Cabot Cannabis Investor Issue: January 31, 2024

Our Cabot Cannabis Investor portfolio is up 35% this year. That’s more than 10 times the 3% gain for the S&P 500.

The broader cannabis sector has done well too, but not quite as well as our Cabot Cannabis Investor portfolio of the 12 best names in the space.

The New Cannabis Ventures Global Cannabis Stock Index and the ETFMG Alternative Harvest exchange traded fund (MJ) are up 14.5%. We’re up more than twice as much.

Our Cannabis Plus Insider Portfolio is up 39.3% since I launched it on March 29 last year. Here we have outperformed the market by threefold. The 39.3% advance compares to gains of 12.7% for the Russell 2000 index, and 22.3% for the S&P 500 over the same time. The smid-cap Russell 2000 is a more appropriate comp than large-cap names in the S&P 500. This portfolio invests in cannabis related companies that have the right kind of insider buying, and do not touch the plant.

All of this raises two questions: What’s going on, and can it continue?

First, the reason for the rally. Cannabis stocks got moving earlier this year when the Health and Human Services Department (HHS) released documents supporting the major federal level cannabis reform that it wants to see.

Here are the basics of what you need to know as an investor. The HHS proposal asks the Drug Enforcement Agency (DEA) to soften its stance on cannabis by downgrading it to Schedule III from Schedule I under the Nixon-era Controlled Substances Act (CSA). The change would help cannabis companies by boosting cash flow enormously.

The reform would boost cannabis company cash flow by exempting companies from an Internal Revenue Service rule (called 280E). This bars the deduction of operating expenses against Schedule I drug revenue. “It would release a lot of investible capital into the sector,” Curaleaf (CRLBF) founder and executive chair Boris Jordan tells me. Cannabis companies effectively work for the federal government, he likes to joke.

Curaleaf, for example, would get a $200 million boost. For context, the company reported $61.8 million in operating cash flow and $115.5 million in losses in the third quarter.

To make a credible recommendation, HHS had to find that cannabis has acceptable medical uses and a relatively low potential for abuse and dependence. HHS built its case by citing extensive research and the now-widespread doctor-recommended usage across the country. This new policy proposal is a sea change for the federal government.

Now for the question of whether the cannabis rally will continue.

The next step in rescheduling will come in the form of a proposed rescheduling rule from the DEA. The timing is critical. It has to happen by March or April, for the Biden administration to reap election-year boasting rights – obviously part of the plan here. When the DEA drops the proposed rule, that will be another sign of rescheduling progress, and so it will be another cannabis sector group catalyst. But the rule needs to come out by March or April to allow enough time for comments and hearings needed to approve rescheduling before election day, or at least inside the current administration.

Will the DEA play along and release the proposed rule in that timeframe? For clues, let’s turn to voter polling results.

Some recent poll results suggest the Biden administration is likely to press hard for progress on cannabis rescheduling as an election tactic. The two key trends in the polls for cannabis investors are 1) a vast majority of voters back cannabis reform, and 2) cannabis reform is an even more salient issue for young voters.

I offer more details on the polls below, but the key takeaways are that 57% of Americans who are likely to vote support nationwide cannabis legalization, and young voters in particular want reform.

The bottom line: Given the way younger voters are defecting to the right, you can imagine the Biden camp may be pushing hard for timely progress on cannabis rescheduling. The poll results suggest a DEA proposed rule could drop soon, catalyzing the cannabis sector once again.

What to Do Now

I would not chase names here. I suggest continuing to stay long and add on any weakness of 2% to 4% or more, in any of our portfolio names.

Portfolio names are: Ayr Wellness (AYRWF), Cresco Labs (CRLBF), Curaleaf (CURLF), Cronos (CRON), AdvisorShares Pure U.S. Cannabis (MSOS), AdvisorShares MSOS 2X Daily (MSOX), ETFMG Alternative Harvest (MJ), Green Thumb (GTBIF), Organigram (OGI), Tilray Brands (TLRY), Trulieve (TCNNF) and Verano (VRNOF). For simplicity, consider getting exposure via MSOS or the leveraged version, MSOX.

Given the sector strength this year, it might make sense to preserve some buying power for pullbacks. In a volatile sector like this, I prefer to add on weakness rather than strength.

Cannabis News from Around the World

Part of my core thesis for being bullish on cannabis stocks is that there continues to be tremendous cultural momentum toward cannabis reform around the world. I’m convinced cannabis stocks will not remain ignored forever.

