis. Curaleaf stock recently traded for $2.69.

“We think the market remains overly focused on the lack of progress concerning the potential easing of federal prohibition and mistake slower-than-expected growth as signs that the overall market potential has changed,” he said. “In short, after the massive expectations priced in a few years ago, we now think investors have swung too far the other way. But, like growing a plant from seed to harvest, an investment in cannabis might require some patience.”

* Rep. Dave Joyce (R-OH) supports an Ohio referendum to legalize recreational cannabis use that will be on the ballot this fall. “There are better uses of law enforcement resources than pursuing low-level possession convictions,” said Joyce, a former prosecutor who co-chairs the Congressional Cannabis Caucus. “The measure being considered in Ohio is a responsible approach. I look forward to voting yes in November.”

Ohio’s secretary of state on August 16 confirmed that activists collected enough signatures to put recreational-use legalization on the ballot, and the Ohio Ballot Board has approved the measure.

A recent USA TODAY poll found 59% percent of Ohioans support legalization, and 35% are opposed. The Ohio Business Roundtable opposes the recreational use proposal. Ohio launched medical use sales in 2019. If approved, the ballot would take the number of states allowing recreational use to 24.

* As expected, cannabis continues to shape up as a wedge issue among politicians in the 2024 presidential election. Republican presidential candidate Vivek Ramaswamy reiterated his support for federal legalization of recreational cannabis use, in a podcast interview with comedian Bill Maher. Ramaswamy said the gap between state and federal marijuana laws is “a joke” that undermines the rule of law. “I think we should align the federal law with the state law,” he told Maher.

Florida Gov. Ron DeSantis, meanwhile, reiterated his opposition to legalizing cannabis as president. “I think what’s happened is this stuff is very potent now,” he said in response to a campaign trail question about legalization in Iowa. “I think when young people get it, I think it’s a real, real problem, and I think it’s a lot different than stuff that people were using 30, 40 years ago.”

Presidential candidate Donald Trump has stated opposition to cannabis legalization, and President Joe Biden has asked his administration to move forward with rescheduling under the Controlled Substances Act.

The bottom line for investors: The more cannabis stays on the radar this election cycle, the more likely it is that the Biden administration will take steps to liberalize federal rules to win votes. That could create late election cycle catalysts for the sector in the final months leading up to the November vote.

* Republican support for cannabis legalization has reached a record high, says a new Gallup poll. It found that 55% of Republicans and 83% of Democrats back legalization. That represents a four-percentage-point increase for Republicans and a two-point increase for Democrats. Two decades ago, fewer than half of respondents in both parties supported legalization.

* While polls continue to show increasing support for legalization, consumers are also voting with their wallets. State cannabis sales and tax revenue continue to break records this summer.

Michigan posted another monthly record for cannabis sales in July when $277 million worth of product changed hands. Michigan now has the biggest cannabis market in the country, based on per capita consumer spending. Through the end of July, per capita sales hit $142 compared to $136 in California and $134 in Colorado. Michigan cannabis sales hit $1.7 billion so far this year, surpassing alcohol sales. The state is on track to surpass last year’s sales of $2 billion.

Massachusetts sales hit $154.7 million in July, the third monthly record in a row. Maine retailers sold $20.8 million worth of cannabis in July, the third month of record sales in a row. Rhode Island retailers sold $6.8 million worth of recreational-use cannabis in July. The state has broken sales records every month since recreational cannabis sales were legalized in December. Including medical use, sales hit $9.5 million. Medical cannabis sales in Mississippi reached $4.4 million in July, up 15.3% from June, according to data leaked to MJBizDaily. July marked the sixth straight month of increased sales since the state launched legal medical sales.

Colorado collected $282.3 million in cannabis tax revenue in the latest fiscal year, compared to $233.9 million from cigarettes, $60.5 million from tobacco products, $56.4 million from nicotine products, and $56.1 million from alcohol, says the Colorado Legislative Council Staff.

* Southern states continued to relax restrictions on cannabis August 28 when Georgia’s medical cannabis commission approved three more dispensaries. So far, the state has approved nine dispensaries. Trulieve (TCNNF) will operate the majority of them.

