Cabot Cannabis Investor Issue: July 31, 2024

Cannabis is a highly politicized sector because it is extensively regulated.

The political news has been very good for cannabis. But cannabis investors have been slow to recognize this.

A late-July Fox News poll showed that Vice President Kamila Harris has caught up to and surpassed Donald Trump in five key swing states.

Cannabis stocks should have advanced on the news. Not only is Harris a better cannabis advocate than President Joe Biden, she’d obviously be more favorable to the sector than Trump.

Of course, a lot can happen between now and November. But here are the key reasons why any news showing further support for Harris among voters should move cannabis stocks higher.

Harris Is Clearly Better than Trump for the Sector

While Harris supports full legalization, Trump does not. Indeed, he literally calls for the death penalty for drug dealers. His logic is that a similar policy in China explains lower levels of drug abuse there.

Of course, Trump is predominantly referring to more dangerous drugs like fentanyl. But he’s never been a big fan of cannabis reform. He believes cannabis use causes lasting cognitive impairment. He thinks state-level legalization has created “big problems.” And Trump suggests there may be a link between “genetically engineered” cannabis and mass shootings.

On the other hand, Trump is not entirely negative for the sector. He supports legalization of medical cannabis. He thinks cannabis policy should be left to the states, which implies a green light for further state-level legalization. When he was president, Trump declined to crack down on cannabis, even after his Attorney General Jeff Sessions rescinded the Obama-era “hands off” policy on federal cannabis laws enforcement.

But if the Biden administration fails to reschedule cannabis, don’t expect any progress under a Trump presidency. In rescheduling, cannabis would move to Schedule III from Schedule I under the Controlled Substances Act. The change would help cannabis companies by neutralizing the impact of an Internal Revenue Service provision (Rule 280E) which bars the deduction of operating expenses against revenue from the sale of Schedule I substances like cannabis.

Trump won’t champion the issue. In contrast, Harris strongly supports rescheduling and she has asked the Drug Enforcement Administration (DEA) to move forward with it “as quickly as possible.”

As a senator, Harris sponsored a legalization bill called the Marijuana Opportunity, Reinvestment and Expungement (MORE) Act. “Times have changed. Marijuana should not be a crime,” she said at the time. She also co-sponsored the Secure and Fair Enforcement (SAFE) Banking Act, which would allow banks to serve cannabis companies.

Harris Is Better for Cannabis Reform than Biden Was

Biden opposes recreational-use legalization. In contrast, Harris backs full federal legalization of cannabis. That’s obviously a huge improvement for the sector.

Biden also has a history of anti-cannabis views. As chair of Judiciary Committee years ago, he helped shaped drug policy that stigmatized cannabis. He has described cannabis as a gateway drug that leads people to use more dangerous drugs, whereas Harris refutes this view. In short, Biden was out of step with the majority of voters who favor recreational-use legalization.

Harris is also better for the sector because according to recent polls, she stands a better chance than Biden of beating Trump.

Harris’s Potential Running Mates Support Cannabis Reform

We don’t know who Harris will pick as her vice-presidential running mate. But everyone on the short list is pro-cannabis reform in one way or another.

These contenders have all supported rec-use legalization: Pennsylvania Gov. Josh Shapiro, California Gov. Gavin Newsom, U.S. Transportation Secretary Pete Buttigieg, Colorado Gov. Jared Polis, Illinois Gov. J.B. Pritzker, Minnesota Gov. Tim Walz, and Kentucky Gov. Andy Beshear.

All the others on the short list back cannabis reform as well, in one way or another. Sen. Mark Kelly (D-AZ) has supported rescheduling and banking reform that favors cannabis companies. Maryland Gov. Wes Moore (D) has served on the board of Green Thumb Industries (GTBIF), and he granted pardons for cannabis convictions.

In contrast, Trump’s running mate Sen. JD Vance (R-OH) opposes recreational-use legalization. He has also voted against a cannabis banking reform bill called the Secure and Fair Enforcement Regulation (SAFER) Banking Act which would allow banks to serve cannabis companies.