We see evidence of this powerful cultural momentum in the changes in laws to legalize cannabis, big tobacco investments in the space, robust cannabis sales growth in states that legalize, increased cultural acceptance in the form of relaxed drug testing standards in sports leagues and the workplace, and poll results that show a growing majority of people support legalization regardless of age and party affiliation.

These trends tell us cannabis stocks are a strong contrarian buy that will turn very profitable for patient investors with a medium-term horizon. The sector is so volatile, it is easy to get shaken out of names by heightened emotional reaction to drawdowns. So, it is important to catalogue evidence of this cultural momentum. That is the purpose of this section of Cabot Cannabis Investor.

* New poll results suggest the Biden administration is likely to press hard for progress on cannabis rescheduling as an election tactic. One new poll has found that 57% of Americans who are likely to vote support nationwide cannabis legalization. Not surprisingly, Democrats are more likely to support the change. The poll found that 67% support the reform and 74% under the age of 55 do.

But the poll also found the conservatives are increasingly on board with reform. It found that 55% of Republicans under age 55 favor nationwide cannabis legalization, and 48% of Republicans overall back the change. As for independents, 56% approve of nationwide legalization, and 63% under 55 favor the reform. The survey was conducted by the Tarrance Group.

Meanwhile, another survey concluded that President Joe Biden’s proposed cannabis rescheduling increases support among young voters aged 18-25 by 11 percentage points. This poll was conducted by Lake Research Partners. Voters aged 18-25 were more forceful, with 83% favoring reform.

The poll conducted by Lake Research Partners found that 58% of likely voters favor moving cannabis to Schedule III from Schedule I.

* In a nod to the importance of cannabis reform as an election issue, earlier this month former South Carolina Gov. and GOP presidential candidate Nikki Haley (R) said she agrees with the Biden administration that cannabis should be rescheduled. Biden’s Department of Health and Human Services has recommended moving cannabis to Schedule III from Schedule I, which includes heroin, under the Controlled Substances Act.

In a CNN town hall meeting, Haley said cannabis “obviously” doesn’t belong in the same category as heroin. “I think I’ll go with the scientists on that,” she said, referring to data cited in the HHS rescheduling report. “I think it’s obviously not in the same class as heroin.” The rescheduling change would boost cannabis company cash flow by exempting them from an Internal Revenue Service rule that bars businesses from deducting expenses against the sale of Schedule I drugs.

* Consumers continue to vote with their wallets in favor of cannabis normalization. States that have legalized cannabis posted record sales last year, despite ongoing product price declines which work against sales trends measured in dollars. Here’s a roundup.

Connecticut posted record sales every single month in 2023, and sales for the full year hit $274 million. Legal cannabis sales in Illinois set a new annual record in 2023, coming in at just under $2 billion. Sales of adult-use cannabis in Maine totaled $216.9 million last year, up from $158.9 million in 2022.

Maryland set records every month, totaling $790 million for the year. It legalized recreational use sales in July. Massachusetts marijuana retailers sold a record $1.8 billion worth of cannabis in 2023, after posting a record $158.7 million in December. Michigan saw a spike in sales to end the year with a record-setting $3 billion in sales. Missouri, which launched recreational-use sales in February, sold more than $1.3 billion in cannabis products for the year. Sales of legal marijuana in New Mexico jumped to a record $50.5 million in December. Retailers have sold $608.4 million since legalization in April 2022. Rhode Island posted record sales in December to finish the year with more than $100 million in sales.

TD Cowen expects U.S. legal cannabis sales to reach $37 billion in 2027, up from its estimate of $29 billion in 2023.

* Florida Gov. Ron DeSantis (R) says the Florida Supreme Court is likely to approve the language of a proposed referendum that would ask voters if they agree that recreational use sales should be legal. Polls suggest that voters will approve the initiative, but the margins are slim. Turning Florida into a recreational-use state would be a big catalyst for the sector given the size of its population and tourist traffic. The court has until Apil 1 to offer a decision on the referendum language. If it does nothing, the referendum gets automatically approved on that date.

* New York Gov. Kathy Hochul (D) says she’s “fed up” with how long it is taking to expand the state’s recreational cannabis market with more licensed businesses. She recently urged regulators to “go back to the drawing board” to approve hundreds of retailers. She’s not the only one who is fed up. Until recently, cannabis companies have avoided setting up shops offering recreational-use sales because of the high fees and difficulty in competing for licenses in a state that heavily favored “social equity” applications from people convicted of drug crimes. The state has eased those restrictions, but Hochul still wants speedier progress. Her comments are of interest to cannabis investors given the size of New York state’s population. If the state ever gets its act together, it could boost industry sales significantly.

