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Cannabis Investor
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Cabot Marijuana Investor 920

Over the past seven weeks, we’ve been steadily lightening up in our marijuana stock portfolio, initially taking profits within a day of the top, and more recently continuing to shift to cash as the sector weakened.

Today we’re raising just a little more cash, with the sale of Aphria (APHA)—a sale that will take us to a roughly 52% cash position.

But overall, I’m still very bullish on the sector as a whole as a long-term investment and I fully expect to be moving back into the leading stocks in the sector once the tide starts coming in again.

Full details in the issue.

Cabot Marijuana Investor 920

Still Cautious
Seven weeks ago I started recommending selling marijuana stocks and taking profits, saying that they’d gone too high and that investment sentiment seemed equally high as well (a bad thing). Since then, the Marijuana Index is down 10% and the Alternative Harvest ETF is down 16%—while our profit is actually up a bit, thanks to two impressive stocks that have been swimming against the tide (GRWG and IIPR).

And our portfolio has changed a lot. We’re now half in cash, having sold one stock entirely and sold portions of most of the others.

Ironically, I recently read a very fundamentally oriented advisory service that said things are getting better. With unemployment falling, interest rates low and prospects for the economy improving, this guy was feeling better about putting money back into the market.

But I’m thinking just the opposite.

Not only are the charts of our marijuana stocks still soft, we now have a sell signal from Cabot’s intermediate-term market timing indicator. Basically, this indicator looks at the major market indexes and tells us when the broad trend has changed. (At the same time, our long-term market timing indicator remains bullish, so it’s possible the intermediate-term will turn up again.)

Bottom line: the tide is now going out, so substantial caution is advised in this high-risk sector—at least in the short term.

But what if you own only one or two marijuana stocks? What if you simply want to hold on long-term?

Well, that’s a great goal, and if there were an easy way to truly know who the long-term winners will be in the industry, I would heartily endorse holding those stocks through the weakness.

The trouble is, we don’t know which stocks will be the long-term winners.

Not so long ago, the list of leaders (and major positions in our portfolio) included MedMen (MMNFF), iAnthus (ITHUF), Charlotte’s Web (CWBHF) and Aurora (ACB). Now all four are sick—and I’m happy to have parted with them.

So, my recommended strategy continues to be this: Focus on owning the strongest stocks and the industry leaders, and adjust your portfolio weightings as the performance of the stocks dictates. Ideally, some of your holdings will grow into long-term winners. But don’t be stubborn. Listen to the message of the stocks and recognize that change is the only absolute—and that if you change properly, in synch with the stocks and the market, you can win.

Marijuana Index

Marijuana Index CMI920

What to Do Now
Over the past seven weeks, our portfolio has shifted from fully invested to 49% cash—and because of that we’ve lost less than the Marijuana Index; in fact we still have a decent gain YTD. Hopefully, you’ve done similarly. And now we’ll raise just a little more cash by selling our final stake in Aphria (APHA). Other changes: Innovative Industrial Properties (IIPR) is upgraded to Buy, and Turning Point Brands (TPB) is downgraded to Hold. Details below.


StockSharesCurrent ValuePortfolio WeightingPrice BoughtDate BoughtPrice 9/30/20% Change
Aphria (APHA)1,851$8,2533.3%$3.6104/30/20$4.4623.5%
Canopy Growth (CGC)283$4,0911.7%$6.9508/22/17$14.47108.2%
Cresco Labs (CRLBF)2,310$13,7005.5%$3.994/30/20$5.9348.6%
Curaleaf (CURLF)2,294$16,5636.7%$4.7612/20/18$7.2251.7%
Green Thumb Ind. (GTBIF)1,143$14,7706.0%$7.2504/30/20$12.9278.2%
GrowGeneration (GRWG)2,155$34,93614.1%$4.3312/20/19$16.21274.4%
Innovative Ind. Prop. (IIPR)71$8,8233.6%$18.8111/17/17$124.00559.2%
Trulieve (TCNNF)549$10,2884.2%$10.2910/17/19$18.7582.2%
Turning Point Brands (TPB)536$14,9896.0%$16.3608/22/17$27.9670.9%

Note: The table reflects the state of the portfolio holdings before acting on any new recommendations.

Stock Updates
Aphria (APHA) to Sell.
Innovative Industrial Properties (IIPR) to Buy.
Turning Point Brands (TPB) to Hold.

Aphria (APHA)
As the leading Canadian producer of marijuana, Aphria has great long-term prospects, particularly since it’s the lowest-cost producer in the country; all its product is grown in greenhouses. However, growth for all the Canadian companies has slowed dramatically in recent months and all their stocks have weakened in turn. APHA was holding at support between 4.5 and 5.0 for about six weeks but then last week it fell below support—and the bounce since then has been unimpressive. It’s tempting to hold here for fundamental reasons, but with growth stocks, arguing with the chart is usually a mistake. The fact is, this stock is weakening and our profit is dwindling. I’m selling now while we have a profit to take. If the stock revives, we can always come back. SELL.


