The marijuana sector peaked in February, bottomed from late March to mid-April, and since then has been building a base, preparing for a resumption of the big advance.
Fundamentals in the industry remain terrific, and the trend toward legalization in the U.S. continues, so it’s only a matter of time before these stocks enjoy their next upwave—perhaps as second quarter reports begin to be released next week.
In the portfolio today the one small change is that we’ll sell half our position in TerrAscend (TRSSF) and move the proceeds into Innovative Industrial Properties (IIPR).
Full details in the issue.
Cabot Marijuana Investor 721
Waiting for the Uptrend
The father of value investing, Benjamin Graham, once noted that in the long run, the stock market functions like a weighing machine, assessing the substance of a company and reflecting its true value over time, but in the short run, it resembles a voting machine, reflecting measures of popularity—as illustrated by the volatile action of this year’s meme stocks like GameStop (GME) and AMC Entertainment (AMC).
Thus, while the long-term profits of the leading marijuana stocks are almost certain to be very good (we already have big profits in many of them), the short-term action of the stocks will continue to be affected by transient attitudes, which change daily based on a host of factors, including the action of the broad market and the latest news on the pandemic and inflation.
In short, long-term, owning the leaders of the industry will pay. But short-term, holding these very same stocks can be dangerous.
For example, as I write, the average stock in our portfolio is down 38% from its February-March high—not pleasant. But the Marijuana Index, which is more representative of the entire sector, is down 65% from its high!
Happily, we were not heavily invested through most of that decline. We moved to 45% cash within a day of the top (identified by an unsustainable parabolic advance) and were as much as 65% in cash before we began buying in April.
In retrospect, we would have done better by holding the cash longer, because the bottoming formation has not produced an uptrend yet; even worse, some of the stocks have fallen lower. But we did avoid much of the carnage, and today, with the portfolio roughly 20% in cash, we remain ready for the resumption of the uptrend that was interrupted in February.
And right around the corner may be the catalyst for that resumption, in the form of second-quarter earnings reports that will begin arriving in early August. The first report from our companies will come on August 4, from Innovative Industrial Properties (IIPR), and the second on August 6, from Canopy Growth (CGC), but the first from a true U.S. marijuana seller will come after the market close on Aug 11 from Green Thumb (GTBIF). I’m anxiously awaiting.
Marijuana Index
The one-year chart of the Marijuana Index shows the sector still in a downtrend, heading back to its low of last October.
But the weakest stocks are still the Canadians—and if you take them out, you see the U.S. index, which looks substantially healthier.
U.S. Marijuana Index
PORTFOLIO
| Stock | Shares | Current Value | Portfolio Weighting | Price Bought | Date Bought | Price 7/28/21 | % Change |
| Canopy Growth (CGC) | 1,096 | $21,346 | 4.6% | $6.95 | 08/22/17 | $19.47 | 180.1% |
| Columbia Care (CCHWF) | 4,695 | $22,397 | 4.8% | $6.09 | 4/15/21 | $4.77 | -21.7% |
| Cresco Labs (CRLBF) | 4,086 | $42,660 | 9.2% | $3.99 | 4/30/20 | $10.44 | 161.7% |
| Curaleaf (CURLF) | 5,411 | $65,524 | 14.1% | $4.76 | 12/20/18 | $12.11 | 154.4% |
| Green Thumb Ind. (GTBIF) | 2,051 | $61,828 | 13.3% | $7.25 | 04/30/20 | $30.15 | 315.9% |
| GrowGeneration (GRWG) | 873 | $36,631 | 7.9% | $4.33 | 12/20/19 | $41.96 | 869.1% |
| Innovative Ind. Prop. (IIPR) | 60 | $12,875 | 2.8% | $18.81 | 11/17/17 | $213.02 | 1032.5% |
| Jushi Holdings (JUSHF) | 5,161 | $25,597 | 5.5% | $3.14 | 10/15/20 | $4.96 | 58.0% |
| TerrAscend (TRSSF) | 5,852 | $48,804 | 10.5% | $4.79 | 10/7/20 | $8.34 | 74.1% |
| Trulieve (TCNNF) | 759 | $24,302 | 5.2% | $10.29 | 10/17/19 | $32.00 | 211.0% |
| Cash | $102,627 | 22.1% | |||||
| Total | $464,592 | ||||||
| YTD CHANGE | 13.9% | ||||||
| INDEX YTD CHANGE | -21.1% | ||||||
Note: The table reflects the state of the portfolio holdings before acting on any new recommendations.
What to Do Now
I remain cautiously optimistic that the sector’s uptrend will resume soon; the stocks have fallen far enough, and the fundamentals of the industry remain terrific. But until we see real strength, there’s no reason to be aggressive. The portfolio is already heavily invested, but not fully, and when we do buy more, it will almost certainly be of the strongest stocks, which today are IIPR, GTBIF and GRWG. For now, the one change I’ll make today is to sell half our position in TerrAscend (TRSSF) and put it into Innovative Industrial Properties (IIPR).