* A judge in New Jersey recently reinstated a police officer who was fired after testing positive for marijuana. The state’s recreational use law passed in 2021 permits off-duty cannabis use by police.

* Half of Americans have tried cannabis, and more people regularly smoke cannabis than cigarettes, says a new Gallup poll. It found that 17% of people currently smoke cannabis. A separate Gallup poll found that 11% of people smoke cigarettes. More than half of respondents said they are not especially concerned about the effects of adults regularly using cannabis.

* A Gallup poll recently found that most people in the U.S. think cannabis poses fewer health risks than alcohol. In the poll, 58% of respondents said cannabis is “very harmful or somewhat harmful.” But 85% said alcohol is harmful.

* St. Louis, Missouri is considering allowing cannabis lounges where patrons could smoke and eat cannabis products on-site.

* Zurich recently launched a cannabis legalization pilot program called ZüriCan. It’s part of a three-year study to examine how the regulated sale of cannabis affects consumption and health of participants. Swiss authorities hope to use insights to inform cannabis legalization.

* National cabinet ministers in Germany recently signed off on a proposal to legalize the use and cultivation of cannabis. The measure still requires approval from parliament. Malta became the first European Union country to legalize cannabis for adult use in 2021.

* Morgan Stanley and Bank of New York Mellon have lifted a ban on providing custody services for the Toronto Stock Exchange listing of TerrAscend (TSNDF), said the company. It predicts the move will make it easier for institutions to buy and sell the company’s stock. The banks declined to comment.

Portfolio Company News

Portfolio companies continue to post decent year-over-year sales gains as they battle price compression and weighty debt issues.

AYR Wellness (AYRWF)

AYR Wellness reported 18% second-quarter sales growth year over year on August 17. Sales hit $116.7 million, an increase of $17.8 million. Sequentially, sales fell by $1 million or 1% from the prior quarter. The year-over-year increase was primarily driven by retail growth in Florida and the ramp-up of recreational-use sales in New Jersey. Transactions increased 6% sequentially and 46% year-over-year, offsetting price of 5% and 15%.

The company continued its cost-cutting efforts to preserve cash and boost margins. This drove gross margins up by 21% compared to the year before, to $56.6 million. Overhead costs as a percentage of sales were 40%, down from 48% in the prior year. AYR reported operating cash flow of $2.8 million of cash provided, an improvement of $34 million from the prior year.

AYR extended payment terms on $53 million of debt, and said it may defer an additional $69 million of debt obligations. The company reported $74 million in cash, against a heavy debt load of $627 million.

AYR reiterated store opening plans of three new dispensaries in Ohio before the end of the year, and two more in Florida which would take the count there to 64. Ayr continues to position itself in Florida ahead of a potential referendum vote on legalization of recreational use there in November 2024. A positive outcome would be a big catalyst for the stock. It has opened 10 stores there this year, so far.

AYR guided for revenue growth in the second half of 2023 and into 2024 and positive GAAP cash flow from operations for 2023.

Cresco Labs (CRLBF)

Cresco Labs reported a weak quarter on August 17 and guided for more trouble ahead.

On the bright side, Cresco continues to stock the shelves of its Sunnyside dispensaries with some of the most popular brands in the business. They command leading market share. Citing third-party data, Cresco says it has the bestselling portfolio of branded flower and branded concentrates, the third-best portfolio of branded vapes, and the fourth-best portfolio of branded edibles. It says it maintains its number one market share position in Illinois, Pennsylvania, and Massachusetts.

Cresco continues to trim costs and pare down to core markets and brands, taking a defensive posture during these tough times in the industry. The company cut back on weaker California operations and sold a processing facility in Maryland. This effort and other cost-cutting has boosted profit margins even as sales slip.

Revenue of $198 million was down 9% over the prior year’s quarter, but up 2% sequentially. Adjusted EBITDA was up $11 million sequentially, a 38% gain. Adjusted gross margins increased 100 basis points sequentially to 47%. It expects more profitability gains in the second half.

The company posted $18 million in operating cash flow, even after the hit from a $14 million cash cost related to the shutdown of California operations, severance payments and fees related to the cancellation of the Columbia Care merger.

Cresco ended the quarter with $75 million in cash against $666 million in debt. The good news here is that in a time when capital is scarce in the sector, Cresco has unencumbered properties it can use to generate cash. It has no plans to do equity raises.

