It’s time for another update!
But it’s not because anything particular has happened at one of our companies—though we do have quarterly results from both Charlotte’s Web (CWBHF) and Village Farms (VFF).
No, it’s because yesterday’s strong market triggered a technical indicator, a follow-through signal that tells us buyers are lurking. Of course, today’s big decline so far isn’t good to see, but nevertheless, this and other measures (awful sentiment, etc.) tell us there should be support on weakness.
But even more important to me is this: The cannabis sector has led the way down, some of our stocks have attracted buyers in recent weeks and our portfolio is currently 36% in cash. Put it all together and I think it’s time to begin buying again. (And today’s selloff might get us some nice prices!)
In the portfolio, we will now reinvest half our cash—taking our cash level down to 18%. And we will spread that cash equally among five of our current holdings, Alcanna (LQSIF), Aphria (APHA), Aurora (ACB), Cresco Labs (CRLBF) and Curaleaf (CURLF).
Note: for your own portfolio, remember to diversify; don’t put it all in Canadian growers—or any other subsector.
Details below—some of which are simply repeated from Monday.
Alcanna (LQSIF) The portfolio’s most recent addition, Alcanna is a cannabis stock still unknown to most cannabis investors (because it’s mainly a liquor retailer). The stock looks good, trending higher with moderate pullbacks, and the portfolio will now average up. But beware the low liquidity. Know what price you’re paying. Buy.
Aphria (APHA) APHA blasted upward after an excellent earnings report two weeks ago, and it’s stabilized since, telling us investors are supporting the stock in the mid-6s. The portfolio will now average up. Buy.
Aurora (ACB) Aurora is more expensive that APHA on a price-to-sales (PSR) basis, but it’s been acting well since reporting excellent quarterly results last week, plus the portfolio is underweight the stock, so the portfolio will now average up (though if you must choose one of these big Canadians, I’d say APHA is favored). Buy.
Canopy Growth (CGC) Canopy, the biggest of all the Canadians by both revenues and market capitalization, looks worse, and is still expensive. Hold.
Charlotte’s Web (CWBHF) The portfolio sold half its CWBHF on the blow-off top day of August 5, and the stock has been cooling off since then, so I’ll stand pat for now. The company’s second quarter report, released this morning, revealed revenue of $25.0 million, up 45% from the year before and earnings per share of $0.02. Among the highlights were the rapid growth in national retailers carrying Charlotte’s Web products—the number increased by 1,926 to 7,871; hemp acreage planted for 2019 increased by 187% from 2018 to 862 acres; the introduction of new hemp extract infused CBD gummies in three flavors, and a new twelve SKU pet product line including functionally-focused chews with “synergistic ingredients to support specific health functions—Calming, Hips & Joints and Cognition.” Then, subsequent to the second quarter, the company signed two distribution partners for its pet line; Pacific Pet in California, one of the largest distributors of pet food and pet products on the west coast, servicing 1,000 independent pet stores in California, Arizona, Nevada, and Hawaii; and “Pet Food Experts,” servicing over 4,000 retailers in 33 states out of five distribution centers located in Rhode Island, Pennsylvania, Illinois, Washington and Colorado. Hold.
Cresco Labs (CRLBF) CRLBF blasted higher last Thursday on the news that the company received regulatory approval to acquire Gloucester Street Capital, the parent entity of Valley Agriceuticals in the State of New York. And it followed through very well in yesterday’s market surge, telling us investors are coming back. Cresco’s second quarter results will be released on August 21 after the market close, but I’m not going to wait. The portfolio will now average up. Buy.
Cronos Group (CRON) We took more profits out of this stock on Monday and the stock remains heavy—and expensive on a PSR basis. Hold.
Curaleaf Holdings (CURLF) CURLF is not as good a value as CRLBF, but it bottomed earlier and the company is a current favorite to be the biggest in the U.S. The portfolio will now average up. Buy.
Innovative Industrial Properties (IIPR) The one and only REIT focused on the cannabis industry, IIPR has been a big winner for us, and now it’s cooling off, working on building a base at 100. But I think a lot depends on the REIT sector in general, so if it falls through this level, I might lighten up more. Hold.
KushCo Holdings (KSHB) KSHB remains stuck in a 19-month trading range bounded by 4 and 7, but it hasn’t participated in this latest rally. Hold.
MedMen (MMNFF) MMNFF rallied nicely yesterday, but I can’t say the stock has bottomed yet. Hold.
Organigram (OGI) OrganiGram is one of our weakest stocks, yet the company is growing fast and the fundamentals say long-term prospects are good. Hold.
Turning Point Brands (TPB) Turning Point Brands seemed to bottom at 6 two weeks ago but I can’t say the trend is up yet. Hold.
Village Farms International (VFF) Village Farms International reported second quarter results on Monday. Revenues were $53.5 million, up 27% from the year before ($12.1 million was cannabis, while the remainder was vegetables) and the company achieved its third consecutive quarter of profitability.
Among the highlights: the company achieved full run-rate production of 75,000 kilograms of dried cannabis annually at its 1.1 million square foot Delta 3 greenhouse in Delta, B.C., the first and only single-site cannabis operation in the world to exceed 1 million square feet. It commenced conversion of its second 1.1 million square foot greenhouse operation, Delta 2, for cannabis production, which is expected to double annual output at full production to over 150,000 kilograms (expected by the fourth quarter of 2020). In the U.S., it began conversion of half of its 1.3 million square foot, ultra-high-tech Permian Basin greenhouse for cultivation of high-CBD hemp and CBD extraction. And it planted approximately 600 acres in Virginia, North Carolina and South Carolina with hemp.
The stock has had a big run since its July bottom (up 55% as I write), so it could pull back any time. But it’s still being discovered by cannabis investors, so I don’t think a pullback will be huge. Buy on the next normal pullback.