A Harris Victory Would Imply Other Big Wins for Cannabis in November

Several states have initiatives on the ballot this November that allow voters to approve major cannabis reform. The big one is Florida, where voters get to decide whether to make recreational use legal. Polls showing that Harris may win suggest big turnouts in favor of pro-cannabis initiatives like the one in Florida.

Besides Florida, recreational-use legalization will likely be on the ballot in North Dakota. Medical use legalization will likely be on the ballot in Nebraska. Expansion of medical use will be on the ballot in Arkansas. And cannabis decriminalization will be on the ballot in several local elections in Texas.

The bottom line: A lot can happen between now and November. But if Harris continues to poll well against Trump, I expect cannabis investors to catch on and cannabis stocks to catch a bid – which suggests they are a buy in the steep sell-off since May. The most bullish wild card outcome would be a Democratic sweep of Congress and the White House, since Congress has broad authority under the Controlled Substances Act (CSA) to reschedule or de-schedule cannabis.

Other Key Catalysts

Beyond poll results, here are the potential catalysts for the cannabis sector, and the likelihood that they will occur.

Rescheduling

The setup here is that President Joe Biden has asked his Department of Health and Human Services (HHS) to review rescheduling cannabis under the Controlled Substances Act (CSA). The HHS sent a detailed report to the Department of Justice (DOJ) and its Drug Enforcement Administration (DEA) asking them to reschedule cannabis. (The DEA is inside the DOJ.) HHS asked them to move cannabis to Schedule III from Schedule I under the CSA.

This would not legalize cannabis. But it would increase cash flow at cannabis companies greatly by neutralizing an Internal Revenue Service rule called 280E. This prevents cannabis companies from deducting operating expenses because cannabis is a Schedule I drug. It would also make it easier to research cannabis for medical purposes.

Public comments on DOJ’s proposed rescheduling rule closed July 22. The DEA received more than 40,000 comments. About 91% of comments were in favor of the rescheduling proposal or making cannabis legal, says the research firm Headset. This was not surprising. A 2023 Gallup survey found that 70% of Americans support legalization, and a recent Pew Research Center poll found that less than 10% of Americans support prohibition.

Now, we await the DEA’s decision on rescheduling. One risk could be that the government calls for an administrative law judge hearing. This could delay rescheduling by years, so it would be an unfavorable outcome. No one knows for sure, but it is possible the DOJ won’t opt for a hearing because the HHS 254-page rescheduling request thoroughly covered relevant medical issues.

If the DOJ does decide to publish a proposed rule, it probably won’t happen until October. Politicians like to announce good news as close as possible to the election, notes Boris Jordan, the chairman of Curaleaf (CURLF).

If the DOJ publishes a final rule that will be a huge catalyst for the sector. However, it will be immediately challenged in court. At that point, there will be two risks. One is that the court issues a stay order on the rescheduling rule. Another is that cannabis advocates lose the appeal. My guess is there would be no stay order, and cannabis advocates would win in an appeal, since HHS and the DOJ Office of Legal Counsel have made a strong case for rescheduling. But court case outcomes are difficult to predict with much certainty. I give rescheduling before the election 60% odds.

Florida Vote on Recreational-Use Sales

Florida voters get to decide on legalizing recreational-use sales in a November referendum. Over 60% of voters need to approve the measure for it to become law. Polls suggest the vote will be close (see below for details). However, that could soon change given that the lobbying group supporting the legalization of recreational-use cannabis sales in Florida has raised a massive war chest of over $40 million. Approval would boost cannabis stocks considerably given the potential size of the Florida market. A positive vote would also confirm the cultural shift in the U.S. towards cannabis legalization, which puts pressure on politicians to support federal-level cannabis reform.

I give the referendum 70% odds of approval.

Favorable Banking Reform

A measure to allow banks to serve cannabis companies has been kicking around the U.S. Congress for years. Most recently, the Senate Banking Committee approved a bill supporting the change. Several prominent lawmakers like Senate majority leader Chuck Schumer (D-NY) continue to voice support. But they show little progress. It’s possible the reform could be included in a year-end budget bill, at the latest. I give this outcome 40% odds.

