I spent last week skiing in the Canadian Rockies, which is one reason you didn’t get an update. But the bigger reason is that there’s no schedule that promises weekly updates for Cabot Marijuana Investor; in the long run, the big money in this sector will be made by sitting tight and doing nothing.
Nevertheless, I spent a lot of time thinking about marijuana during the week, not least because of the increased visibility of cannabis in Canada—or at least signs displaying rules about it.
Heading into Canadian Customs in Calgary, there was a sign that said all cannabis products must be declared.
At the ski resort, there was a sign saying cannabis was not allowed at the property—though they serve plenty of alcohol. As at any ski resort, however, the aroma of cannabis was occasionally in the air.
And leaving the country, passing through U.S. Customs in the Calgary airport, there was a sign that said cannabis was not allowed—after which I was forced to walk through a maze teeming with promotions for duty-free alcohol.
In short, awareness of cannabis is definitely up, but there are still major friction points, which will continue at least until the U.S. government legalizes marijuana as it has just legalized hemp.
In the meantime, it’s been fascinating to watch the industry evolve, to identify the best public companies in the sector, and to help you identify the best entry (and occasionally exit) points for the stocks as the market rises and falls.
The Market
Two weeks ago I did some selling in the portfolio, dropping three stocks completely and cutting back on two, in part because I wanted to clean house and in part because I thought that both the broad market and the sector, having surged higher since the late-December bottom, were due for a rest—or worse. Since then, the average decline in those five stocks has been 5%, and none of them are higher.
So what comes next? Well, as I’ve said several times in recent months, Cabot’s market-timing indicators tell us the market is likely to be higher in the months ahead, so generally I recommend that you be heavily invested, particularly if your focus is on the long term.
At the same time, I’m going to continue to attempt to maximize portfolio returns with some shorter-term bobbing and weaving, trimming when I believe stocks are high, and putting money back in when I see lower-risk buying opportunities.
What To Do Now
In selling two weeks ago, I raised the portfolio’s cash position to 30%, which is rather high for this bull market, so I don’t want to keep it there long. Thus I’m going to buy one new stock, Green Thumb Industries (GTBIF) (details below) and average up in some of our current holdings.
Specifically, I will take half our cash, using a third of it (a sixth) to buy Green Thumb and spreading the remainder equally among APHA, CGC, CRON, ITHUF, OGRMF and TPB.
That will take the portfolio’s cash position down to about 15%.
Aphria (APHA 9.6)
Canopy Growth (CGC 46)
Cronos Group (CRON 21)
These three Canadian majors have been building very similar bases since the sector’s early-February peak, suggesting that deep-pocketed investors like this price level. Ideally, these bases will lead to renewed uptrends, but it’s possible that there will be a sudden plunge to knock out weak hands before the advance resumes. If you’re under-invested, you could buy any or all of these three here. I’m averaging up in all three. Cronos will report earnings on March 26.
Aurora Cannabis (ACB 8.9)
Canadian major Aurora gapped up today on big volume on the news that the company had appointed Nelson Peltz as a Strategic Advisor—for the price of some stock options. The 76-year-old billionaire has long been respected by Wall Street for his work at Triangle Industries, Snapple, Wendy’s and Pepsi, to name a few brands, though I doubt that he has experience with marijuana. Peltz will advise Aurora on strategy for addressing consumer market segments both nationally and globally. If you own a big position in ACB, you could lighten up here, though the long-term prospects are brighter than ever.
Cresco Labs (CRLBF 8.6)
One of the up-and-coming vertically integrated multi-state operators (MSOs) in the U.S., this is still the most thinly traded stock in the portfolio, and thus one of the more volatile. I trimmed our position two weeks ago, and believe that buyers might be able to get on board on another dip below 8.
Curaleaf Holdings (CURLF 6.7)
Two weeks ago I mentioned that this Massachusetts-based MSO looked more expensive than CRLBF, but after a 26% correction, it’s less so. You could buy here, as I see decent support at 6—though charts are less useful with thinly traded stocks like this.
