In recent months I’ve been telling you that cannabis stocks were incredibly cheap and overdue for a bounce and now it seems the world is starting to agree, as all our cannabis operators (not the REIT) have seen their stocks climb in the past month.
Of course, the broad market’s rebound has helped, but the broad market doesn’t have the compelling fundamentals of the cannabis industry’s top stocks.
Bottom line: the first six months of 2022 were rough. The past month brought us a small gain. And I expect far bigger gains over the remainder of the year.
Full details in the issue.
Yours for wealth and wisdom.
Cabot SX Cannabis Issue: July 27, 2022DOWNLOAD ISSUE PDF
The Tide Turns
The heat wave that has swept much of the country recently has been brutal, but I’ve been lucky to find relief in our local tidal river, which is just a couple minutes’ walk from my house. At low tide, there’s not quite enough water to swim, but at high tide (on average 9 feet above low), I can dive off a tall dock piling. And the tide affects the water temperature as well, with outgoing tides bringing water that’s been warmed by the land, and incoming tides bringing colder water from the ocean that’s fabulous for lowering my core temperature.
I grew up in a house on this river, so tides have always been part of my life. And that helps explain why my father chose the name Cabot Tides for our intermediate-term market timing indicator—an indicator that recently swung back to the positive side!
Mike Cintolo, Cabot’s market timing guru, explained it this way in Cabot Top Ten Trader on Monday: “The big event last week for the market was that, by our measures, the intermediate-term trend of the major indexes and many growth funds turned up, and combined with the baby steps we’ve seen in recent weeks, it’s enough for us to extend our line a bit—but, at this time, just a bit, as there remain many headwinds, including the longer-term trend, uncertainty surrounding this week’s Fed meeting, earnings season and (very important) the lack of upside breakouts. None of those things are necessarily bearish, but it does tell us to go slow right here and keep our eyes peeled for further confirmation (higher prices in the indexes, earnings gaps and upside breakouts in individual stocks).”
Mike, of course, was writing about the broad market. The cannabis sector, while it is often in sync with the broad market, actually peaked nine months before the broad market and fell much farther—the index was down 85% at the bottom—so I’m more optimistic that the bottom has truly passed for our stocks. Thus I’m going to be more aggressive about putting money to work now.
And I’m going to focus the money, as I have since I started this advisory in 2017, on the stocks that are leaders in these five categories: The Biggest, the Fastest-Growing, The Cheapest, The Most Profitable, and the Strongest (as measured by chart strength). More details on that in the individual stock updates below.
As to the precise timing, which is always important, here are my thoughts. The ideal time to buy is at the bottom of a normal correction. The cannabis sector bottomed at the start of July and has been trending higher since, so a correction that erased maybe half the recent gain might provide an ideal entry point. But the market seldom gives you what you want; the best advances can blast off and never look back, frustrating investors waiting for a correction. So I’m stepping in now with roughly half our cash, and holding the remainder while looking for what Mike said—higher prices in the indexes, earnings gaps and upside breakouts in individual stocks—before committing more.
Fundamentally, the story of the cannabis industry remains very strong, and we’ll get updates from all our companies soon as second quarter reports are released. There’s been no real progress yet on national legalization, and none on the banking side either, but the state-by-state trend toward legalization continues and there’s little question that it will continue until marijuana is legal in every state in the country. At the same time, the leading companies continue to grow both organically and by acquisition, and they continue to refine their operations, working on scale and efficiency and product differentiation, so that as revenues ramp up, earnings will as well. By investing now, when the stocks are down and cheap, you’ll position your portfolio for tremendous gains in the future.
The marijuana index shows the last 12 months of a downtrend that has lasted over 17 months and erased 83% of its value. But the odds are very good that the downtrend is over, both because valuations are now extremely compelling and because Cabot’s intermediate timing system (the Cabot Tides) has now turned positive.
|Stock||Shares||Current Value||Portfolio Weighting||Price Bought||Date Bought||Price 7/27/22||% Change|
|Cresco Labs (CRLBF)||6,115||$21,401||9.9%||$3.99||4/30/20||$3.50||-12.3%|
|Green Thumb Ind. (GTBIF)||2,051||$18,866||8.7%||$7.25||04/30/20||$9.20||26.9%|
|Innovative Ind. Prop. (IIPR)||43||$3,913||1.8%||$18.81||11/17/17||$90.00||378.5%|
Note: The table reflects the state of the portfolio holdings before acting on any new recommendations.
What to Do Now
If you’re a new subscriber, or you’re underinvested in the sector, you should buy some of these stocks (those rated buy) now. The portfolio is selling its remaining position in Innovative Industrial Properties (IIPR), adding a pilot position in Ayr Wellness (AYRWF) and buying more of Cresco Labs (CRLBF), Curaleaf (CURLF), Green Thumb (GTBIF) and Organigram (OGI), in the process taking our cash position from near 56% down to around 30%.