European Cannabis Reform

Germany is taking the lead here, by removing cannabis from its narcotics list. This has made it easier for doctors to recommend the use of cannabis to patients. Poland and the Czech Republic are also making progress and other countries will follow. Cannabis investors don’t talk much about the European market, but it will be huge.

Tilray (TLRY) CEO Irwin Simon thinks the European medical-use market alone could reach $45 billion in annual sales, in the long term. For context, U.S. rec-use and medical-use sales combined were a little over $33 billion last year. The population of the European Union is around 449 million, compared to 335 million in the U.S.

I give further reform 100% odds. It will be slow, but the momentum is there.

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 reaction to drawdowns. So, it is important to catalogue evidence of this cultural momentum. That is the purpose of this section of Cabot Cannabis Investor.

Legalization Efforts

* A new Florida poll confirms that voters may approve a referendum to legalize recreational-use cannabis, but the vote will be close. The poll found that 64% of voters are in favor of the change. The referendum, called Amendment 3, needs 60% support to pass. The poll also found that the number of Floridians who oppose the change has risen to 27% from 22%. The poll was conducted by Tyson Group on behalf of a group that opposed the change, called “Vote No On 3.” Another recent poll by the University of North Florida (UNF) also found that 64% of voters back the cannabis reform initiative. In this poll, the reform was supported by 79% of Democrats, 63% of independents, and 50% of Republicans. This poll has a 4.6 percentage point margin of error. Meanwhile, a sheriff in Gadsden County named Morris Young recently said he supports legalization of recreational-use cannabis because illicit cannabis may contain fentanyl.

* Pennsylvania Gov. Josh Shapiro (D) says he will continue to work to get recreational cannabis use approved in the state, even though the change was left out of a recently approved budget bill. Many advocates saw the bill as an appropriate vehicle for reform. The governor says his administration and lawmakers will “come back and continue to fight” for rec-use cannabis legalization. Rec-use legalization was part of the budget proposal he sent to lawmakers in February. Pennsylvania is surrounded by states that have legalized rec-use, so it is theoretically losing out on significant tax revenue. Shapiro has estimated the state is losing $250 million a year. A cannabis activist group estimates annual rec-use sales would eventually reach $2.8 billion, net $720 million in tax revenue, and create 45,000 jobs.

* Cannabis activists in Texas say they have collected enough signatures to put decriminalization on the ballot in Dallas, Bastrop and Lockhart. If approved, the initiatives would prevent police from arresting people for holding small amounts of cannabis. The activist group is called Ground Game Texas. Voters have approved similar measures in Austin, Denton, Elgin, Killeen, and San Marcos. Voters in Lubbock and San Antonio have rejected the change.

Gov. Greg Abbott (R) opposes the municipal-level cannabis reform efforts. “Local communities such as towns, cities and counties, don’t have the authority to override state law,” he says. “If they want to see a different law passed, they need to work with their legislators.” So far, two judges have rejected lawsuits that challenged voter-approved decriminalization, in Austin and San Marcos. The Texas House of Representatives has passed bills to decriminalize cannabis, but they have gone nowhere in the Senate.

* The North Carolina Senate has approved a Compassionate Care Act which would permit the sale of cannabis to patients with serious medical conditions like cancer, epilepsy, and PTSD. The Senate has approved the bill three times but it continues to make no progress in the House. North Carolina is one of twelve states that do not allow medical cannabis use.

Continued Cannabis Sales Growth

* Illinois cannabis stores have sold over $1 billion worth of products this year. The state reached the billion-dollar mark faster than it did in 2023. Retailers sold more than $850 million worth of recreational cannabis and nearly $150 million in medical cannabis. The state hit the billion-dollar mark on July 1 compared to July 10 last year. The state sold more than $2 billion worth of cannabis in fiscal 2024 which ended June 30, compared to $1.9 billion in fiscal 2023 and $1.8 billion in fiscal 2022. The state has 218 cannabis stores.

