The broad market remains strong, while the cannabis sector remains stuck in the mud—in general. Apparently, it’s easier for investors to keep throwing money into Alphabet, Amazon, Apple and Facebook than to pick up some of the discarded cannabis stocks that actually have great fundamental growth prospects, and (in growing numbers of cases) real earnings! But this out-of-favor phase will end, and my goal is to ensure that we’re holding the best stocks in the sector when it does.
Right now, the best-performing stocks in our portfolio are the lowest-risk stocks: the hydroponic garden supply company GrowGeneration (GRWG); the real estate company Innovative Industrial Properties (IIPR) and the old tobacco firm Turning Point Brands (TPB). Eventually, however, growth will once again be rewarded, so I continue to hold the best and fastest-growing companies in the sector—in appropriate amounts.
Note: the portfolio is 24% in cash now, and that seems fine as we wait for the sector to strengthen.
Lastly, I will repeat: If you have a cannabis stock that’s hitting new lows, sell it and move on. Your goal should not be to break even in any stock. Your goal should always be to have your money in the stocks that have the best probability of meeting your investment goal—which in this case I assume is growth.
The only change with this update is that Trulieve (TCNNF) is downgraded to Hold.
Stock Updates
Aphria (APHA) Aphria remains the largest holding in the portfolio, as it’s the biggest seller in Canada, its stock is not as overvalued/overexposed as Canopy, and its chart has bottomed. Additionally, there have been numerous high-volume up days over the past few months, telling us the buyers are interested. But the stock is still not trending up! Aphria will release Q2 results January 14 before market open and maybe that will light a fire under the stock. BUY.
Aurora (ACB) Our position in Aurora remains very small, as the stock continues to drop. Someday it will bottom, as the company does have real assets and good prospects for growth. But it also has a cash problem. Until the stock bottoms, it’s too risky to buy. HOLD.
Canopy Growth (CGC) Canopy is still the most high-profile Canadian cannabis company, thanks to the presence of major investor Constellation Brands (STZ)—which reported good earnings this week, though not due to Canopy. And at least one analyst think Constellation might buy the rest of Canopy, with the stock now so cheap. In the meantime, Canopy this week announced that it would open 10 new Tokyo Smoke stores in Ontario in the first half of this year, bringing its total in the province to 12 and its total in the country to 37. Additionally, the company’s finance chief reassured investors that the company has plenty of cash to achieve its goals this year. The stock has bottomed—and an optimistic eye might say that it’s starting to turn up. The portfolio, which had been very underweight, averaged up in December. BUY.
Cresco Labs (CRLBF) Chicago-based Cresco has great prospects, particularly because two of its big initiatives are currently working. First, marijuana became legal in Illinois on January 1. Cresco has a 25% market share in the state—it’s the only operator in Illinois with three cultivation licenses, it currently distributes to every dispensary in the state and its Illinois retail presence will include 10 Sunnyside dispensaries, with three located in prime high-traffic Chicago locations opening in the spring. Second, just yesterday, Cresco closed its previously announced acquisition of Origin House, which significantly increases the company’s footprint and accelerates its entry into the California market. Origin House brings with it an ultra-premium indoor cultivation team, plus gets Cresco a leading wholesale distributor in California, selling into over 575 dispensaries, representing approximately 65% of California’s storefront dispensaries. Analysts are expecting EPS of $0.13 in 2020. I averaged up for the portfolio in December, and the stock is at a good entry point today. BUY.
Cronos Group (CRON) Canadian Cronos remains above its November low, so it’s increasingly likely that this stock too has bottomed. However, there’s been no significant fundamental news recently, so the portfolio remains underweight. HOLD.
Curaleaf Holdings (CURLF) Massachusetts-based Curaleaf, which has licenses to sell in 13 states, was the biggest legal seller of marijuana in the U.S. in the third quarter—and just this week it won a license to open a medical marijuana dispensary in Utah. The actual location will be in Lindon, by the highway between Salt Lake City and Provo. Curaleaf is well funded and analysts are expecting EPS of $0.21 in 2020. As for the stock, it’s one of the healthiest in the portfolio, trading above both its 25- and 50-day moving averages. If you don’t own any, you could buy here or wait for a normal pullback. HOLD.
Green Thumb Industries (GTBIF) This Chicago-based MSO’s stock has been basing since late August, trading generally in a wide range between 7.5 and 10. But it’s above its 25- and 50-day moving averages now, and logically, the company’s fundamental progress in Illinois, where it will have five retail stores, bodes well for the stock. Analysts are expecting EPS of $0.08 in 2020. BUY.