The company projected high-single-digit sales declines in the second half of the year, compared to the first half. Gains from store openings in Florida and Pennsylvania will be offset by the exit from California, Arizona and Maryland operations. The company opened three stores in Florida and two in Pennsylvania, bringing the total store count to 68.

Curaleaf (CURLF)

Curaleaf reported second-quarter sales of $339 million on August 9, a year-over-year increase of 4%. Growth was driven by strength in Nevada, Arizona, Connecticut, New Jersey, and Massachusetts. The company posted 93% growth in its international segment (off a small base).

Adjusted gross margin slipped to 44%, hit by inventory reduction, pricing pressure in Florida and New York, and the reclassification of some expenses. The company has cut $80 million of annualized expenses so far this year. Cash flow from continuing operations was $16 million in the quarter and $37 million this year. The company reported $8 million in free cash flow from continuing operations. It ended the quarter with cash of $85 million against debt of $1 billion. Curaleaf said it does not expect to need to raise capital this year.


Curaleaf continues to position itself in Europe ahead of expected legalization. Its first forays are into the U.K. and Germany. Curaleaf has a dominant share position in the U.K., which has a population of 67 million. “The U.K. promises to be a significant contributor to our business over the coming years,” says executive chair Boris Jordan.

In Germany, the company is leading with its 420NATURAL brand. Germany has a population of 84 million, and Curaleaf expects the patient count there will go up fivefold to one million, as the country loosens the rules on medical use. Germany is removing cannabis from its list of illegal narcotics which makes it easier for medical use patients to get prescriptions.

“With taking this off the narcotics list, the patient journey is going to be very, very easy,” says CEO Matt Darin. “They won’t have to go to [a] specialized doctor. They can go to their general practitioner which is going to make the process very, very simple.” Curaleaf has a 23% share in Germany.

“Germany could very well be the single largest growth driver in our business for the next three to five years,” says Jordan. “What’s more exciting is the expectation that other EU nations will follow Germanys lead, putting cannabis on a globally accepted trajectory.” Curaleaf completed the acquisition of EU GMP processing assets from Clever Leaves in Portugal to support its European build out.

In the U.S., Curaleaf is focused on Florida, Pennsylvania and New York. The first two may see progress on recreational use legalization over the next two years. New York is in the process of fixing regulations that have inhibited growth. The company added two stores in Florida taking the total there to 60. It opened a third store in Connecticut, bringing the nationwide store count to 152.

Curaleaf guided for sales growth in the low- to mid-single-digit range. It expects to generate $100 million in operating cash flow for the year and post positive free cash flow. Across its markets, the company projected a winding down of price compression which has plagued the group. “On balance, we believe our pricing is going to be relatively stable,” said CFO Ed Kremer.

Green Thumb (GTBIF)

Green Thumb, on August 16, opened a RISE Dispensary in Fruitland Park, North of Orlando. That’s the 8th retail location in Florida and 85th nationwide. Cannabis companies are positioning in Florida ahead of possible legalization of recreational use, given that the issue will likely be on the 2024 election ballot.

Organigram (OGI)

Organigram is expanding into the U.K. medical market via an agreement to supply 4C LABS, a company that handles online prescriptions. Organigram now has international supply agreements in Israel, Australia, Germany, and the United Kingdom, as it continues to expand beyond Canada.

Sector Performance

I’ve increased leverage in our portfolio by adding the AdvisorShares MSOS 2X Daily (MSOX). It is a top-five position, and this has hurt the portfolio as the sector sell-off continues (or did until today!). This has been a negative near term, but I believe the added leverage will pay off when sector sentiment rebounds. In fact, it did so on Wednesday, as MSOX is up 40% intraday as of this writing.

The New Cannabis Ventures Global Cannabis Stock Index is down 16.4% year to date, compared to a 24.4% decline in our portfolio. Our portfolio is leveraged, so it has suffered in the sector pullback in the past year. But the portfolio is catching up, and this will continue.

The new Cannabis Plus Insider Portfolio is faring better. Stocks are up an average of 4.6% including dividends.

Portfolio prices are intraday, August 30.


