Cabot Cannabis Investor Issue: August 28, 2024

Talk about a terrible week for cannabis investors. The Drug Enforcement Agency (DEA), on Monday, torpedoed the sector by announcing a move that will significantly delay favorable legal reform.

What happened: The DEA now wants to hold a formal hearing on the Biden administration’s proposal to reschedule cannabis, before deciding what to do. The move dashed all hopes of rescheduling before the election – which many analysts had expected – since the hearing is set for December 2.

Expectations were so high that the DEA decision sent shockwaves through the sector. Cannabis company execs feel “bamboozled, befuddled and blindsided,” said one industry expert familiar with their thinking. “It is like they have been hit by a bus.” Investors were no better off, given the 10%-15% declines in their cannabis stocks.

They were all caught off guard because so many political “insiders” had made the bullish prediction that rescheduling would happen before the election. Rep. Nancy Mace (D-SC) made that call in an interview literally hours before the DEA shot down this scenario.

The background here: Rescheduling, which means moving cannabis to Schedule III from Schedule I under the Controlled Substances Act, would help cannabis companies by significantly boosting cash flow. It would do this by neutralizing an Internal Revenue Service rule that blocks the deduction of operating expenses against revenue from Schedule I substance sales, like cannabis. (The IRS rule is called 280E.)

What to Make of All This

The DEA decision is not good news, but I am more of a buyer in the weakness, not a seller. At the very least, consider holding if you owned cannabis names coming into this negative turn of events.

Here is more detail on my logic in five key investor takeaways following the DEA’s decision to hold what’s called an administrative law judge (ALJ) hearing on rescheduling before deciding what to do.

Takeaway # 1: Sentiment is extremely negative. Anything is possible, but it is hard to imagine sentiment getting more negative towards the cannabis group. Generally, times of negative sentiment extremes are times to buy, or at least not sell.

Takeaway # 2: Fundamentals are still good. Cannabis stocks now trade below where they traded on October 6, 2022, when rescheduling first popped up as a possible catalyst because President Joe Biden said he directed his administration to get it done.

This makes no sense, because the sector is much better off now. “From a business perspective, I couldn’t be more excited,” Curaleaf CEO Boris Jordan told me in an interview on August 28.

Yet at 6.20, the AdvisorShares Pure U.S. Cannabis ETF (MSOS) now sells for two-thirds of the 9.31 it sold for on October 5, 2022, the day before Biden put rescheduling in the mix.

What’s gotten better in the sector?

* Back in 2022, there was talk of sector bankruptcies because of declining product prices and heavily leveraged balance sheets. Today, top-tier companies have cleaned up their balance sheets so much that three of them have buyback plans.

* Big states have legalized recreational use since October 2022 – like Ohio and Maryland. There are more on the way, including possibly Florida and Pennsylvania. New York sales are finally taking off because of deregulation and stepped-up enforcement against unlicensed stores. Europe has made progress in cannabis market reforms led by Germany and the U.K. “Europe is booming,” says Jordan, who has been aggressively building out his company’s retail presence in Germany and the U.K., and its supply chain in Portugal. More European countries will liberalize rules on cannabis use and sales, following Germany’s lead.

* A lot of excess capacity has gone away so price compression is winding down in many markets. “There is definitely still price compression in Florida, Pennsylvania and Arizona, but we are coming to end of the cycle. Some of the markets are stabilizing,” says Jordan.

Takeaway # 3: Rescheduling is not dead. The DEA’s announcement that it wants to hold an ALJ hearing does not mean rescheduling will not happen. After all, if the DEA wanted to shoot down rescheduling it would have simply announced that it is rejecting the change.

But the ALJ hearing does push out the timeline, and maybe by a lot. History shows ALJ hearings can drag out literally for years. Or they can be brief.

Which will it be? No one knows. But Jordan offers this forecast: “My view is it is a mid- to end-2025 decision.”

One problem here is the DEA has a built-in bias against change, even though voters generally support cannabis reform including legalization, according to polls. The DEA bias stems from the fact that a lot of the DEA’s budget is linked to cannabis law enforcement. Any move in the direction of legalization could threaten its budget.

On the bright side for reform advocates and cannabis investors, Vice President Kamala Harris and Minnesota Governor Tim Walz both favor legalization. I call them the cannabis dream team, because of their positive records on cannabis reform. Harris supports legalization, and Walz has actually done it, in Minnesota. Even Donald Trump has made positive comments about cannabis reform recently, suggesting a softening of his stance. More clarification from Trump on where he stands could be a catalyst for the group.

