While long-term prospects for the cannabis industry remain excellent, the sector as a whole remains in correction mode today, with the big Canadian stocks under the greatest pressure—and no one knows where the bottom is, though history tells us it will come when the last holdout capitulates.
Our long-term strategy remains the same; to become owners of the companies that will lead this industry five and 10 years down the road. But to do that, you’ve got to survive the short-term, and sometimes that means biting the bullet and selling—so that you can come back and fight another day when market conditions are more supportive.
In my portfolio today, that means selling Elixinol (ELLXF), where both the fundamentals and the chart have worsened. That will take our cash position to roughly 32%.
In your own portfolio, which very likely holds non-cannabis stocks that are doing better—because the broad market looks great—you should de-emphasize cannabis for now. But you should be prepared to jump back in when the trend turns up again—because despite the poor action of most of the stocks today, this industry is booming!
Alcanna (LQSIF) The portfolio’s most recent addition, Alcanna looks great, trending higher with moderate pullbacks. If you haven’t bought yet, you could buy between here and the stock’s 50-day moving average at 4.50. But beware the low liquidity. Know what price you’re paying. Buy.
Aphria (APHA) Aphria is still falling, and the profit of our remaining position is shrinking, but I’m going to hold. There’s likely support at 5 dating back to December and, as I’ve mentioned before, the stock looks cheap relative to its peers. Fiscal fourth quarter results will be released today after the market close.
Aurora (ACB) Aurora also bottomed at 5 last December, and it may get there again before this correction ends, but this is now the portfolio’s smallest position, and the company has great prospects, so we’ll stand pat.
Canopy Growth (CGC) Canopy looks similar. Its December bottom was at 25.
Charlotte’s Web (CWBHF) Turning to the U.S. and the CBD industry, CWBH looks completely different. The stock has just completed its third high-volume surge high since the June bottom. Earlier this week, the company announced, “The Kroger Co., America’s largest grocery retailer, has begun carrying Charlotte’s Web products in multiple states with a plan to roll out to a total of 1,350 store locations in 22 states (Arizona, Arkansas, Colorado, Georgia, Illinois, Indiana, Kansas, Kentucky, Michigan, Missouri, Montana, Nevada, Oregon, South Carolina, Tennessee, Texas, Utah, Virginia, West Virginia, Washington, Wisconsin, and Wyoming).” If you don’t own it, try to buy on a pullback. Buy.
Cresco Labs (CRLBF) The stock of U.S. multi-state operator (MSO) Cresco continues to fall, though it’s still far from its December low of 5. We sold half our position back in May and remain underweight so will hold. This week the company unveiled Sunnyside, a new dispensary brand positioned as a “wellness-based retailer offering a holistic experience for anyone who considers, or would consider, cannabis to be an integral part of their personal wellness program.” A key goal of the brand is to gather customer data through “one of the most robust customer journey data-inputs in cannabis.” The first Sunnyside location will open in Philadelphia, Pennsylvania, in November with future locations planned for Florida, Illinois, Ohio, Arizona, Massachusetts and Michigan.
Cronos Group (CRON) Canadian Cronos, which is 45% owned by Altria, had been basing in recent months, while other cannabis stocks corrected, but now it’s joined the crowd, falling through support at 14. Historically, such capitulation by a sector’s last holdout often presages the end of a trend, so this might mark the end of he correction. More important for CRON shareholders, though, will be the company’s second quarter results, to be reported Thursday, August 8 before the market opens.
Curaleaf Holdings (CURLF) CURLF is another MSO, and acting better than CRLBF. The stock has recovered from its FDA warning letter scare, and now sits above both its 25- and 50-day moving averages, so is a tempting buy here, especially given the company’s increased potential once it acquires Grassroots. But prudence says it’s risky to try to buck the sector’s main trend.
Elixinol (ELLXF) Colorado-based Elixinol is a pure CBD company (though part of a bigger Australian hemp/food company), but its stock is not bouncing like CWBHF. Instead, it just fell through its 200-day moving average—and one part of the reason is clear; second quarter results, released on Tuesday, revealed that revenues were just $9.9 million, up only 19% from the year before. This slowdown, combined with the stock’s poor action and our loss, is reason to sell. Sell.
Innovative Industrial Properties (IIPR) The one and only REIT focused on the cannabis industry, IIPR has been a big winner for us, but now it’s in correction mode. The correction may have ended when the stock fell to 100 last week—it’s been above that level since—but it’s too early to tell. On Monday the firm announced the acquisition of a property in Holyoke, Massachusetts that will be leased to Trulieve Cannabis as a licensed cannabis cultivation and processing facility. That brings the company’s portfolio to 26 properties located in Arizona, California, Colorado, Illinois, Maryland, Massachusetts, Michigan, Minnesota, New York, Nevada, Ohio and Pennsylvania, totaling approximately 2.0 million rentable square feet (including approximately 631,000 rentable square feet under development/redevelopment), which were 100% leased with a weighted-average remaining lease term of approximately 15.6 years. IIPR’s average current yield on invested capital is approximately 14.6% for these 26 properties. And it keeps growing. The company’s second report will released on Wednesday, August 7 after the market close.
KushCo Holdings (KSHB) KSHB remains stuck in an 18-month trading range bounded by 4 and 7. But the stock is cheap, the company is growing fast, and the non-plant-touching business—focused on packaging and industrial gases used by the cannabis industry—provides great diversification to the portfolio. If you like the story, you could buy some here.
MedMen (MMNFF) MedMen is one of the larger MSOs, with 37 retail locations and operations in 12 states, including big cities Los Angeles, Las Vegas and New York. Valuation appears quite reasonable. And while the stock is not strong, it does appear to be bottoming in at 2, which is where the stock found support in early June.
Organigram (OGI) OrganiGram is a second-tier Canadian producer in my book, but it has supply deals with every Canadian province, it’s one of the lowest-cost producers thanks to its three-tiered growing technology, and by my measurements, the stock is cheap. Also, the stock seems to be bottoming here around 5.8, though we can’t be sure until the trend turns up.
Turning Point Brands (TPB) Turning Point released its official second quarter report yesterday, and the results were virtually identical to the results pre-announced the week before.
Net sales increased 15.1% from the year before to $93.3 million. Net income increased 42% to $13.2 million. Smokeless products (28% of total sales) saw sales increase 7.2% to a record $26.2 million. Smoking products (27% of total sales) saw sales shrink $4.0 million to $25.2 million. And NewGen Products (45% of total sales) saw sales grow 52.8% to $41.8 million.
Additionally, the company increased its full-year revenue guidance from the range of $380 to $405 million to the range of $388 to $413 million.
However, the stock remains in a correction, weighed down partly by the sector as a whole (whose weight it had resisted until early July) and partly by the placement of convertible senior notes two days ago that yielded $150 million for the company.
Last week I mentioned that the stock might bottom at 42, but it fell right through that support level and now there’s no knowing where it might bottom, though the chart says that the current correction, brief though it is, is deep enough (33%) by historical standards.
We sold half in April at 44.61 so will stand pat for now, but that’s because we have a big profit. If you’re now in the red, make sure this doesn’t become a bigger loser for you.
Village Farms International (VFF) VFF is the big successful grower of greenhouse tomatoes/peppers/cucumbers that’s diversifying into the high-growth cannabis industry—marijuana in Canada and hemp in the U.S. The stock advanced for ten consecutive days recently, surging from 9.3 to 11.8, before pausing to rest starting yesterday. I still can’t say the trend is officially up, but I do think you could nibble on the next pullback if it fits your portfolio.