Elixinol (ELLXF 2.3)
Elixinol is the portfolio’s most recent addition and one of the CBD companies that is competing in an increasingly crowded field, and it’s made no progress for us yet. Still, if you’re interested, this looks a like a good entry point. I would like to buy more for the portfolio, as we have only a 2% position, but a cardinal rule of growth stock investing is to only average up, never average down.
Green Thumb Industries (GTBIF 13)
Green Thumb, based in Chicago, is another MSO, currently in 10 states, with retail stores branded RISE. On February 12, the company announced a deal to acquire Advanced Grow Labs of Connecticut, which will increase the company’s reach to 12 manufacturing facilities and licenses for 85 retail shops in 11 states. And on February 21, Green Thumb completed the acquisition of California-Based For Success Holding Company, Owner of the Beboe Brand. Beboe is the luxury cannabis brand best known for its rose gold vaporizing pens and for announcing a deal with Barneys New York earlier this year to create luxury cannabis shops named, “The High End.” (The name Beboe refers to co-founder Scott Campbell’s grandmother, Be Boe, who baked his mother marijuana-infused brownies to help her tolerate chemotherapy.) The stock has been trending up since the December bottom, and is just coming off a correction low Friday and volume trends are good. I’ll buy now using one sixth of the portfolio’s cash.
HEXO Corp. (HEXO 5.9)
A Canadian second-tier producer, HEXO’s chart looks a lot like those of the majors. Two weeks ago I recommended buying if the stock dipped to 5 and it nearly got there last Friday, but now the stock is back near the top of its 5-6 trading range thanks to today’s announcement that the company will acquire Newstrike Brands, adding 470,000 sq. ft of production space and moving the company closer to the top tier of producers.
iAnthus Capital (ITHUF 5.1)
Another U.S. MSO, iAnthus now has operations in 11 states and 21 dispensaries, with the newest opened in Lake Worth, Florida last week. I think you can buy on the current pullback; I’m averaging up.
Innovative Industrial Properties (IIPR 78)
Innovative Industrial Properties is a real estate investment trust (REIT) that as of February 8 owned twelve properties located in Arizona, California, Colorado, Illinois, Maryland, Massachusetts, Michigan, Minnesota, New York and Pennsylvania, totaling approximately 1,070,000 rentable square feet. The stock has been a surprisingly good performer, but I wouldn’t buy just now, both because the stock is right back up near its high of two weeks ago and because the company is scheduled to release its fourth quarter results after the market close today. On the plus side, this REIT did just announce a good-sized quarterly dividend hike to 45 cents per share, up from 35 cents the previous quarter.
KushCo Holdings (KSHB 5.6)
KushCo is still trading sideways (from a long-term perspective) and I still like the idea of buying around 5.6, especially if your portfolio would like the diversification provided by a U.S. company that deals with totally legal ancillaries to the marijuana industry.
Organigram (OGRMF 6.7)
Another Canadian second-tier producer, Organigram has had a very impressive run this year, breaking out to all-time highs earlier this month. I’m averaging up.
Turning Point Brands (TPB 47)
Also hitting all-time highs, as recently as yesterday, is Turning Point Brands, the slowest growing company in the portfolio. Last week the company, which is transitioning from an old-school tobacco company to a new-age provider of ancillaries to the marijuana industry, released an excellent fourth quarter report. Revenues grew 28.2% to $94.3 million, and diluted EPS grew 39% to $0.25 per share. Smokeless products (chewing tobacco) were 24% of revenue, smoking products (cigarette paper) were 29% and NewGen (mainly vaping accessories) were 47%, with revenues in that segment growing 86% from the year before. TPB is not as inexpensive as it used to be, but I believe it’s still being discovered by investors wanting safe and legal exposure to the marijuana industry. I’m averaging up.