Takeaway # 4: The presidential election outcome is now even more important. Because a rescheduling timeline is so difficult to predict, scheduling the ALJ hearing on the topic for after the elections politicizes cannabis that much more. Progress on federal-level cannabis reform now depends even more on the presidential election outcome.

The DEA hearing-related delay “likely leaves the final rescheduling decision to whomever wins in November,” concludes TD Cowen analyst Jaret Seiberg. “We believe both candidates are likely to let rescheduling advance, though we have more confidence in Kamala Harris than in Donald Trump. We believe Kamala Harris would support moving cannabis to Schedule III. It is why we believe if she wins rescheduling will occur in 2025.”

Polls and betting sites suggest Harris-Walz are in the running to win, though it is still early. Several polls show that voters in key swing states support cannabis reforms like legalization, rescheduling and allowing banks to serve cannabis companies. The surveys in Michigan, Pennsylvania and Wisconsin were done by The Tarrance Group and funded by Scotts Miracle-Gro.

Takeaway # 5: Cannabis acceptance is broadening out. There continues to be a growing acceptance of cannabis and its use in the U.S. We see this in poll results; the removal of cannabis from lists of forbidden substances among sports leagues and employers, most recently Home Depot (HD); and ongoing rapid retail sales growth, including in conservative Midwestern states.

For example, recreational-use sales are taking off in Ohio, since they began on August 6. During August 6-17, recreational-use sales came in at $22.5 million, and medical-use sales were $16 million. The $38.5 million tally was more than double the $18 million during the same period last year.

It stands to reason that the growing acceptance and popularity of cannabis could sway politicians to have more favorable views on cannabis reform.

A Big Unknown

It is not yet clear what the DEA wants to address in an ALJ hearing. The two most likely options appear to be the Department of Health and Human Services (HHS) compilation of scientific studies supporting rescheduling, and the legal route to rescheduling laid out by HHS. We’ll get a sense of the DEA’s agenda once we see who it calls to testify. We may not know this until shortly before the December 2 hearing.

In my view, the DEA will most likely want to address science matters since the Office of Legal Counsel inside the DOJ has signed off on the legal logic laid out by the HHS. HHS has proposed a new test for rescheduling. It says the requisite “currently accepted medical use” to get a substance to Schedule III exists if 1) licensed health care practitioners are recommending medical cannabis use, and 2) some credible scientific support for at least one of those medical uses. The absence of any medical use lands a substance in Schedule I.

What to Do Now

Because cannabis stocks are so hated and it is reasonable to expect catalysts ahead, I believe it makes sense to accumulate cannabis stocks here, and then patiently wait for catalysts to hit in the September-November timeframe, or earlier. Consider taking both trading positions and multiyear positions now.

Then if a catalyst creates a 15%-40%% kind of rally, consider exiting trading positions and selling covered calls against multiyear positions. Consider selling calls about a month out in time, and starting at two to three points above the current price, and up.

Portfolio names are: Ayr Wellness (AYRWF), Cresco Labs (CRLBF), Curaleaf (CURLF), Cronos (CRON), AdvisorShares Pure U.S. Cannabis (MSOS), AdvisorShares MSOS 2X Daily (MSOX), ETFMG Alternative Harvest (MJ), Green Thumb (GTBIF), Organigram (OGI), Tilray Brands (TLRY), Trulieve (TCNNF) and Verano (VRNOF). For simplicity, consider getting exposure via MSOS or the leveraged version, MSOX.

In a volatile sector like this, I prefer to add on weakness rather than strength. When or if we do get a catalyst, that will create a rally in which to trim positions and de-lever a bit. De-lever in this instance means trimming MSOX and putting the funds into cash or the MSOS.

Cannabis News from Around the World

Part of my core thesis for being bullish on cannabis stocks is that there continues to be tremendous cultural momentum toward cannabis reform around the world. I’m convinced cannabis stocks will not remain ignored forever.

We see evidence of this powerful cultural momentum in the changes in laws to legalize cannabis, big tobacco investments in the space, robust cannabis sales growth in states that legalize, increased cultural acceptance in the form of relaxed drug testing standards in sports leagues and the workplace, and poll results that show a growing majority of people support legalization regardless of age and party affiliation.