* Cannabis stores in Michigan sold $1.6 billion worth of product in the first half of 2024. This puts the state on track to surpass 2023 sales of around $3 billion. Per capita annual sales in Michigan come in at $234, compared to $75 in California.

Cannabis Use Updates

* Cannabis helps people overcome opioid abuse, according to a study by the University of Southern California (USC). “Cannabis provided rapid relief from opioid withdrawal reducing frequency of opioid use,” says the study, which was published in the journal Drug and Alcohol Dependence Reports. It also found that legalization helps people quit opioids because the change makes it easier to get cannabis.

* A majority of cannabis users in Ohio say the drug helped them reduce their use of prescription opioid painkillers, according to a new unscientific survey. The survey found that 77.5% of people said cannabis helped them reduce their use of prescription painkillers. The survey was published by Ohio State University law school’s Drug Enforcement and Policy Center. It did not use a random sample. But it confirms other studies like one from the American Medical Association (AMA) that have found cannabis use reduces the use of opioids prescribed for pain.

* New Hampshire has added generalized anxiety disorder as a condition that allows patients to purchase medical cannabis.

* A new poll finds that the number of Americans who use cannabis daily is greater than the number who drink alcohol every day. Alcohol consumers are more likely to say they would see health benefits from limiting their consumption. In the YouGov poll, 60% of people said they think cannabis should be legal.

* The American College of Physicians (ACP) wants cannabis possession to be decriminalized, it says in a report published in the Annals of Internal Medicine. It also calls for more research into the health effects and therapeutic benefits of cannabis, and the effect of legalization on cannabis use. ACP represents 161,000 doctors and medical students.

Company News

The key takeaways here are that our portfolio names continue to expand into markets ahead of changes that will spur sales growth, like Florida and Europe.

Our companies continue to open new stores in medical-use states that look like they are about to approve recreational-use sales. This is a solid strategy to look for in cannabis companies. They are also expanding in Europe, the next big growth market, expanding via acquisition, and making plans to roll out sales of hemp-based cannabis products which are legal at the federal level in the U.S.

Curaleaf (CURLF)

Curaleaf is opening two medical-use stores in New York, in Rochester and Syracuse. It is also rolling out recreational-use sales at two medical-use stores in the state in Plattsburgh, and Forest Hills. The openings take the company’s New York store count to six. New York stumbled out of the gate, but recent cannabis policy reform makes recreational-use sales growth more likely. The state is still in the early stages of becoming a rec-use market.

Green Thumb Industries (GTBIF)

Green Thumb has opened two stores in Tallahassee, Florida. The openings take Green Thumb’s Florida store count to 19. It has 96 stores in 14 markets. Floridians will vote in November on legalizing rec-use and polls suggest they will vote in favor, though it will be close.

Organigram (OGI)

Organigram has invested another $1 million in its partner Phylos Bioscience, which develops specialized strains of cannabis. Organigram says the partnership helps it provide unique products with specialized compounds that produce various types of desired effects, like THCV CBG, CBC and CBDV. Phylos will deliver 42 specialized strains by the end of next January. Organigram has exclusive rights in Canada to certain Phylos THCV strains until May 2028. So far, Organigram has put $7 million into Phylos.

Trulieve (TCNNF)

Trulieve continues to open medical-use stores in states that seem likely to approve recreational-use cannabis. It is opening a store in Wilkes-Barre, Pennsylvania, and two stores in Florida in Gulf Breeze and Ocala. Like Florida, Pennsylvania may soon expand into rec-use sales. Both states currently allow medical use sales.

Tilray (TLRY)

Tilray on July 29 posted 26% 2024 fiscal year sales growth to $789 million compared to the prior year. Cannabis revenue came in at $273 million and drinks and alcoholic beverage sales were $202 million. The robust growth came in part through acquisition. In the past year or so, the company has purchased eight craft brands from Anheuser-Busch, a cannabis product company called HEXO, and Truss Beverage.

The company posted positive adjusted free cash flow and reduced its net convertible debt by about $300 million. Its leverage ratio now stands at a reasonable 1.7 times EBITDA.

