Still Waiting for the Uptrend
Since bottoming at the end of March, stocks in the marijuana sector have been building a base, with the best stocks in our portfolio still showing a healthy pattern of higher lows. But we still don’t have a renewed uptrend, and that’s OK. We’re patient. What we do have are 200-day moving averages that are coming close to our stocks and that, ideally, will provide support.
Admittedly, the action of the past week, where most stocks have seen continued small declines, may be frustrating, but at this point the action still looks like a normal sector correction, and thus I’m sticking with our 84% invested position.
Meanwhile, there have been a few news items.
Columbia Care (CCHWF) yesterday announced an agreement to acquire Medicine Man Denver, which has four dispensaries and one cultivation facility in the Denver area. The deal, expected to close in the fourth quarter of this year, will be immediately accretive to Columbia’s gross margin, adjusted EBITDA and free cash flow. CCHWF has just tagged its 200-day moving average and can be bought here.
HEXO (HEXO) last week announced its results for the quarter ended April 30 (its fiscal third quarter). Revenues were $22.7 million, up 2% from the year before but down 31% from the immediately preceding quarter, and the loss per share was $0.15, improved from a loss of $0.21 the year before. The main reason for the decline was a drop in adult-use non-beverage sales of $5.2M in Quebec related to strain cultivation decisions and production issues relating to hash. Quebec is the company’s major market and cannabis-infused beverages (many marketed in partnership with Molson Coors) are a major revenue source, but non-beverage is also important, and the company has since rectified the hash problem and expects growth within Quebec in the coming quarters. Elsewhere, temporary stock limitations of HEXO’s high potency UP brand led to a revenue decrease of $2.7 million in Alberta during the period. On the upside, despite the impact of the COVID third wave in Ontario during the period, in which most private retailers were limited to curbside pickup, the company’s sales in Ontario increased 14%, or $600,000.
HEXO maintained the number one position in the beverage category in Canada in the quarter, and in May, the company’s Truss brand strengthened its share leadership of the beverage category in Canada, growing to 46% market share nationally.
Looking forward, when the acquisitions of 48North and Redecan are complete, HEXO expects to be the number one cannabis products company in Canada by recreational market share.
HEXO stock dropped on the sales decline news, but we still have a pattern of higher lows in place, so I’m sticking with it.
If you’re in the mood for buying now (there’s no rush), I suggest Columbia Care (CCHWF), Curaleaf (CURLF), Green Thumb (GTBIF), Innovative Industrial (IIPR) (for lowest risk) and TerrAscend (TRSSF).
Finally, the marijuana legalization saga continues in Connecticut. The House of Representatives last week failed to pass the bill that the Senate had passed, and now they’re in a special session, still trying to get it done. However, Governor Ned Lamont, who has long favored legalization, has warned he will veto the bill if it doesn’t allow people most impacted by the war on drugs to have a fair chance of entering into this industry.