These trends tell us cannabis stocks are a strong contrarian buy that will turn very profitable for patient investors with a medium-term horizon. The sector is so volatile, it is easy to get shaken out of names by heightened emotional reactions to drawdowns. So, it is important to catalogue evidence of this cultural momentum. That is the purpose of this section of Cabot Cannabis Investor.

* Two recent polls reach conflicting opinions on whether Florida voters will approve the legalization of recreational cannabis use, which is on the November ballot. A Suffolk University/USA TODAY/WSVN-TV Poll found that 63% back the change, while a Florida Atlantic University and Mainstreet Research USA poll showed support is at 56%. The referendum, called Amendment 3, needs 60% approval to become law.

Voter opinions on the proposed reform may change after Labor Day, when lobbyist campaigns heat up.

“The last 60 days are when the fight happens,” says Truelieve (TCNNF) CEO Kim Rivers, whose company has a big presence in Florida. “After Labor Day the gloves come off in any campaign cycle.” Her company has contributed the largest amount of cash to Smart & Safe Florida, which is lobbying on behalf of reform. It has at least a $60 million budget. The opposing lobbying group called Vote No on 3 has raised at least $12 million.

* Several polls show that voters in key swing states support cannabis reforms like legalization, rescheduling and allowing banks to serve cannabis companies. The surveys in Michigan, Pennsylvania and Wisconsin were done by The Tarrance Group and funded by Scotts Miracle-Gro. Delegates at the Democratic National Convention approved a party platform that calls for cannabis pardons, rescheduling, and broader expungement of cannabis conviction records. The platform does not call for legalization. The Republican party platform does not address cannabis reform at all.

* Dallas, Texas has put a cannabis decriminalization referendum on the November ballot. The change would decriminalize possession of up to four ounces of cannabis. Lockhart, Texas has a similar initiative on the ballot. Several Texas cities have approved similar initiatives including Austin, Denton, Elgin, Harker Heights, Killeen and San Marcos.

* Recreational-use sales are taking off in Ohio, confirming the popularity of cannabis in the Midwest. During August 6-17, recreational-use sales came in at $22.5 million, and medical-use sales were $16 million, says to the Ohio Department of Commerce Division of Cannabis Control. The $38.5 million tally was more than double the $18 million during the same period last year. Average daily sales at stores more than doubled to hit $27,300 compared to $12,740 the year before. Rec-use sales launched August 6. The sales results suggest the state will hit $1.2 billion in its first year of rec-use sales. Ohio could eventually post annual sales of $3 billion to $4 billion. Portfolio holdings Curaleaf (CURLF) and AYR Wellness (AYRWF) have strong positions in the state.

* New York’s legal cannabis market is finally in growth mode, because of a crackdown on illicit operators and improvement in the regulatory environment. Sales for 2024 hit $529 million by mid-August. Legal operators report that sales have picked up considerably since mid-May when the state’s Operation Padlock crackdown on unlicensed cannabis retailers began. The state has also loosened regulatory requirements on store openings, in response to legal challenges.

* Cannabis users are less likely to be obese than people who abstain. People who used cannabis in the past month were 31% less likely to be obese, says the study by Ray Merrill, a professor at Brigham Young University. The findings confirm other research which found a correlation between cannabis use and lower body mass index.

* Half of Americans say cannabis use and possession is punished too harshly, according to a YouGov survey. The poll found that only 16% said punishments are too lenient. Views broke down along party lines with 62% of Democrats saying cannabis use is too harshly punished, while only 32% of Republicans said this. The poll also found that 72% of Americans favor the expungement of cannabis convictions for non-violent offenders.

* Ukraine legalized medical cannabis in the middle of August. President Volodymyr Zelensky says medical cannabis can help soldiers deal with war wounds. Recreational use remains illegal.

Company News

Ayr Wellness (AYRWF)

Ayr Wellness is opening stores in Jacksonville and Palm Beach Gardens, Florida. The openings take the company’s Florida store count to 66, out of 96 nationwide. Ayr also recently opened a store in Manchester, Connecticut, its first store in the state. The opening is part of a strategy of expanding in potential “conversion markets” (like Florida) which may soon expand legalization to recreational use from medical use only. Florida voters will decide on rec-use legalization in a November referendum.

Curaleaf (CURLF)

Curaleaf has opened a new store in Destin, Florida. The opening takes the Florida store count to 64, and 150 nationwide. The opening is part of a strategy of expanding in potential “conversion markets” which may soon expand legalization to recreational use from medical use only.