* A new lawsuit claims New York’s marijuana licensing program’s social equity approach violates the U.S. Constitution’s Equal Protection Clause by giving “disfavor to white men.” The lawsuit was filed in late January in the U.S. District Court in the Northern District of New York by a small company called Valencia Ag. “Defendants enacted regulations and procedures that provide favor and preference to persons of a selected race or gender to the exclusion of Caucasian or white men for applications for cannabis licenses,” the lawsuit states. “In doing so, Defendants violated the Equal Protection Clause of the United States Constitution.”

* Taking a cue from nearly a dozen other states, New Jersey is on the way to allowing cannabis consumption lounges. The New Jersey Cannabis Regulatory Commission’s (CRC) in mid-January unanimously approved rules that would allow cannabis retailers to operate the cannabis lounges. They won’t be allowed to sell food or alcohol, but customers can bring their own munchies or have food delivered.

“This move holds particular significance for communities that are limited in where they can enjoy cannabis most notably, renters who cannot consume cannabis at home, unlike homeowners who enjoy greater freedom within their own homes,” said CRC Chairwoman Dianna Houenou. States that allow cannabis lounges include: Alaska, California, Colorado, Illinois, Maryland, Michigan, Missouri, Minnesota, Nevada, New Mexico and New York.

* Texas cannabis activists continue to push for reform by putting cannabis issues to voters. They’re now collecting signatures to put cannabis decriminalization initiatives on the November ballot in Dallas and Lockhart.

The reform effort is being managed by Ground Game Texas and Texas Cannabis Collective. The initiatives would prevent police from making misdemeanor arrests for possession with exceptions for large-scale crackdowns. The Dallas measure also bars police from using the odor of cannabis to support probable cause for searches.

Cities that have already approved decriminalization initiatives include: Austin, Lubbock Delton, Elgin, Harker Heights, Killeen and San Marcos. A 2022 poll found that 72% of voters back decriminalization and 55% favor legalization. The poll was conducted by the University of Texas.

* The chamber of commerce is not the first group to come to mind when one thinks of cannabis reform advocacy. But the group is on board. Citing break-ins at cannabis retailers, the Michigan Chamber of Commerce is urging the federal government to approve banking reform that would allow banks to serve dispensaries. Congress has been considering approval of the Secure and Fare Enforcement Regulation (SAFER) Banking Act which would permit banks to work with cannabis companies, but the bill’s prospects remain uncertain.

“With nearly 40 states having legalized or decriminalized medical cannabis, adult-use cannabis or both, today’s cannabis landscape is hardly recognizable from just a few years ago,” said Leah Robinson, director of legislative affairs and leadership programming for the Michigan Chamber of Commerce. “It’s time to pass the SAFER Banking Act without delay so cannabis business owners and workers can access the same banking, borrowing and lending options and protections as all other legal industries.”

* Cannabis activists in Arkansas are lobbying for a ballot initiative that could broadly expand medical use. The initiative would allow patients to grow their own cannabis; allow physician assistants, nurses and pharmacists to certify patients for use; expand the list of qualifying medical conditions; and recognize medical cannabis cards of people from other states. Arkansans for Patient Access is lobbying for the ballot initiative that would make these changes.

* Czech Republic doctors prescribed 210 kilograms of medical cannabis to about 8,000 patients last year, about twice as much as in 2021, according to the State Agency for Medicinal Cannabis (SAKL).

Czechoslovakia approved medical cannabis in 2013. The cost of medical cannabis is partially covered by health insurance. The country is also considering the legalization of recreational use.

Company News

This section offers a roundup of developments at portfolio companies since the last Cabot Cannabis Investor update was published. One of the key trends to note is that our companies continue to open stores in states that recently legalized recreational use, or are about to make this change.

Curaleaf (CURLF)

Curaleaf is launching a recreational-use store in Hudson Valley, New York. The Newburgh store is Curaleaf’s first rec-use operation in the state. The store has been a medical-use dispensary since 2017, and Curaleaf is expanding it to accommodate rec-use sales.

Cronos (CRON)

Cronos’ Spinach brand was the number one ranked flower and edibles brand in Canada in the fourth quarter with a 6.9% market share, according to HiFyre.

