The good news is that one of our stocks, Trulieve (TCNNF), closed at a record high yesterday.
The bad news is that none of our other stocks did. The sector as a whole remains in the moderate correction that began five weeks ago, and I continue to think that we are likely to see lower prices in the near future.
Long term, of course, the future remains extremely bright for the industry; revenue growth at the leading companies is still extremely rapid, and most Americans have no idea of the world that will exist 10 years from now (to pick a round number) when cannabis products are commonplace in beverages, foods, pharmaceuticals, cosmetics and more.
But short term I still think the sector is likely to cool off more from its blistering gains in 2020. Thus I’m keeping the portfolio in a relatively defensive posture; it’s currently 57% in cash.
As I write, the portfolio is up 39.0% YTD, while the Marijuana Index is up 41.0%, and if the correction deepens, the portfolio will lose less than the index.
In the meantime, the past week has brought a number of quarterly reports and news items.
The top story is that Mexico is now on the path to legalization—most likely later this year. At that time, it will be the largest country (by population) to have legalized the drug. Interestingly, two-thirds of Mexicans are opposed to legalization, seeing this as a movement led by the liberal moneyed elites, who will benefit as the industry is commercialized. And with illicit demand from the U.S. having fallen dramatically thanks to individual states’ legalizations, there are no expectations of a major export market for Mexican marijuana.
Moving on to specific stocks.
Green Thumb (GTBIF) is scheduled to release its quarterly results after the market close today.
GrowGeneration (GRWG) has been busy, with three acquisition announcements in three days!
On Monday the company announced the acquisition of Char Coir, the manufacturer of a growing medium made from coconut fiber that is 100% biodegradable and compostable and a sustainable alternative to rockwool. Char Coir’s product line is projected to add in excess of $15 million in revenue to GrowGeneration in 2021.
On Tuesday, the company announced the acquisition of 55 Hydroponics, a hydroponic and organic fertilizer superstore located in Santa Ana, California with annual revenues approaching $10 million. This will be the company’s 18th location in California.
And just today the company announced the acquisition of Aquarius Hydroponics, an indoor-outdoor garden supply center specializing in hydroponics systems in Agawam, Massachusetts with annual revenues approaching $5 million. With the acquisition of Aquarius Hydroponics, GrowGeneration’s portfolio of hydroponic garden centers now includes 52 stores across 12 states.
Innovative Industrial Properties (IIPR) last week announced that it completed the acquisition of a property in San Marcos, Texas, for Surterra, which is a subsidiary of Parallel, one of the largest privately-held multi-state cannabis operators in the United States. IIP already owns and leases to subsidiaries of Parallel two regulated cannabis facilities in Florida, and the expansion of the successful partnership is not surprising.
Trulieve (TCNNF) on Monday announced the promotion of Eric Powers to Chief Legal Officer, and the appointments of Ronda Sheffield to Chief Human Resources Officer, Zachary Kobrin to General Counsel, and Aaron Lopez to Director Government. Beefing up the company’s legal, human resources and government affairs capabilities looks like a wise move given the challenges and opportunities of state-by-state expansion and eventual national legalization.
On Tuesday the company announced the opening of a new dispensary in Sebring, Florida, the company’s 83rd in the state.
And that same day the stock closed at a new high—a good sign, though volume was a bit lower than normal.
Village Farms (VFF) on Monday announced its fourth quarter results. Revenues were $47.4 million, up 43% from a year before, and EPS were $0.12, up 180% from a year before. But the stock sold off in response because analysts had expected greater revenue growth. The company reported great success transitioning to branded flower products in Canada but selling prices of bulk non-branded flower plummeted as “supply levels in the wholesale channels outpaced the growth of demand.”
Bottom Line
Looking at the charts as a whole, and considering the portfolio’s large cash position, I don’t see any need for action today. There are no screaming sells or screaming buys.
Trulieve (TCNNF) is our strongest stock (and our largest position), while Green Thumb (GTBIF) is the second strongest.
On the weak side, TerrAscend (TRSSF) has become a bit worrisome. The company is scheduled to report its quarterly results March 23 but if it weakens further, we may not be able to hold that long.