Good News
The good news is that the amount of cannabis intercepted along all U.S. borders has fallen by 89% since 2011, from 2.5 million pounds per year to about 270,000 pounds in 2019. That means fewer U.S. dollars in the black market and more in the U.S. legal market, creating jobs, boosting the legal economy, and generating taxes.
Bad News
The bad news is pretty much everything else, with coronavirus, shutdowns and the plunging stock market getting the headlines. Those stories have been covered well elsewhere, so I’m not going to dwell on them here.
What I will dwell on a bit is the marijuana sector, where stocks continue to fall (even though they’ve been in a bear market far longer than the general market) and companies continue to struggle to find their way to profitability. In fact, in recent months, top executives have stepped down at Aurora (ACB) and Cresco Labs (CRLBF) (two stocks in our portfolio), as well as MedMen (MMNFF), Sundial (SNDL) and The Green Organic Dutchman (TGODF).
In the meantime, the industry continues to grow, in Canada and the U.S. as well as internationally, so eventually the leaders of the industry (we own most of them) will find that path to profitability and the stocks will turn up again. The challenge, until then, is whether to keep on holding these stocks, trusting that eventually they will be higher, or to cut some losses short here, raise cash, and wait for the dust to settle.
Major factors to be considered are: 1) each stock’s chart, 2) each stock’s portfolio weighting, 3) each company’s business model/geographic sector (for purposes of diversification), and 4) the portfolio’s cash level.
Additionally, for you, there’s one more major consideration and that’s the weighting these stocks have in your overall investment portfolio. If they’re a minor part (I’ve never advised that marijuana stocks exceed 20% of your portfolio) and you own some of the better ones, you may choose to stand pat and ride this out.
But for this portfolio, we’re now going to do some selling.
What to Do Now
As I write, the portfolio is 31% in cash, and we will now increase that by selling Aphria (APHA), Aurora (ACB), Cresco Labs (CRLBF), Green Thumb Industries (GTBIF) and OrganiGram (OGI). After those sales, which will be recorded at tomorrow’s average price, the portfolio will be roughly 50% in cash.
Current Recommendations
Stock Updates
Aphria (APHA) to Sell
Aurora (ACB) to Sell
Canopy Growth (CGC) to Hold
Cresco Labs (CRLBF) to Sell
Green Thumb Industries (GTBIF) to Sell
Organigram (OGI) to Sell
Akerna (KERN) Based in Denver, Akerna provides software that serves both the companies in the U.S. cannabis industry and the government entities regulating them, with products that track cannabis from seed to sale. Thus it’s legal nationwide, and attractive for the diversification it adds to the portfolio. And the chart remains quite interesting. In Monday’s market rout, the stock (thinly traded as usual) fell to a low of 4.5, but buyers pushed it higher on Tuesday and Wednesday, so today the stock remains well above its Monday low. HOLD.
Aphria (APHA) Aphria is the biggest seller of marijuana in Canada, and its stock has fallen like a rock over the past month—not least because the company saw a sequential decrease in revenues in the fourth quarter. We’ve twice taken big profits out of this stock (back in 2018 and 2019), but now it’s time to say goodbye as holding a loss of this size is indefensible. Perhaps we’ll return some day. SELL.
Aurora (ACB) Aurora has basically the same story as Aphria, though it overbuilt and then found itself in a cash crunch. We’ve taken big profits out of the stock five times (back in 2018 and 2019) but now it’s time to sell. SELL.
Canopy Growth (CGC) Canopy is both the most visible cannabis company in Canada and the most corporate, thanks to the presence of major investor Constellation Brands (STZ). Also, Canopy has the option to acquire Acreage Holdings (one of the major multi-state-operators (MSOs) in the U.S.) if and when federal cannabis prohibition in the United States is abolished—a deal that might result in the creation of the world’s largest cannabis company. However, right now the company is focused on cutting costs. On Wednesday, March 5, as part of its “strategy to adjust cultivation capacity to expected demand,” the company announced the closing of its growing facilities in Aldergrove and Delta, British Columbia (a move that would lay off around 500 employees) as well as the end of a plan to open a third greenhouse in Niagara-on-the-Lake, Ontario. The portfolio has taken big profits out of Canopy three times (in 2018 and 2019) and still has enough cushion to hold—though I’m going to downgrade the stock from buy. HOLD.
Cresco Labs (CRLBF) Chicago-based Cresco is a leading U.S. MSO with 21 dispensaries, 31 retail licenses and 18 production facilities in 11 states—as well as some of the leading brands in the country (Cresco, Remedi and Mindy’s edibles). In fact, continuing its focus on branding, Cresco recently announced the conversion of four New York State dispensaries to Cresco’s nationwide retail brand, Sunnyside: in the Williamsburg neighborhood in Brooklyn, Huntington Station, New Hartford and Bardonia. However, on March 3 the company announced that President Joe Caltabiano was stepping down. We took profits in the stock three times last year, but now it looks terrible, with lots of high-volume selling. That means it’s time to move on. SELL.