StockSharesCurrent ValuePortfolio WeightingPrice 8/30/23
Ayr Wellness (AYRWF)1,692$1,6921.50%$1.00
Cresco Labs (CRLBF)9,180$11,56610.50%$1.26
Curaleaf (CURLF)5,698$17,66416.10%$3.10
Cronos (CRON)1,683$3,1472.90%$1.87
AdvisorShares Plus US Cannabis (MSOS)1,558$9,1928.40%$5.90
AdvisorShares MSOS 2X Daily (MSOX)4,844$17,63216.00%$3.64
ETFMG Alternative Harvest (MJ)1,496$4,8474.40%$3.24
Green Thumb Ind. (GTBIF)3,355$26,84024.40%$8.00
Organigram (OGI)4,834$7,4936.80%$1.55
Tilray Brands (TLRY)2,071$5,8405.30%$2.82
Trulieve (TCNNF)695$2,8482.60%$4.10
Verano (VRNOF)351$1,1061.00%$3.15

Cannabis Plus Insider Portfolio

CompanyTickerDate AddedPrice Bought8.29.23 PriceTotal Return*Current YieldCurrent Status
Chicago Atlantic Real EstateREFI3.29.23$13.66$14.8215.90%12.90%Buy
AFC GammaAFCG7.26.23$14.32$13.10-8.50%14.70%Buy
Cerevel TherapeuticsCERE8.9.23$21.91$23.507.30%0%Buy

Company Profiles

Ayr Wellness (AYRWF): This is a vertically-integrated multistate operator based in Miami. It has over 85 dispensaries. It operates in Florida, Illinois, Massachusetts, Pennsylvania, New Jersey, Nevada, Ohio, and Connecticut. Ayr has 18 grow and production sites, around a dozen national brands, and a proprietary library of over 160 cannabis strains.

AYR recently built out its brand development strength with the appointment of David Goubert as president and CEO. Goubert previously served as president and chief customer officer at Neiman Marcus Group, and he was at LVMH for 20 years before that.

Ayr is currently launching brands from its national portfolio in New Jersey, including Ayr’s Lost in Translation flower, Kynd flower, Road Tripper flower, STIX pre-rolls, Entourage vapes, Secret Orchard vapes, and Wicked soft lozenges.

Ayr reports $96.5 million in cash and $618 million in net debt. This debt overhang is one reason why Ayr trades at a minuscule 0.12 times sales. The company says it will be cash flow positive for the year in 2023. The company is founder run, which can be a plus in investing. BUY


Cresco Labs (CRLBF): Chicago-based Cresco has the #1 market share position in Illinois, Pennsylvania and Massachusetts. The company has the top-selling branded portfolio of cannabis products in the industry. It has the top of branded flower and branded concentrates, and the third-best portfolio of branded vapes.

Cresco offers exposure to many attractive U.S. markets with an emphasis on Illinois. It is also in Pennsylvania, Ohio, New York, Massachusetts, Michigan, Florida, Missouri, and Maryland. Most of those are states that recently expanded into recreational use sales, or are expected to over the next two years.

The company is founder run, which can be a plus in investing. Cresco Labs has a trailing price to sales ratio of 0.39. BUY


Cronos Group (CRON) There’s been some big insider buying at Cronos Group and I think it makes sense to follow the insider into this name. Cronos is mainly a foreign operator with exposure to Canada and Israel. It’s in turnaround mode, and often insiders buying their own turnaround is a good combination.

Cronos has respectable brand strength in Canada. It sells gummies, infused pre-rolls and vapes under the Spinach, Blue-Raspberry Watermelon and Tropical Diesel brands. Spinach products command 15.3% market share in the Canadian edibles category, and 19.8% share in gummies, according to Hifyre.

In Israel, Cronos sells dried flower, pre-rolls and cannabis oils in the medical market. In the U.S., Cronos sells hemp-derived supplements and cosmetic products under the brands. Cronos has a 10% stake in Cronos Australia, a publicly traded company.

Cronos has $841 million in cash, or about $2.21 per share, against minimal debt of $3.2 million. Some of that cash could be deployed in acquisitions, possibly to expand in the U.S. adult-use market.