CURRENT RECOMMENDATIONS
Canopy Growth (CGC)
Canopy has lost roughly two-thirds of its value since the February top, but it’s still valued at $7.5 billion, thanks to heavy institutional sponsorship. It won’t be the fastest grower in the industry, but it will be a powerhouse, and that’s why we still own a little. Constellation Brands (STZ) is a major shareholder, and Martha Stewart, who originally put her name on the company’s CBD gummies, is the company’s official strategic advisor. Also, Canopy owns a chunk of TerrAscend, which is designed to pave the company’s entry into the U.S. market, and it has a deal to acquire privately held Acreage Holdings when marijuana becomes legal in the U.S. Second-quarter results will be released before the market open on August 6. HOLD
Columbia Care (CCHWF)
Columbia Care is a New York-based vertically integrated multistate operator, with 87 dispensaries and 27 cultivation and manufacturing facilities in 10 states (Arizona, California, Colorado, Florida, Illinois, Massachusetts, New Jersey, Ohio, Pennsylvania and Virginia). It’s the lowest-priced stock in the portfolio, and therefore one of the most volatile, but the company’s small size means it’s able to grow faster than the big four; in the first quarter, revenues were up 227% from the prior year! As I write, the stock is some 40% off its February high, working to build a base above 4.5. Second-quarter results will be released before the market open on August 12. BUY
Cresco Labs (CRLBF)
Chicago-based Cresco is one of the four leading marijuana companies in the U.S., with 33 operational dispensaries, 44 retail licenses and 18 production facilities in 10 operational states. What differentiates Cresco from its competitors is its Consumer Packed Goods (CPG) approach to the business, developing brands (Cresco, High Supply, Mindy’s Edibles, Good News, Remedi, Wonder Wellness Co. and FloraCal Farms) and selling them wholesale through more than 830 dispensaries across the country. Like CCHWF, the stock is 40% off its February high, and working to build a base at 10. Second-quarter results will be released before the market open on August 13. BUY
Curaleaf (CURLF)
Based in Massachusetts, Curaleaf remains the revenue king of the industry, though Trulieve’s latest acquisition may end that. Last week the company announced the opening of a new Curaleaf-branded medical location in Wells, Maine, marking the company’s fifth branded location in Maine. Interestingly, because of the state’s reciprocity regulations, Curaleaf stores can also provide service to out-of-state patients provided they have a valid medical marijuana certification from their home state. With the new store, Curaleaf now operates in 23 states with 108 dispensaries, 22 cultivation sites and over 30 processing sites. Additionally, Curaleaf International is the largest vertically integrated cannabis company in Europe. The stock is “only” 32% off its high, building a base at 12, where it bottomed in April, and while the company has not announced a date for the quarterly report, estimates say August 16. BUY
Green Thumb (GTBIF)
Headquartered in Chicago, Green Thumb is one of the four U.S. industry leaders, with 31 stores in nine states (Florida, Illinois, Maryland, Massachusetts, Nevada, New Jersey, Ohio, Pennsylvania), but licenses for 97 retail locations in 12 states—so the path to growth is clear. In the first quarter, growth slowed to 90% from the year before, but the upside to that has been real earnings in each of the past three quarters, and that’s likely one reason that GTBIF has been the most resilient of the pure marijuana stocks in our portfolio. It’s off only 23% from its February high. Second-quarter results will be released after the market close on Wednesday, August 11. BUY
GrowGeneration (GRWG)
Based in Denver, GrowGeneration is not a marijuana company, but a hydroponic products retailer focused on the commercial cannabis growers, and still growing rapidly by acquisition. In fact, last week the company announced two acquisitions. The first was Aqua Serene, a southern Oregon-based hydroponic garden center with stores in Eugene and Ashland and revenue of over $14 million annually. The second was Mendocino Greenhouse and Garden Supply, a Northern California-based hydroponic garden center whose sales are expected to surpass $8 million annually. And just today, the company announced an agreement to acquire the country’s third largest chain of hydroponic garden centers, HGS Hydro, which has six stores in Michigan, with a seventh due to open this fall. HGS generated roughly $50 million in revenues in 2020, while GrowGeneration brought in $193 million. With these acquisitions, GrowGeneration will have 14 stores in Michigan and 65 nationwide. The stock looks like a good buy here at 40, supported by both its 200-day moving average and a substantial level of institutional shareholders—35%. Second-quarter results are estimated to be released around August 12. BUY
Innovative Industrial Properties (IIPR)
Our marijuana REIT, Innovative Industrial Properties owns 71 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, totaling approximately 6.5 million rentable square feet which are 100% leased. Like GrowGeneration, this company’s business is totally legal in the U.S., so the stock has been a popular investment for institutions who have avoided the plant-touching stocks so far. Fifty-one percent of the stock is owned by institutions. And in recent months it’s become the hottest stock in the portfolio; it’s now just 3% off its high. From here, it could break out to a new high, or it might find resistance at 220 again, but either way, the strength is good and I’d like our small position to be larger, so I’ll take the proceeds from our sale of TRSSF and put it into IIPR. Second-quarter results will be released after the market close on August 4. BUY