Ayr Wellness (AYRWF), our new addition, is a vertically integrated multistate operator based in Miami, Florida with 73 dispensaries in eight states (Arizona, Florida, Illinois, Massachusetts, Nevada, New Jersey, Ohio and Pennsylvania). It makes the #2 carbonated THC beverage in the U.S (Levia), it has its products in 475 third party-stores, and it has three adult-use stores coming to the very dense New Jersey market. It’s the fastest-growing of the multistate operator, based on first quarter results (revenues of $111 million, up 90% from the prior year). And it’s the cheapest of our stocks on a price/sales basis. The stock peaked at 37 in February 2021, and bottomed at 4.6 in late-June (down 88%) and is now working on its new uptrend. Second quarter results will be released on August 18, before the market open. The portfolio will now buy a pilot position of 4%. BUY.
Cresco Labs (CRLBF)
Chicago-based Cresco was the cheapest stock in the portfolio (on a price/sales basis) based on first quarter results, but new addition Ayr Wellness will knock it out of that spot. However, with its acquisition of Columbia Care (CCHWF), which is expected to close by the end of the year, Cresco is likely to become the industry leader, even considering the upcoming divestitures, by both parties, of assets in Florida, Illinois, Maryland, Massachusetts, New York and Ohio (all to satisfy state limits on concentration). Cresco has long prioritized the wholesale market, and thus is currently the #1 seller of branded cannabis products in the U.S., with its products in over 1,100 stores. But retail revenue has been growing faster, and the addition of Columbia should create a real powerhouse. Cresco has been running small quarterly losses, but least one analyst expects to see the company turn profitable in the second quarter—though there’s no word on when the results will be released. As for the stock, it’s crossed above its 50-day moving average, with one high-volume day, and remains above it today. The portfolio will increase its position by 5% of the portfolio’s total value. BUY
Massachusetts-based Curaleaf was the second-largest multistate operator by revenues in the first quarter but will likely slip to third after Cresco’s acquisition of Columbia is completed. But Curaleaf is the clear leader on the perception front; its market capitalization of $4.1 billion tells us investors expect a lot from the company—and its price/sales ratio of 3.3 is the highest of our U.S. operators. Some of that is due to its international operations; Curaleaf has operations in eight European countries as well as Israel. Some may be due to the perception that the company’s R&D based on rigorous scientific research will pay dividends in the future as the industry goes more mainstream. And some may be due to the company’s strong balance sheet—$243 million at the end of the first quarter. In any case, the future is bright, and now Curaleaf has announced the launch of Plant Precision, a curated collection of edibles and a topical gel designed to target specific wellness categories. Designed for the growing numbers of Americans who say they would be more likely to use cannabis as a health solution if it came in small, controlled doses, Plant Precision features gummy edibles offering low, customizable doses of THC and high doses of non-psychoactive therapeutic minor cannabinoids like CBD, CBG, CBN and THCV. The minor cannabinoids are non-psychoactive and do not create the euphoric feeling that THC does, but instead interact differently with the human receptor systems yielding different biological effects. Second quarter results will be released after the market close on August 8. As for the chart, it’s been the strongest of our group, having climbed well above its 50-day moving average—with some high-volume days—before pulling back this week in what is likely a normal correction. The portfolio will increase its position by 5% of the portfolio’s total value. BUY
Green Thumb (GTBIF)
Chicago-based Green Thumb was the third largest cannabis company in the U.S. in the first quarter (but will likely fall to fourth after Cresco’s acquisition of Columbia is complete). Yet it has been the most profitable multistate operator in our portfolio, based on its consistent record of profitability over the past six quarters—a sign of good management. The company currently has 77 operating retail locations in 15 states (California, Colorado, Connecticut, Florida, Illinois, Maryland, Massachusetts, Minnesota, Nevada, New Jersey, New York, Ohio, Pennsylvania and Virginia) and no doubt will keep expanding as management deems appropriate. Second quarter results will be released after the market close on August 3. As for the stock, it managed to climb above its 50-day moving average last week, but has fallen back below it this week, which is probably a good buying opportunity. The portfolio will increase its position by 5% of the portfolio’s total value. BUY
Innovative Industrial Properties (IIPR)
Back when IIPR was added to this portfolio in 2017, only five of the ten recommended stocks sold marijuana as their principal business—and all five of those were Canadian! Of the five other stocks, which included tobacco companies and pharmaceutical companies, the overwhelming winner over time has been our marijuana REIT, Innovative Industrial Properties, whose profits at the top last November peaked at 1350%. We have taken profits out many times along the way, and now, with the REIT continuing to fall while the “real” cannabis stocks are beginning a new uptrend, I’m going to sell our final small position. Why the stock is still falling is a question that has many possible answers—slowing growth, rising interest rates, the fact that overbought winners frequently become oversold losers, fear that eventual national cannabis legalization will open the floodgates to competitors—but the reasons aren’t particularly important. This stock is still falling while all the cannabis stocks are rallying, and with the industry far more mature than in the early days, I don’t feel the need to diversify outside of real cannabis stocks anymore. SELL.