As for the insider buying, director Jason Adler has purchased large amounts in the $1.71 to $3.10 range. Cronos trades at 0.58 times book value. BUY


Curaleaf (CURLF): Massachusetts-based Curaleaf was the industry leader last year. It operates 152 dispensaries and 22 grow sites in 19 states and its European operations. It has one of the strongest brand portfolios in the U.S. led by Select, the number one selling vape brand in its markets. Here are three factors that support growth.

1. Curaleaf is an R&D powerhouse. A team of scientists is currently developing about 180 products.

2. Curaleaf is an industry consolidator. The company’s executive chairman has a lot of experience rolling up fragmented and distressed industries. M&A is supported by a healthy balance sheet and good access to capital. Given how much the cannabis group has fallen in the past year, there are probably a lot of good bargains out there.

3. Curaleaf will benefit from progress on legalization in Germany and Europe. It has a majority stake in Germany’s Four 20 Pharma, a licensed producer and distributor of medical cannabis that has more than 15%-20% market share in Germany. Curaleaf International is the largest vertically integrated cannabis company in Europe. It has a lot of room to expand production, and it boasts import and distribution in the U.K., Germany, Italy, Switzerland, and Portugal. Recreational use legalization in Germany is advancing, and it could open the floodgates to further legalization throughout Europe. Curaleaf has a 50% market share in the U.K.

The company is founder-run, which can be a plus in investing. Curaleaf has a price/sales ratio of 1.39. BUY


ETF AdvisorShares Pure US Cannabis (MSOS): This exchange-traded fund (ETF) has large exposure to most of our portfolio names so it may seem redundant. However, I want to put it on your radar as a liquid trading vehicle for getting in and out of the group without having to make a lot of individual stock sales, and as way to get exposure to many of our names with one purchase. It also gives us diversification beyond our names, to positions like Jushi Holdings (JUSHF) and Innovative Industrial Properties (IIPR), among others. Consider accumulating this ETF on weakness of 2% or more. BUY


AdvisorShares MSOS 2x Daily ETF (MSOX): This is the leveraged version of the ETF MSOS. It theoretically goes up (and down) by twice as much as MSOS, though the relationship does not always hold exactly. Consider accumulating on weakness of 2%-4% or more. BUY


ETFMG Alternative Harvest (MJ): This ETF has outsized foreign exposure, which means it could benefit more than other marijuana exchange traded funds if we see progress on legalization in Germany and Europe. That could happen in the form of draft legislation and decriminalization of recreational use in 2023. “Legalization in Germany could be a tipping point for global expansion,” according to cannabis experts at ETFMG. This would put additional pressure on other European Union members to move forward with legalization. It could also encourage reform of the 1961 U.N. Single Convention on Narcotics which prohibits the cultivation and sale of recreational cannabis. “Such a result would be momentous and would open the doors to a global market,” says ETFMG. Owning this ETF broadens our industry exposure to names outside our portfolio, like Canopy Growth (CGC, WEED.TO), SNDL (SNDL), and GrowGeneration (GRWG), among others. BUY


Green Thumb (GTBIF): Chicago-based Green Thumb is our portfolio’s largest position. Green Thumb was the third-largest cannabis company in the U.S. last year, with operations in 15 markets. It has been the most profitable multistate operator of all the big ones – a sign of good management.

Green Thumb branded cannabis products include &Shine, Beboe, Dogwalkers, Doctor Solomon’s, Good Green, incredibles and RYTHM. The company operates a national retail cannabis stores called RISE. It has 84 retail stores and 18 manufacturing facilities in 15 U.S. markets.

Green Thumb is expanding its medical footprint in Florida through a lease agreement with the convenience store chain Circle K. This could be a big deal, since the Circle K chain has 600 locations in Florida. Ongoing market developments in Illinois and New Jersey could be strong catalysts for Green Thumb Industries.

Founder Ben Kovler is chairman and CEO. Research shows that founder-run companies often outperform. Kovler has a 26% stake in the business and holds nearly 59% of voting power. Green Thumb trades at a price to sales ratio of 1.62. BUY


Organigram (OGI): Organigram holds the #3 position among Canadian licensed producers. It also sells high-margin flower in Israel and Australia. It signed a deal in May to supply a German medical cannabis operator called Sanity Group. Germany should see robust growth over the next few years as it loosens rules on medical cannabis use. The CEO has alluded to “creative ways” to get into the U.S. cannabis market but does not offer details.