Net loss decreased to $222.4 million in fiscal 2024 from a loss of $1.4 billion in the prior fiscal year. Net loss per share narrowed to $0.33 compared to a net loss of $2.35 in the prior fiscal year. Gross profit was $223.4 million, on gross margins of 28%.

Canadian rec-use sales fell by only 1% sequentially, compared to 9% in the previous quarter, and Tilray said it is starting to see prices stabilize. The company upped fiscal 2025 sales guidance to $955.6 million from $924.4 million. Two trends will help drive that growth.

1) Tilray continues its expansion in Europe, especially Germany which recently removed cannabis from its narcotics list. The change will continue to drive robust sales growth in the country. Tilray announced on July 29 that its Aphria RX got the green light to sell and distribute medical cannabis products throughout Germany. A week earlier, the company announced Aphria RX was granted a cultivation license in Germany. Tilray also recently said its Tilray Medical got another medical cannabis extract approved in Portugal, called Tilray Oral Solution.

“Our cultivation facilities in Germany and Portugal, combined with our Tilray Pharma medical distribution network, provide Tilray with a critical vertical integration, allowing us to consistently supply the market with a high quality and reliable source of medical cannabis,” said CEO Irwin Simon. “It does not feel as if the market is saturated at all at this point. I think there’s still definitely room for additional supply on medical cannabis into the market.”

“We believe that Germany’s declassifying cannabis as a nonnarcotic will also have a far-reaching impact on the drug policy throughout Europe,” he said. “The European opportunity could represent a potential $45 billion medical market alone over the long term. Our presence in Europe allows Tilray to grow our global brand portfolio to a base of 700 million people, which is twice the population in the U.S.”

2) Tilray will also be expanding into hemp-derived Delta-9 beverages in the U.S. Hemp-derived THC products are legal at the federal level in the U.S. They can be sold across state lines.

“We’ve had a great response from our distributors and retailers that are interested in this product. A lot of our beer distributors have reached out to us and want the product right away, because they have seen how well the sales are doing. We’ll look at rolling it out online in some markets. There are about three or four markets that we would do right away,” said Simon.

Tilray already sells hemp-based cannabis products in Canada, so it can easily transition to U.S. sales. “We have the products ready to go once we can get the go ahead and we know what our plans are and which markets.”

Tilray is the fifth largest craft brewer in the U.S. and its Tilray Wellness is the leader in hemp products. In Canada, Tilray Cannabis is the biggest company in recreational-use cannabis, and in Europe it is the leader in medical cannabis.

Verano (VRNOF)

Verano is expanding in Virginia and Arizona by purchasing subsidiaries of The Cannabist Company (CBSTF). The Virginia acquisition will bring in a cultivation and production facility and six stores. The Arizona purchase adds one cultivation facility, one production facility, and two dispensaries. The deal will give Verano 150 stores and 15 cultivation and production plants in 14 states.

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.

Our cannabis sector lender AFC Gamma (AFCG) has spun off its non-cannabis lending operations into a real estate investment company called Sunrise Realty Trust (SUNS). Because there was very robust insider buying at SUNS after the spin out, I am going to keep it in our Cannabis Plus Insider Portfolio. SUNS will pay distributions, but we do not yet know how much. We should find out more when the company reports results August 14.

Sector Performance

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 up 3.62% this year as of the July 30 close. That was below the 11.59% 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.

Once a few of these pieces of the puzzle are firmly in place, 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 up 49.3% since I launched it on March 29 last year. That’s nearly twice the 26.6% 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 11.75% and 21.29%. The dividends were recently confirmed even though they look suspiciously high. Our portfolio offers an average dividend yield of 16.5%.

Portfolio

Canna Plus Insider Portfolio

*Includes dividends by adjusting down the entry price to incorporate dividend payouts

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 0.38 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 0.69. 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 0.86 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, 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 2.15. 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. 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 stores 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 2.51. 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 1.15. 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 1.9. 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 1.68. 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 1.47. BUY

The next Cabot Cannabis Investor Issue will be published on August 28, 2024.

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