Marijuana Stocks are Holding Up!
Recent days have seen substantial selling pressures in the broad market, with growth stocks being particularly hard hit. But the good news is that stocks in the marijuana sector, which had previously corrected 50% from their February peak to their bottom in late March or early April, are not seeing the same selling pressures.
In fact, the average stock in the sector is trading close to both its 25- and 50-day moving averages, which is decent post-correction action. And the best stocks are developing patterns of higher lows dating back to the late-March bottom.
The best of these charts today belongs to TerrAscend (TRSSF), while Columbia Care (CCHWF), Cresco Labs (CRLBF) and Green Thumb (GTBIF) also look pretty good. Our portfolio is already overweighted in TerrAscend, Cresco and Green Thumb, and I’d like to own more Columbia Care, too, because its prospects look good (more on that below). But the fact is, Columbia is our newest investment (nearly a month young) and because we don’t really have a profit yet, we can’t average up.
Additionally, though it’s tempting to use this low phase in the market to do more buying, the fact is, it was just a month ago that we moved the portfolio from 64% cash to roughly one-third cash (now 29%), and the stocks haven’t really made any progress since then, so the simple prescription is patience.
As I write, our portfolio is up 31.0% YTD, while the Marijuana Index is up 6.4%, and market timing has been a key factor in creating that differential.
If the stocks fall further (quite possible if selling pressures in the broad market increase), our cash position will help reduce the damage. And if the sector strengthens, I’ll happily recommend buying more of the leaders. Meanwhile, if you feel truly underinvested, you could nibble on those mentioned above.
Which brings us to the news.
The big story this week, announced on Monday, was the acquisition of Harvest Health (HRVSF) by Trulieve (TCNNF); this will be the biggest acquisition in the industry yet, and it will create the biggest operator in the industry—at least for a while. Trulieve is a powerhouse in Florida and is expanding fast in the northeast, while Harvest Health is a leader in Arizona and has been active in other western states. Upon completion of the transaction, as well as the closing of other previously announced acquisitions by Harvest and Trulieve, the combined business will have operations in 11 states, composed of 22 cultivation and processing facilities, and 126 dispensaries. Combined, the companies are projecting 2021 revenue of $1.2 billion!
I’m a trifle regretful that our portfolio didn’t own Harvest Health, whose stock popped higher on the deal, because I’ve come close to adding it in recent months. But it wasn’t quite mature enough for the portfolio (mainly measured by stock price and trading volume).
But we do own Columbia Care, Jushi and TerrAscend, all of which had lower revenues in the latest quarter than Harvest, and thus could easily become acquisition targets. I will say, however, that while an acquisition of your stock can provide a quick short-term boost, in general, you should only wish for an acquisition if you believe new management is substantially better than the old, or if the combination generates great synergies.
Also on Monday, Curaleaf (CURLF) reported its first quarter results. Revenues were $260 million, up 170% from the year before, while loss per share was three cents. Going forward, however, management projected second quarter revenue of $305 to $315 million and beyond that, “positive net income and positive operating cash flows in the back half of 2021.” The company closed the quarter with 102 retail locations and 1,992 wholesale partner accounts. Retail revenue accounted for 72% of revenue, while wholesale revenue, up an impressive 254% from the prior year, accounted for 28% of revenue.
Columbia Care (CCHWF) today announced the launch of its new retail brand, Cannabist. The first location to launch under the Cannabist brand is the recently opened dispensary in Springville, Utah, which had its first sale Friday, April 30. By the end of May, three existing Columbia Care locations, in Tempe, Arizona, Villa Park, Illinois, and San Diego, California, will become Cannabist branded retail locations, with a pipeline of more than 80 new and existing locations to follow over the next 24 months. The Cannabist retail experience is centered on making shopping for cannabis as simple and approachable as possible, accommodating the vast range of experience levels patients and customers may have when they walk through the doors.
Last but not least, last week Innovative industrial Properties (IIPR) announced its first quarter results. Revenues were $42.9 million, up 103% from the year before, while funds from operations were $1.47 per share, up 31% from the year before. As of May 5, 2021, IIP owned 69 properties located in Arizona, California, Colorado, Florida, Illinois, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New York, North Dakota, Ohio, Pennsylvania, Texas, Virginia and Washington, representing a total of approximately 6.2 million rentable square feet, which were 100% leased with a weighted-average remaining lease term of approximately 16.7 years.