GrowGeneration (GRWG) GrowGeneration operates the largest and fastest-growing chain of hydroponic and organic garden centers in North America (26 locations in nine states) all catering to commercial growers of cannabis. And this week it released an excellent fourth quarter earnings report. Revenue for Q4 was $26 million, up 186% from the year before, while full year revenue was $80 million, up 176% from the prior year. Same store sales were up 62% for Q4 2019 versus Q4 2018, while same store sales were up 36% for the full year. The firm opened or acquired 11 stores last year, all of which are performing better than expected. Also, GrowGeneration Management Corp., the company’s commercial division, is now approaching a $20 million segment of the business. Looking forward, the Company is opening new store locations in markets that include St. Louis, Kansas City, Phoenix, Miami, Los Angeles and Chicago—and it’s working on several acquisitions that are expected to close in the first part of 2020. The stock bottomed at 3.45 in mid-October and has been trending higher since, and the results announced this week sparked notable buying. The curious thing about this company is that its website doesn’t use the words cannabis or marijuana—but it’s clearly piggybacking on the industry (as well as the growing interest in everything organic) and I’m impressed by the speed of the company’s growth! Note: trading volume in the stock is rather light (as is analyst coverage) so volatility is expected. But the future is bright! BUY.
Innovative Industrial Properties (IIPR) IIPR is the REIT that currently owns 42 properties located in Arizona, California, Colorado, Florida, Illinois, Maryland, Massachusetts, Michigan, Minnesota, New York, Nevada, Ohio and Pennsylvania, totaling approximately 2.9 million rentable square feet—all of which it leases to cannabis companies. After a major correction (52% from its high), the stock is trending up again. Also, Tom Hutchinson, chief analyst of Cabot Dividend Investor, recently added it to his portfolio. If you want relatively low risk exposure to the cannabis industry and a nice dividend, consider this. BUY.
MediPharm Labs (MEDIF) MediPharm is Canada’s leading cannabis extractor, producing purified, pharma-grade cannabis oil and concentrates that can be used for a wide variety of derivative products—all of which should see growth ramp up now that beverages and edibles are legal in Canada. The stock bottomed in October and has been trying to get an uptrend established, but there’s no sign of buying power yet. In the meantime, the news is good. On December 30, MediPharm announced that it had obtained a Health Canada license amendment to begin production in the freshly extended area of its manufacturing facility in Barrie, Ontario. With this amendment, MediPharm’s licensed facility footprint expands three-fold to a total of around 25,000 square feet. HOLD.
Organigram (OGI) New Brunswick-based Organigram remains the weakest of the bunch; just yesterday morning the stock poked below its November low of 2.0, though buyers quickly appeared to bring it back up. Still, I’m optimistic for a rebound in 2020, as the revenues in the third quarter grew 621% from the year before to $24.8 million and the company already has shipped vape cartridges into the legal market in five Canadian provinces. Fourth quarter results will be reported on January 14. HOLD.
Planet 13 (PLNHF) Planet 13 operates the world’s biggest cannabis store, located in Las Vegas, Nevada. And just today the company announced that it served an average of 1,900 customers per day last year at an average ticket of over $90. In December (slow season in Vegas), traffic slowed to 1,757 customers per day while the average ticket grew to over $100. But Planet 13 is not just a retailer; the company is vertically integrated, and plans to expand into California and eventually other tier-one markets nationwide. Analysts are looking for EPS of $0.09 in 2020. The stock peaked at 2.7 in April, bottomed at 1.3 in October, and has shown some impressive strength since then, with several big-volume surges. If you don’t own yet, you can buy on the current pullback. BUY.
Trulieve (TCNNF) Trulieve is the largest seller of medical marijuana in Florida (with roughly 55% of the market), it’s profitable, and it has plans to move into other states (particularly Connecticut, Massachusetts and California). Also, the company has been profitable since 2017. But short sellers attacked the stock three weeks ago (when it was the strongest of all cannabis stocks), and while the stock has recovered from the low of that day, it’s lost what momentum it had before the attack. Respecting the action of the stock, I’m now going to downgrade it to Hold. HOLD.
Turning Point Brands (TPB) Turning Point is a low-risk way to invest in the cannabis sector. This well-managed company, headquartered in Kentucky, has a stable, profitable business in smokeless tobacco (snuff and chewing tobacco) that supports a dividend of 0.7%. But in recent years Turning Point has been diversifying into the fast-growing cannabis industry, first by marketing vaping supplies and then by peddling CBD, activities that are totally legal across the U.S. In 2019, the vaping crisis (mainly attributable to black market THC devices) hit the stock hard, but it rebounded strongly in late October, built a nice base, and as the New Year began, broke out to new recovery highs—so the stock is now in an uptrend. BUY.