Cronos Group (CRON) Cronos is one of the smaller Canadian marijuana providers—but tobacco giant Altria owns 45% of the stock, so long-term prospects are good. And the chart looks better than those of the Canadian giants; it’s falling, but not as steeply. And that’s even in the face of the news that Cronos continues to postpone the date of filing its annual report, due to “an enduring review by its audit committee and outside counsels, which have been thoroughly examining a few bulk resin purchases and product sales via the wholesale channel.” HOLD.
Curaleaf Holdings (CURLF) Massachusetts-based Curaleaf, which has 53 dispensaries in 14 states, was the biggest legal seller of marijuana in the U.S. in the third quarter and results for the fourth quarter will be released after market close on March 24. Also, this week the company announced it would acquire BlueKudu, a Colorado-based producer of premium cannabis chocolates and gummies. Over the past eight years, BlueKudu has developed a strong brand for customers seeking premium cannabis products in a diverse range of flavors and formulations, such as Toffee + Almond Milk Chocolate and Coffee + Dark Chocolate. Its products are currently available in over 200 retail locations throughout Colorado. As for the stock, this week’s actions took our position into the red, but I’m going to hold and look for a bounce. I like owning leaders. (Note: We took out a profit of 90% in the stock last year.) HOLD.
Green Thumb Industries (GTBIF) Chicago-based Green Thumb is a major MSO with licenses for 96 retail locations and operations across 12 U.S. markets, so it’s a contender for national leadership going forward. But it hasn’t escaped the market’s weakness and today we’ve got to sell, as investors have been dumping this stock in large quantities. SELL.
GrowGeneration (GRWG) One of the portfolio’s best-looking stocks in recent months has been GrowGeneration, which operates the largest and fastest-growing chain of hydroponic and organic garden centers in North America, all catering to commercial growers of cannabis. And today the company announced the opening of a giant store in Tulsa, Oklahoma, which at 40,000 square feet will be the largest hydroponic store in the U.S. GRWG was the best performer in our portfolio when the market rallied on Tuesday, but since then it’s fallen in step with the market. Still, if you don’t own the stock and you’re underinvested in the sector, you could nibble here. BUY.
Innovative Industrial Properties (IIPR) IIPR is another diversification play—which again is in a totally legal industry. It’s the only publicly traded REIT in the U.S. that caters to the cannabis industry, and its stock had been the strongest in the portfolio in recent weeks, favored by investors looking for yield, safety, and a little exposure to the cannabis industry. In the fourth quarter, the company had total revenues of $17.7 million, up 269% from the year before, and adjusted funds from operations (AFFO) of $1.18 per diluted share, up 211% from the year before. Additionally, on March 6, the company announced that it had closed on a sale-leaseback transaction with Green Thumb Industries (GTI) for its licensed cannabis cultivation and processing facility in Oglesby, Illinois. This marks IIP’s third acquisition and lease with GTI. Lastly, today IIP announced the acquisition of a property in Wimauma, Florida, comprising 373,000 square feet of industrial and greenhouse space, from an affiliate of Parallel, the corporate parent company to Surterra Wellness, “a market leader and one of the original licensed vertical operators in Florida, with a rapidly growing footprint that includes 39 retail dispensaries across the state and multiple industrial-scale cultivation, production and research facilities.” The company now owns 53 properties located in Arizona, California, Colorado, Florida, Illinois, Maryland, Massachusetts, Michigan, Minnesota, New York, Nevada, North Dakota, Ohio, Pennsylvania and Virginia, totaling approximately 3.8 million rentable square feet, which were 99.1% leased with a weighted-average remaining lease term of approximately 15.9 years. Thus all the news is good, but the stock has been dragged down in recent days with everything else. I’ll leave the stock rated buy, for investors who are looking for more exposure. BUY.
Organigram (OGI) New Brunswick-based Organigram is a smaller Canadian producer that has a lower profile, even though it’s practiced more prudent cash management than some of the big boys. The stock had been looking better until recently (lower profile equals less herd behavior) but it has now succumbed to the massive market exodus and our loss is too big for comfort. Hoping to return to it in the future, we’ll sell now. SELL.
Planet 13 (PLNHF) Planet 13 is a vertically integrated company that operates the world’s biggest cannabis store, located in Las Vegas, Nevada, and it has big plans to expand into California and eventually other tier-one markets nationwide. Until today, the stock was holding at support above 1.3, but today the black hole that the broad market has become sucked in Planet 13 as well. That’s what happens when there are no buyers. Now let’s look for a bounce. HOLD.
Trulieve (TCNNF) Trulieve is the market leader in Florida, with 45 medical dispensaries, as well as nascent operations in California, Massachusetts and Connecticut. And prospects are bright, as this is one marijuana company with positive earnings. As for the stock, it has been trending down with the market and today it went over the waterfall, as buyers disappeared. We can still afford to hold. HOLD.
Turning Point Brands (TPB) TPB is another innocent victim. The stock had a good uptrend going through February, but as buyers have dried up over the past two weeks, the stock has fallen like a rock, becoming oversold like everything else. HOLD.