Trulieve (TCNNF)

Trulieve has opened two new stores in Orlando and New Port Richey, Florida. Trulieve is the biggest cannabis company in Florida’s medical-use market. It is expanding ahead of possible legalization of recreational use in the state.

Verano (VRNOF)

Verano has closed on its purchase of Cannabist Company subsidiaries in Arizona and Virginia for $105 million. The purchase expands Verano’s footprint to 150 stores and 15 cultivation sites in 14 states. Virginia is on the short list of companies that could expand to recreational-use legalization from medical use. Verano also recently signed a deal to offer products under Mike Tyson’s Tyson 2.0 brand, in its MÜV and Zen Leaf stores in Florida and Illinois. Tyson 2.0 offers an edible called Mike Bites and vape cartridges.

Cannabis Plus Insider Portfolio News

This section offers updates on our Cannabis Plus Insider Portfolio names. These are companies that have exposure to the cannabis sector without actually touching the plant. They also must have favorable insider buying, according to my system for analyzing insider activity.

AFC Gamma (AFCG)

Our cannabis lending company AFC Gamma has signed three deals worth over $18 million. It is lending $11 million to an unnamed cannabis company in Georgia; $5.5 million to BeLeaf Medical in Missouri; and $1.8 million to Sunburn Cannabis in Florida.

The Georgia credit facility is with a new customer to build a cultivation and processing plant and two cannabis stores. The other two deals were expansions of lending to existing partners. The BeLeaf loan supports the purchase of two stores in Missouri. The Sunburn loans will help fund the construction of two stores and additional cultivation capacity in Florida. AFC Gamma is a real estate investment trust that pays a 48 cents per share quarterly dividend.

Sector Performance

Our Cabot Cannabis Plus Insider Portfolio is doing very well. But our main Cabot Cannabis Investor portfolio is not.

Because our main cannabis portfolio is leveraged, we lag in severe sector downturns. That is the case now. Our Cabot Cannabis Investor portfolio cannabis portfolio was down 15.8% this year as of the August 28 close. That was below the 1.1% gain for the New Cannabis Ventures Global Cannabis Stock Index.

Our portfolio is leveraged because of the large position in AdvisorShares MSOS 2X Daily (MSOX). It is a top-five position. The leverage hurts us when the sector is weak. Likewise, it helps capture more upside as we see progress on rescheduling cannabis and progress towards approval of recreational use in more large states like Pennsylvania and Florida.

When we get a significant sector rally, I will roll back leverage by trimming MSOX in favor of cannabis stocks or the AdvisorShares Pure U.S. Cannabis (MSOS) ETF. If you are a highly active trader, it would make sense to deleverage into rallies in the same manner along the way and then hope for a pullback to re-lever.

Our Cabot Cannabis Plus Insider Portfolio is faring much better. It is up 62.3% since I launched it on March 29, 2023. That’s nearly three times the 23% gain in the Russell 2000 index over the same time.

The portfolio is well positioned to outperform because investments in Chicago Atlantic Real Estate Finance (REFI) and AFC Gamma (AFCG) pay attractive yields of 11.9% and 18.4%. The dividends were recently confirmed even though they look suspiciously high.

Portfolio

Canna Plus Insider Portfolio

Company Profiles

Ayr Wellness (AYRWF) This is a vertically integrated multistate operator based in Miami. It has over 90 dispensaries. It operates in Florida, Illinois, Massachusetts, Pennsylvania, New Jersey, Nevada, Ohio, and Connecticut. Ayr has 18 grow and production sites, around a dozen national brands, and a proprietary library of over 160 cannabis strains. Like many names in our portfolio, Ayr is strategically positioned in states that look poised to approve recreational-use sales. It has over 60 stores in Florida, for example.

Ayr has built out its brand development strength with the appointment of David Goubert as president and CEO. Goubert previously served as president and chief customer officer at Neiman Marcus Group, and he was at LVMH for 20 years before that.

Ayr is currently launching brands from its national portfolio in New Jersey, including Ayr’s Lost in Translation flower, Kynd flower, Road Tripper flower, STIX pre-rolls, Entourage vapes, Secret Orchard vapes, and Wicked soft lozenges.

Ayr reports $71 million in cash and $607 million in net debt. This debt overhang is one reason why Ayr trades at 0.31 times sales. The company is founder-run, which can be a plus in investing. BUY

Cresco Labs (CRLBF) Chicago-based Cresco has the #1 market share position in Illinois, Pennsylvania and Massachusetts. The company has the top-selling branded portfolio of cannabis products in the industry. It has the top of branded flower and branded concentrates, and the third best portfolio of branded vapes.

