The marijuana sector looks increasingly healthy, as the leading companies continue to post triple-digit growth rates and the leading stocks continue to climb higher. One exception, however, is Canopy Growth, which two weeks ago released a disappointing quarterly report that saw its stock drop sharply in response. The stock has recovered a bit since then, and I’m going to take this opportunity to sell half our position. I’m also going to sell half of our position in Innovative Industrial Properties (IIPR), mainly because I think the growth potential is better elsewhere. The funds from both will be redeployed equally among current holdings Cresco Labs (CRTLBF) and Green Thumb Industries (GTBIF) and new addition Akerna (KERN)—which overall will shift the portfolio weighting slightly more from Canada to the U.S. Details below.
Note: The table reflects the state of the portfolio holdings before acting on any new recommendations.
AKERNA (KERN) We lost Akerna in the March crash, but the stock has come back impressively so now we’ll try again. Akerna is a leading provider of software solutions (seed-to-sale tracking among them) for the cannabis industry, and thus has potentially the greatest profit margins in the industry as software needs no watering, fertilizing and harvesting. But this is a small-cap stock (market capitalization $139 million) so that does add risk. The stock will join the small cap Russell 2000 Index and the broad-market Russell 3000 Index after the U.S. stock market opens on Monday, June 29, 2020. BUY.
Aphria (APHA) Aphria is the leading marijuana seller in Canada and it has one of the strongest stocks among the Canadian marijuana sector. The stock moved from the NYSE to the Nasdaq on Monday, which no doubt sparked some buying. It then hit a recovery high yesterday before pulling back today. The portfolio is a bit light in the stock, and I’d like to average up, but I’ll wait for a better entry point. BUY.
Canopy Growth (CGC) Canopy’s fiscal fourth quarter results, for the quarter ended March 31, were released two weeks ago and investors were not impressed. Revenues were $108 million, up just 15% from the year before but down from the third quarter. And losses continued—leading management to label fiscal 2021 a “transition year as the Company resets its strategic focus, rolls out a new organizational design, and implements a comprehensive operational and supply chain productivity program.” I had expected better from Canopy, particularly given the expertise of major shareholder Constellation Brand (STZ), and I’m disappointed that management has been so slow to turn this ship around. Thus, I’m now going to sell half our position and redeploy it into stronger stocks. SELL HALF.
Cresco Labs (CRLBF) Chicago-based Cresco is one of the top five marijuana companies in the U.S., and it has a very nice chart. In the last issue I told you the stock would be attractive on a pullback to 4.0, but that hasn’t happened. Instead, the stock has built a three-week base between 4.5 and 5.0, and to me, that’s a decent entry point. The portfolio will average up. BUY.
Cronos Group (CRON) Cronos, which counts Altria as one of its major shareholders, is one of the smaller Canadian operators as well as the portfolio’s smallest position, and I had been considering selling, but the stock was very strong on Monday, breaking out to new recovery highs, so I’ll hold. HOLD.
Curaleaf Holdings (CURLF) Massachusetts-based Curaleaf, which has 57 dispensaries, 15 cultivation sites and 24 processing sites in 17 states, is a leading contender to be the Philip Morris of the industry as it continues to grow by acquisition. And as I write, it’s the portfolio’s largest position. The stock has built a very nice base over the past month so if you don’t own it yet you can buy here. BUY.
Green Thumb Industries (GTBIF) Headquartered in Chicago, Green Thumb has 13 manufacturing facilities, licenses for 96 retail locations and operations across 12 U.S. markets (California, Colorado, Connecticut, Florida, Illinois, Maryland, Massachusetts, Nevada and Pennsylvania), so it’s also a contender for national leadership going forward. And unlike Curaleaf, GTBIF saw buyers push its stock higher over the past month. It’s now been correcting for a few days, and while this correction may go deeper, it’s also possible that GTBIF (as an industry leader) will see more buyers step in. Trusting that the main trend is up, the portfolio will now average up. BUY.
GrowGeneration (GRWG) GrowGeneration operates the largest and fastest-growing chain of hydroponic and organic garden centers in North America, all catering to commercial growers of cannabis, and its stock might be the strongest in the whole portfolio, in part because COVID-19 has led to increased interest in gardening. I’ll leave it rated buy, but caution that a substantial correction is possible. BUY.
Innovative Industrial Properties (IIPR) As a REIT that caters to the cannabis industry, IIPR has long provided diversification to the portfolio, not to mention outstanding performance up until July 2019. But now that the sector is a bit more mature, I’m going to take advantage of the stock’s recent strength by selling and shifting the funds to stocks with greater growth potential. Note: In today’s issue of Cabot Dividend Investor, Tom Hutchinson told his readers he was taking a third of his position off the table, though he might buy back in if after a market selloff. SELL HALF.
Tilray (TLRY) Based in British Columbia, Tilray is a mid-size Canadian marijuana company that also has a wide international presence. After bouncing with the group from March, the stock hit a recovery high two weeks ago and has pulled back normally since—providing an attractive entry point. BUY.
Trulieve (TCNNF) Trulieve is not only the market leader in Florida, with 19% of the stores and more than 50% of the revenue, it’s also a contender for biggest seller of marijuana in the entire U.S. Just last week the company made further progress toward its Massachusetts debut, receiving approval from the Massachusetts Cannabis Control Commission to cultivate, manufacture and operate a retail establishment in the state. The portfolio averaged up a month ago, but if you’re not on board yet, you can buy here, though getting in at 12.0 would be more attractive. BUY.
Turning Point Brands (TPB) TPB is the oldest company in the portfolio (by far), having built a solid business in the smokeless tobacco industry before diversifying into the vaping and CBD markets. But it’s also the slowest-growing company in the portfolio—so it’s here mainly for stability and diversification. The stock has come back well from the March bottom and I continue to believe in management in the long run. BUY.