A New Marijuana Stock for the Portfolio
After last week’s two rounds of buying, the portfolio’s cash level is now down to 27%, and all our stocks look good. So now the question is whether we should continue buying.
Arguing for waiting is the fact that marijuana stocks have been very strong and that we might be able to get better prices by waiting for a pullback.
Arguing for buying now is the fact that marijuana stocks have been very strong and that this strength might continue. In general, it’s best to go with the trend, and the longer this new uptrend goes (it started three weeks ago), the greater the odds that it will continue.
And then there are the fundamental arguments.
On the negative side, there’s a lot of uncertainty out there, especially with the election coming up.
On the positive side, trends toward legalization continue at a good pace.
Maine finally has recreational marijuana stores, four years after voters approved legalization. Vermont is now fully legal, though there are no stores yet. And the voices of New Jersey voters will soon be heard—if they vote yes, that will likely spark a wave of follow-on legalizations in New York, Pennsylvania and Connecticut, as legislators race to gain tax revenue.
Nationally, of course, there’s the fact that Kamala Harris has spoken out in favor of decriminalizing marijuana, and the growing perception by the market that she will win the vice-presidency and achieve her wish.
Down at the company level, progress continues for the best-managed and best-funded companies.
Curaleaf is opening two new dispensaries this week in the Florida panhandle (Trulieve’s home territory). Curaleaf currently operates in 23 states with 95 dispensaries, 22 cultivation sites and over 30 processing sites, and employs more than 3,000 people across the United States. Trulieve is still growing too (it has 62 stores in Florida), but it may suffer from the slowing growth of medical marijuana as more and more states go legal recreationally, and that realization may be weighing on the stock.
And then there’s GrowGeneration, the country’s leading chain of specialty hydroponic and organic garden centers. The company recently announced the acquisition of Hydroponics Depot, Phoenix’s largest indoor and outdoor garden center. This brings GrowGeneration’s portfolio of hydroponic garden centers to 29 stores across 11 states.
Third-quarter results for all these companies (and more) will be coming in the month ahead.
Last but not least, there’s the possibility that the sector’s current strength reflects the expectation that Democrats will gain power in the November elections, and that after that becomes reality, the challenges of the new reality will set in and the buying will stop. Remember the adage, “Buy the rumor, sell the news.”
In the end, my bias is to trust the voice of the charts, knowing that they reflect the consensus opinion about all those factors—and thus I’m now going to buy a little more.
Specifically, the portfolio will double its investment in Canopy Growth (CGC). We’ve owned Canopy a long time, and taken a lot of profits out earlier, but with the big wave of buying in the past week, it’s safe to say that CGC is once again under accumulation.
Then we’ll increase our position in Innovative Industrial Properties (IIPR) by 50%. As the landlord to the marijuana community, the business is thriving, and the stock’s performance has been most impressive. IIPR is a great way to get capital appreciation and income (currently 3.5% yield.)
Lastly, we’ll take a new position in up-and-coming multistate operator Jushi Holdings (JUSHF). Based in Florida, the investors in the company have assembled a promising portfolio of properties. Preliminary third-quarter results, released two weeks ago, saw revenue of $24 million, up 61% sequentially, and the fourth-quarter revenue is projected to bring $25 to $30 million, as well as positive adjusted EBITDA. 2021 revenue is expected to be $205 - $255 million, with Pennsylvania accounting for $95-$110 million, Illinois for $70 - $80 million, and Virginia for $17 - $25 million, followed by California, Nevada and Ohio.
Jushi is small, very similar to TerrAscend in both market capitalization and trading volume. And its price is even lower (the lowest in the portfolio)—which means it’s higher risk. Still the chart has been impressive, climbing steadily higher since May. We’ll start with a 3% position.
When complete, these actions will take the portfolio’s cash position down to about 20%.
As for our recent averaging up in CRLBF, CURLF, GTBIF and TRSSF, those stocks are all strong, but seeing as they’re well recognized as leaders, they may also be due for a bit of a pause. Whatever happens, we’ll continue to watch the charts and act as they tell us.
FYI, our portfolio is now up 22.8% YTD while the Marijuana Index is down 4.8%.