Cresco offers exposure to many attractive U.S. markets with an emphasis on Illinois. It is also in Pennsylvania, Ohio, New York, Massachusetts, Michigan, Florida, Missouri, and Maryland. Most of those are states that recently expanded into recreational use sales, or are expected to over the next two years.

The company is founder-run, which can be a plus in investing. Cresco Labs has a price to sales ratio of 0.67. BUY

Cronos Group (CRON) Cronos is mainly a foreign operator with exposure to Canada, Germany, Australia and Israel.

Cronos has respectable brand strength in Canada. It sells gummies, infused pre-rolls and vapes under the Spinach, Blue-Raspberry Watermelon and Tropical Diesel brands. Spinach products command 15.3% market share in the Canadian edibles category, and 19.8% share in gummies, according to Hifyre.

In Israel, Cronos sells dried flower, pre-rolls and cannabis oils in the medical market. The company has a partnership with Cansativa Group which allows Cronos to sell its Peace Naturals brand in Germany, where the cannabis market should grow dramatically over the next several years because of liberalization of restrictions on sales. Cronos has a 10% stake in Cronos Australia, a publicly traded company.

Cronos has $855 million in cash, or about $2.24 per share, against minimal debt of $2.26 million. Some of that cash could be deployed in acquisitions, possibly to expand in the U.S. adult-use market.

Cronos trades at 0.79 times book value. BUY

Curaleaf (CURLF) Massachusetts-based Curaleaf was the industry leader last year. It operates 145 dispensaries and several grow sites in 17 states and its European operations. It has one of the strongest brand portfolios in the U.S. led by Select, the number one selling vape brand in its markets. Here are three factors that support growth.

1. Curaleaf is an R&D powerhouse. A team of scientists is currently developing about 180 products.

2. Like many of the names in our portfolio, Curaleaf is well positioned to benefit from the opening up of rec-use sales in New York, Ohio, Florida, and Pennsylvania near term.

3. Curaleaf will benefit from progress on liberalization of cannabis laws in Germany and elsewhere in Europe. It has a majority stake in Germany’s Four 20 Pharma, a licensed producer and distributor of medical cannabis that has more than 15%-20% market share in Germany. Curaleaf International is the largest vertically integrated cannabis company in Europe. It has a lot of room to expand production, and it boasts import and distribution in the U.K., Germany, Italy, Switzerland, and Portugal. Recreational use legalization in Germany is advancing, and it could open the floodgates to further legalization throughout Europe. Curaleaf has a 50% market share in the U.K.

The company is founder-run, which can be a plus in investing. Curaleaf has a price/sales ratio of 1.5. BUY

AdvisorShares Pure U.S. Cannabis ETF (MSOS) This exchange-traded fund (ETF) has large exposure to most of our portfolio names so it may seem redundant. However, I want to put it on your radar as a liquid trading vehicle for getting in and out of the group without having to make a lot of individual stock sales, and as way to get exposure to many of our names with one purchase. It also gives us diversification beyond our names, to positions like Jushi Holdings (JUSHF) and Innovative Industrial Properties (IIPR), among others. Consider accumulating this ETF on weakness of 2% or more. BUY

AdvisorShares MSOS 2x Daily ETF (MSOX) This is the leveraged version of the ETF MSOS. It theoretically goes up (and down) by twice as much as MSOS, though the relationship does not always hold exactly. Consider accumulating on weakness of 2%-4% or more. Note that leveraged ETFs suffer from some persistent valuation decay because of the cost of the leverage. BUY

ETFMG Alternative Harvest (MJ) This ETF has outsized foreign exposure, which means it could benefit more than other marijuana exchange-traded funds if we see progress on legalization in Germany and Europe. That could happen in the form of draft legislation and decriminalization of recreational use in 2023. “Legalization in Germany could be a tipping point for global expansion,” according to cannabis experts at ETFMG. This would put additional pressure on other European Union members to move forward with legalization. It could also encourage reform of the 1961 U.N. Single Convention on Narcotics which prohibits the cultivation and sale of recreational cannabis. “Such a result would be momentous and would open the doors to a global market,” says ETFMG. Owning this ETF broadens our industry exposure to names outside our portfolio, like Canopy Growth (CGC; WEED.TO), SNDL (SNDL), and GrowGeneration (GRWG), among others. BUY

Green Thumb (GTBIF) Chicago-based Green Thumb is our portfolio’s largest position. It has been the most profitable multistate operator of all the big ones – a sign of good management.