Organigram is the number three producer of cannabis in Canada, and number one in dried flower, with its flagship brand Edison. And it was the first of our stocks to announce second-quarter results—technically the company’s third fiscal quarter. Net revenue was $38.1 million, up 88% from the year before, making this the second-fastest-growing company in the portfolio (close behind Ayr), while the net loss was a penny per share, reminding us that profits are easily achievable when investing activity slows. During the quarter, Organigram made two international shipments totaling $1.3 million to Australia, and since then it has shipped a further $5.4 million of product to Australia and Israel. The company’s domestic market share has grown, from 7.4% in February 2022 to 8.5% in June 2025, and management expects further market share growth, as investments in automation reduce dependence on manual labor and enable continued price competitiveness. British American Tobacco (BTI) is a big investor in Organigram, owning 19.4% of the company, and the stock looks fine, having climbed above its 50-day moving average last week before pulling back this week in a normal correction. The portfolio will increase its position by 5% of the portfolio’s total value. BUY
As the smallest of the vertically integrated multistate operators in our portfolio, TerrAscend is a potential acquisition target—perhaps by Canopy (CGC) a major player in Canada. TerrAscend has a strong presence in the Michigan market and is pushing hard in New Jersey, Pennsylvania and Maryland. But it’s the slowest-growing of our multistate operators, and its chart is the weakest of the bunch, having failed to touch its 50-day moving average in the recent rally. If I were in a selling mood, I’d sell TRSSF here, but I do think it’s better than cash, given the sector’s potential for a new uptrend, so I’ll simply hold and see how this uptrend develops. HOLD
While it has long been the biggest seller of marijuana in Florida, where it has a 46% market share and does 70% of its business, Trulieve has been expanding across the country in the past year (it had seven acquisitions in 2021), with the October acquisition of Harvest Health & Recreation (the largest cannabis transaction to date) being the big one. The upside of that expansion effort (short-term) is that it made Trulieve #1 in the U.S.—a title it will likely cede to Cresco. The downside (again, short-term) is that it ruined the company’s record as the “most profitable” multistate operator, as its record of seven consecutive profitable quarters has now been broken by two consecutive quarterly losses. Long-term, however, Trulieve has great prospects, and has a unique geographic hub system, with Florida the company’s Southeast hub, Pennsylvania its Northeast hub and Arizona the Southwest hub. There’s no word on when second-quarter results will be released, but the stock looks fine, having climbed above its 50-day moving average last week and dropping just below it this week. BUY
The next Cabot SX Cannabis Advisor issue will be published on August 31, 2022.
About the Analyst
Timothy Lutts is Publisher Emeritus of Cabot Wealth Network, leading a dedicated team of professionals who serve individual investors with high-quality investment advice based on time-tested Cabot systems.
Timothy is also the chief analyst of Cabot Marijuana Investor.
Under his leadership, Cabot advisories have been honored numerous times by Hulbert Financial Digest, Dow Jones MarketWatch and Timer Digest as the top investment newsletters in the industry.
After working in this business for more than 33 years, Timothy says, “There are 8 things I know.
- The business of investing can provide great rewards to those who work at it and are willing to learn. Those who refuse to learn will lose money.
- To succeed as an investor in growth stocks, it’s best to buy when upside potential dwarfs downside potential, to cut losses short, and to let winners run.
- To succeed as an investor in value stocks, it’s best to buy low and hold patiently, until the stock is fully valued.
- Your greatest enemies are your own emotions and the daily news (generally bad) which distracts you from a long-term focus. Try to ignore them both.
- On the other hand, use your imagination to consider how great companies might evolve, remembering the power of the unforeseeable and the incalculable. When it began renting DVDs by mail, did anyone imagine Netflix could become a leading producer of content? When it began selling books, did anyone imagine Amazon would eventually sell almost everything?
- For over two centuries, the long trend of the markets has been up, reflecting the growth of asset values, and I recommend that you invest in synch with that trend. Your greatest ally is time.
- However, there will always be bull markets and bear markets, and you can use these to your advantage, particularly if you pay close attention to both chart patterns and investor sentiment.
- Lastly, have faith in the ability of intelligent, innovative men and women to adapt, as they always have, and to solve the problems of the future in ways that are unimaginable to people of today. Invest in these people when you can.
Timothy has appeared on numerous podiums as an investing expert, including Bloomberg TV and the World Money Show, led Investor’s Business Daily discussion groups and been interviewed by Dow Jones MarketWatch,TopStockAnalysts.com, VoiceAmerica.com, AOL Finance and numerous other business news organizations.