OGI expects to generate positive free cash flows by the end of calendar 2023. OGI also guided for higher revenue this year. It expects improved profit margins because of increase international sales which produce higher profits, and increased sales of higher-margin finished products like those in its Holy Mountain line up.

British American Tobacco (BTI) is a big investor in Organigram, owning 19.4% of the company, an endorsement of its potential. The two companies collaborate to develop cannabis products. The price to sales ratio is 0.97. BUY


Tilray Brands (TLRY): Tilray is a cannabis and consumer packaged goods company with one of the biggest global footprints in the industry. CEO Irwin Simon founded The Hain Celestial Group, a natural food company, which is in the business of brand development. This is a key factor for cannabis companies, too. So, the Hain Celestial experience may bode well for shareholders.

Tilray is a big recreational and medicinal cannabis supplier in Canada, but it also offers medical cannabis in 20 countries on five continents through its subsidiaries and agreements with pharma distributors. It has operations in Canada, the United States, Europe, Australia and Latin America. It sells craft beer and CBD products in the United States.

Tilray seems like a good play on expected legalization of recreational use in Europe over the next few years, because it has been making significant investments there. It has a medicinal marijuana distribution network in Germany. It has production facilities in Portugal and Germany, the largest medical cannabis market in Europe. Once Germany legalizes, other countries will follow suit, probably using Germany’s regulatory framework as a blueprint on how to proceed.

Tilray sells hemp food products through its Fresh Hemp Foods division, and it has a craft alcohol business called SW Brewing, the tenth largest craft brewery in the United States. The price to sales ratio is 2.37. BUY


Trulieve (TCNNF): Trulieve has long been the biggest medicinal marijuana vendor in Florida, where it has 50% market share. It has over 185 dispensaries and two-thirds are in Florida. Cannabis activists are trying to get recreational use on the Florida ballot in November 2024. A win would be huge for Trulieve. Approval could make Florida the largest legal U.S. cannabis market with 22 million residents and 138 million tourists a year.

Meanwhile, Trulieve has been expanding across the country via acquisitions. It is diversifying its presence into Pennsylvania, Maryland, Georgia, Ohio and Massachusetts, among other states.

The company reports $188 million in cash against $1 billion in debt. The company projects operating cash flow of $100 million this year. “U.S. cannabis has significant white space ahead, with many states yet to implement medical or adult use programs, and the growing appetite for substantive federal reform,” says CEO Kim Rivers. It has a price to sales ratio of 0.56. BUY


Verano (VRNOF): Chicago-based Verano is one of the top five publicly traded multi-state operators in the U.S. by sales. The company has over 130 stores and fourteen cultivation and processing plants in thirteen markets. One of the most attractive qualities of this company is that it has a big presence in high-growth markets like New Jersey, Illinois, Florida and Connecticut, and states that are about to legalize recreational use like Maryland, and states that may soon legalize recreational like Florida, Ohio and Pennsylvania. The company’s strategy has been to position with medical dispensaries in states most likely to soon go recreational.

Verano also has consistent operating cash flow at a time when financial strength is important due to pricing pressure in the sector.

The company’s portfolio of brands includes Encore, Avexia, MÜV and its signature Verano line of product. To capitalize on the consumer’s trading down to value brands, Verano moved up the roll out of a new budget line called Savvy last year. It operates dispensary concepts called Zen Leaf and MÜV. It also has a licensing agreement with Mike Tyson’s Tyson 2.0 cannabis company.

The company has been dialing back capital spending and cutting overhead to bolster its balance sheet. But it has some of the strongest operating cash flow in the business. The company reports cash of $102 million against debt of $508 million.

Verano is founder-run, which can be a plus in investing. Verano has a price to sales ratio of 0.99. BUY


The next Cabot Cannabis Investor Issue will be published on September 27, 2023.

Michael Brush is an award-winning Manhattan-based financial writer who writes a stock market column for MarketWatch. He is editor of Brush Up on Stocks, an investment newsletter. Brush previously covered the stock market, business and economics for the New York Times, the Economist Group, MSN Money, and Money magazine.