Organigram (OGI)

Organigram received the first of three tranches of financing from British American Tobacco (BTI), which purchased $31 million worth of Organigram stock. Organigram will get the next two tranches in August this year, and February 2025. Organigram will use most of the money to fund a strategic investment arm called Jupiter. Organigram will use the funds to expand geographically. British American Tobacco (or BAT for short) first invested in Organigram in 2021. The new investments will give BAT a 45% stake in Organigram, and a 30% voting position.

Tilray (TLRY)

Tilray CEO Irwin Simon recently bought $160,000 worth of stock at $1.98 per share.

Trulieve (TCNNF)

Trulieve appointed Marie Zhang as chief operating officer. Zhang brings 25 years of experience in operational roles at companies like Blaze Pizza, Focus Brands, Yum! Brands, and ConAgra Foods. “Her experience navigating complex regulatory and logistical challenges while managing rapid growth is especially valuable to Trulieve as we prepare for the next wave of catalysts,” said Trulieve CEO Kim Rivers.

Verano (VRNOF)

Verano has opened a Zen Leaf store in Pennsylvania in Abington, a suburb of Philadelphia. It is Verano’s largest store. The opening is part of a sector strategy of positioning medical-use stores in states that seem poised to approve recreational-use sales. Verano has 17 stores in the state. It has 137 stores and 14 cultivation and processing plants in 13 states.

Sector Performance

Our main cannabis portfolio continues to vastly outperform the New Cannabis Ventures Global Cannabis Stock Index, now by 16 percentage points. Year to date as of the close on January 30, our portfolio is up 35% vs. a 14% gain in the index. We achieved this outperformance by being in the right stocks and using leverage.

Our portfolio is leveraged because of the large position in AdvisorShares MSOS 2X Daily (MSOX). It is a top-five position. The leverage helps capture more upside as we see progress on rescheduling cannabis, and progress towards approval of recreational use in more large states like Pennsylvania and Florida.

Once a few of these pieces of the puzzle are firmly in place, I will roll back leverage by trimming MSOX in favor of cannabis stocks or the AdvisorShares Pure U.S. Cannabis (MSOS) ETF. If you are a highly active trader, it would make sense to deleverage into rallies in the same manner along the way and then hope for a pullback to re-lever.

The Cannabis Plus Insider Portfolio is up 39.3% since I launched it on March 29 last year, beating the market by three times. The gains compare to advances of 12.7% for the Russell 2000 index, and 22.3% for the S&P 500 over the same time. The smid-cap Russell 2000 is a more appropriate comp than large-cap names in the S&P 500.

The portfolio is well positioned to outperform because investments in Chicago Atlantic Real Estate Finance (REFI) and AFC Gamma (AFCG) pay attractive yields of 11.47% and 16.05%. The dividends were recently confirmed even though they look suspiciously high. Portfolio prices are as of the close, January 30.

*Includes dividends by adjusting down the entry price to incorporate dividend payouts

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 $73 million in cash and $633 million in net debt. This debt overhang is one reason why Ayr trades at 0.49 times sales. 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 price to sales ratio of 0.87. BUY

Cronos Group (CRON) 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. The company has a partnership with Cansativa Group which allows Cronos to sell its i Peace Naturals brand in Germany, where the cannabis market should grow dramatically over the next several years because of liberalization of restrictions on sales. Cronos has a 10% stake in Cronos Australia, a publicly traded company.

Cronos has $839 million in cash, or about $2.20 per share, against minimal debt of $2.7 million. Some of that cash could be deployed in acquisitions, possibly to expand in the U.S. adult-use market.

There’s been some big insider buying at Cronos Group and I think it makes sense to follow the insider into this name. Director Jason Adler has purchased large amounts in the $1.71 to $3.10 range. Cronos trades at 0.68 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 2.68. BUY

AdvisorShares Pure U.S. Cannabis ETF (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 3.06. BUY

Organigram (OGI) Organigram holds the #2 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.

The company has the #1 market share position in hash globally driven by popular products like Tremblant, Holy Mountain and SHRED. It has the #1 market share position in gummies.

British American Tobacco (BTI) is a big investor in Organigram, an endorsement of its potential. The two companies collaborate to develop cannabis products. The price to sales ratio is 1.09. 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. It is ranked #1 there by sales for cannabis flower, oils, concentrates, and THC beverages; #2 in pre-rolls, #4 in vape, and among the top 10 in all other categories. 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 1.84. 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 $192 million in cash against $903 million 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 1.58. 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 rollout 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 $129 million against debt of $517 million.

Verano is founder-run, which can be a plus in investing. Verano has a price to sales ratio of 2.22. BUY

The next Cabot Cannabis Investor Issue will be published on February 28, 2024.

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