Canopy Growth (CGC)
Canopy was the original Canadian market leader, but when it received a $5 billion investment from liquor giant Constellation Brands (STZ) management “blew it” on expansion efforts that didn’t pay off, and now the company is focused on cutting costs. Long-term prospects are still good thanks to the backing of Constellation, but technically the stock is poor, and thus could be sold. For now, however, I’ll continue to hold, as the sale of Aphria leaves Canopy the sole survivor of what were six Canadian marijuana stocks. Note, however, that it’s the smallest position in the portfolio. HOLD.


Cresco Labs (CRLBF)
Chicago-based Cresco is one of the four U.S. market leaders, and the fastest growing as measured by revenues. The company currently has 19 dispensaries and 15 production facilities in nine states and just received approval for a dispensary in Naperville, Illinois, which will be its tenth in the state (10 is the maximum allowed in the state). Fundamentally, perhaps the best news is that analysts see EPS of $0.07 in 2021. Technically, the stock fell through its 50-day moving average four weeks ago and has been building a base between 5.5 and 6.0 since (with a bit of an upward bias over the past two weeks)—which makes it one of the better-looking of our four pure U.S. marijuana stocks. HOLD.


Curaleaf (CURLF)
Curaleaf, headquartered in Massachusetts and operating in 23 states, owns 93 dispensaries, which is far more than Cresco, but revenues were only 25% higher than Cresco last quarter, and the company is growing a bit slower than Cresco. Still, analysts expect a profit of $0.11 in 2021. As for the chart, it fell through its 50-day moving average at the same time as CRLBF and has been a bit weaker than CRLBF since, though technically it’s still in base-building mode. HOLD.


Green Thumb Industries (GTBIF)
Chicago-based Green Thumb has 13 manufacturing facilities, licenses for 96 retail locations and operations across 12 U.S. markets and is thus one of the four leaders of the U.S. marijuana market. Fundamentally, long-term prospects are great, and analysts expect a profit of $0.25 per share next year. But technically, GTBIF is in the same boat as its peers. The stock did hold up above its 50-day moving average longer than CRLBF and CURLF, but finally fell through early last week, dipping to 12 before bouncing moderately. HOLD.


GrowGeneration (GRWG)
GrowGeneration is the odd man out in the portfolio in that its business is totally “non-plant-touching”—the word plant being code for marijuana. Thus it’s legal in every state in the U.S.—though it’s only operating in 10 today. As the country’s leading seller of hydroponic and organic nutrients, and growing rapidly via acquisition, GrowGeneration is also benefitting from the pandemic as Americans put more money into growing a variety of things at home. With $43.5 million in revenues in the second quarter, the company is still small, but it’s profitable (has been since 2019) and its chart looks great, still holding above its 50-day moving average. GRWG remains the largest position in our portfolio—and one of the few marijuana stocks I’m comfortable rating Buy today. BUY.


Innovative Industrial Properties (IIPR)
This cannabis-centric REIT (which is also recommended by Tom Hutchinson in Cabot Dividend Investor) is a great source of diversification—and yield. The company currently has 63 properties in 16 states (Illinois and Pennsylvania are where it has its biggest presence, though its latest deal was in Florida), and it’s been growing quickly, with sales and funds from operations booming in recent quarters. Like GrowGeneration, its business is legal in every state. And technically, the stock has been impressive too, marching steadily higher since the March bottom. Most recently we saw a new high at 129 two weeks ago followed by a dip to the 50-day moving average at 114 just last week, and now the stock is right back up near its high. In recognition of this strength, I’m upgrading it to buy. BUY.


Trulieve (TCNNF)
The biggest seller of marijuana in Florida (with roughly 50% market share), Trulieve now has 56 dispensaries in that state as well as five others (California and Connecticut) and plans to open in Massachusetts and Pennsylvania as well. By year-end, it’s aiming to have 68 stores. It had the greatest revenues of the four U.S. leaders in the fourth quarter (the company’s average customer spends $3,900 a year!), but the slowest growth (if you can call 109% year-over-year growth slow). And the company has been profitable since 2017, revealing both capable management and the wisdom of focusing on one state (which is still just a medical market). The stock was the best-looking of the four leaders until two weeks ago, when it fell through its 50-day moving average on big volume. But buyers have since stepped in and now (if it follows the pattern of its peers) I’d expect to the stock build a base above 17. HOLD.


Turning Point Brands (TPB)
Turning Point, which still gets 29% of its revenues from smokeless tobacco products (and which just filed premarket applications with the FDA for a portfolio of 250 (!) product alternatives to cigarettes), has provided a relatively conservative anchor to our portfolio since 2017, as the company’s revenue sources are diversified (they include cigar papers, cigarette papers, vaping devices and CBD), the business is legal in all 50 states, management is experienced and there’s a small dividend. But the recent action of the stock is a bit troubling; I expected a little more resilience in the face of market weakness. If it falls off support at 28, downside could be substantial, so I’ll downgrade to Hold for now. HOLD.


Watch List
If I were to add another marijuana stock to the portfolio (a true marijuana stock, not a peripheral one like IIPR or TPB), it might be TerrAscend (TRSSF), which I mentioned in your update two weeks ago. It’s a bit smaller, based on revenues, than our current four U.S. holdings (second quarter revenues were $47.2 million), but it’s well managed, profitable and the chart is healthy, having just pulled back to touch its 50-day moving average at 4.0.


The next Cabot Marijuana Investor issue will be published on October 28, 2020.

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