Jushi Holdings (JUSHF)
With 32 retail locations in five states, little Florida-based Jushi is the smallest company in our portfolio as measured by revenues, but it’s growing like the wind; first-quarter revenues were up 385% from the year before! Two weeks ago, the company announced it had closed its acquisition of OhiGrow, one of 34 licensed cultivators in Ohio, which will complement the company’s 8,000 sq. ft. medical cannabis processing facility located in Columbus. Additionally, last week, Jushi announced that since more than 50% of the company’s shares were owned by shareholders in the U.S., Jushi no longer meets the definition of a “foreign private issuer” under United States securities laws. As a result, the company will be deemed a U.S. domestic issuer and will be subject to SEC reporting requirements applicable to U.S. domestic companies no later than January 1, 2022. These U.S. reporting requirements will require Jushi’s financial statements and financial data to be presented under U.S. GAAP and Jushi is preparing to manage the transition. Interestingly, Jushi has had trouble in the past getting its quarterly report out in a timely manner, blaming the auditors for the delay, and there is no indication of when 2021’s second-quarter results will be released, so these are warning signs regarding management. But we’ve got enough profit to hold a bit longer, and (ironically), the lower the stock sinks (it’s now 46% off its high), the more attractive it becomes to acquirers. HOLD
TerrAscend (TRSSF)
TerrAscend is another smaller producer, but it’s not a takeover target, because Canopy Growth already owns 29% of it, in part because it will enable the Canadian giant a quick entry into the U.S. market when legal. The company operates several synergistic businesses, including The Apothecarium, a cannabis dispensary with several locations in California; Arise Bioscience, a manufacturer and distributor of hemp-derived products; Ilera Healthcare, a Pennsylvania medical marijuana cultivator, processor and dispenser; and Valhalla Confections, a manufacturer of cannabis-infused edibles. As for the stock, it’s the second most thinly traded in our portfolio, and 49% off its high, so a potential sell, but our profit means we can afford to hold longer. Still, I’ll sell half and move it into our strongest stock, IIPR. Second-quarter results will be released before the market open on August 19. SELL HALF, HOLD THE REST
Trulieve (TCNNF)
The biggest seller of marijuana in Florida, with a 51% market share, Trulieve is now expanding into other states (California, Massachusetts, Connecticut, Pennsylvania and West Virginia)—and it’s still expanding in Florida! Last week the company announced the opening of two new dispensaries, in Crystal River and in Winter Haven, bringing its store count to 87 in Florida and 96 nationwide. Additionally, on Monday the company announced that the Georgia Access to Medical Cannabis Commission revealed its intent to award Trulieve one of two Class 1 production licenses in the State of Georgia. The stock, now 40% off its high, has weakened further in the past week, so I wouldn’t buy it here—but long term there’s little doubt that it will be a winner, because management has already posted five consecutive quarters of positive earnings. Second-quarter results will be released before the market open on August 12. HOLD
The next Cabot Marijuana Investor issue will be published on August 25, 2021.
Cabot Wealth Network
Publishing independent investment advice since 1970.
President & CEO: Ed Coburn
Chief Investment Strategist: Timothy Lutts
Cabot Heritage Corporation, doing business as Cabot Wealth Network
176 North Street, PO Box 2049, Salem, MA 01970 USA
800-326-8826 | support@cabotwealth.com | CabotWealth.com
Copyright © 2021. All rights reserved. Copying or electronic transmission of this information without permission is a violation of copyright law. For the protection of our subscribers, copyright violations will result in immediate termination of all subscriptions without refund. Disclosures: Cabot Wealth Network exists to serve you, our readers. We derive 100% of our revenue, or close to it, from selling subscriptions to our publications. Neither Cabot Wealth Network nor our employees are compensated in any way by the companies whose stocks we recommend or providers of associated financial services. Employees of Cabot Wealth Network may own some of the stocks recommended by our advisory services. Disclaimer: Sources of information are believed to be reliable but they are not guaranteed to be complete or error-free. Recommendations, opinions or suggestions are given with the understanding that subscribers acting on information assume all risks involved. Buy/Sell Recommendations: are made in regular issues, updates, or alerts by email and on the private subscriber website.
Subscribers agree to adhere to all terms and conditions which can be found on CabotWealth.com and are subject to change. Violations will result in termination of all subscriptions without refund in addition to any civil and criminal penalties available under the law.