Green Thumb branded cannabis products include &Shine, Beboe, Dogwalkers, Doctor Solomon’s, Good Green, incredibles and RYTHM. The company operates a national retail cannabis store called RISE. Green Thumb has 91 dispensaries across fourteen states. Green Thumb continued to strategically position itself in markets that look poised to expand to recreational uses sales, like Florida and Pennsylvania.

Founder Ben Kovler is chairman and CEO. Research shows that founder-run companies often outperform. Kovler has a 26% stake in the business and holds nearly 59% of voting power. Green Thumb trades at a price to sales ratio of 2.1. BUY

Organigram (OGI) Organigram holds the #2 position among Canadian licensed producers. It also sells high-margin flower in Israel, Australia and Germany. Germany should see robust growth over the next few years as it loosens rules on medical cannabis use. The CEO has alluded to “creative ways” to get into the U.S. cannabis market, but does not offer details.

The company has the #1 market share position in hash globally driven by popular products like Tremblant, Holy Mountain and SHRED. It has the #1 market share position in gummies.

British American Tobacco (BTI) is a big investor in Organigram, an endorsement of its potential. The two companies collaborate to develop cannabis products. The price to sales ratio is 1.24. BUY

Tilray Brands (TLRY) Tilray is a cannabis and consumer packaged goods company with one of the biggest global footprints in the industry. CEO Irwin Simon founded The Hain Celestial Group, a natural food company, which is in the business of brand development. This is a key factor for cannabis companies, too. So, the Hain Celestial experience may bode well for shareholders.

Tilray is a big recreational and medicinal cannabis supplier in Canada. It is ranked #1 there by sales for cannabis flower, oils, concentrates, and THC beverages; #2 in pre-rolls, #4 in vape, and among the top 10 in all other categories. It also offers medical cannabis in 20 countries on five continents through its subsidiaries and agreements with pharma distributors. It has operations in Canada, the United States, Europe, Australia and Latin America. It sells craft beer and CBD products in the United States.

Tilray seems like a good play on expected legalization of recreational use in Europe over the next few years, because it has been making significant investments there. It has a medicinal marijuana distribution network in Germany. It has production facilities in Portugal and Germany, the largest medical cannabis market in Europe.

Tilray sells hemp food products through its Fresh Hemp Foods division, and it has a craft alcohol business called SW Brewing, the tenth-largest craft brewery in the United States. The price to sales ratio is 1.65. BUY

Trulieve (TCNNF) Trulieve has long been the biggest medicinal marijuana vendor in Florida, where it has 50% market share. It has over 190 dispensaries and two-thirds are in Florida. Cannabis activists are trying to get recreational use on the Florida ballot in November 2024. A win would be huge for Trulieve. Approval could make Florida the largest legal U.S. cannabis market with 22 million residents and 138 million tourists a year.

Meanwhile, Trulieve has been expanding across the country. It is diversifying its presence into Pennsylvania, Maryland, Georgia, Ohio and Massachusetts, among other states.

The company reports $320 million in cash against $795 million in debt. “U.S. cannabis has significant white space ahead, with many states yet to implement medical or adult-use programs, and the growing appetite for substantive federal reform,” says CEO Kim Rivers. It has a price to sales ratio of 1.41. BUY

Verano (VRNOF) Chicago-based Verano is one of the top five publicly traded multi-state operators in the U.S. by sales. Verano has nearly 140 dispensaries and 14 production facilities in 13 states. One of the most attractive qualities of this company is that it has a big presence in high-growth markets like New Jersey, Illinois, Florida and Connecticut, and states that may soon legalize recreational like Florida and Pennsylvania. The company’s strategy has been to position with medical dispensaries in states most likely to soon go recreational.

The company’s portfolio of brands includes Encore, Avexia, MÜV and its signature Verano line of product. To capitalize on the consumer’s trading down to value brands, Verano moved up the rollout of a new budget line called Savvy last year. It operates dispensary concepts called Zen Leaf and MÜV. It also has a licensing agreement with Mike Tyson’s Tyson 2.0 cannabis company.

The company reports cash of $194 million against debt of $541 million.

Verano is founder-run, which can be a plus in investing. Verano has a price to sales ratio of 1.2. BUY

The next Cabot Cannabis Investor Issue will be published on September 25, 2024.

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