Cabot Cannabis Investor Issue: November 27, 2024

Cannabis stocks are now trading like the group is no longer a viable sector.

I do not believe that is the case. True, companies continue to face pressure from price wars and unbridled issuance of permits for new stores in New Jersey and elsewhere.

But ultimately, the fate of cannabis businesses lies in the hands of politicians.

Politicians are wily, and it is tough to predict their actions. However, eventually, enough of them will come around and support cannabis reform. The reason is that’s what voters want. Polls continue to show the majority of voters support reform, even on the right.

We got confirmation of this in the last election.

* Both President-elect Donald Trump and Vice President Kamala Harris campaigned for rescheduling, legalization and decriminalization, no doubt in response at least in part to their own internal polling.

* Even though the recreational-use legalization vote in Florida did not clear the 60% threshold, 56% of voters supported it, in a conservative state. Voters elsewhere approved rec-use legalization and decriminalization. The majority spoke again.

Predicting the timing of the actions of politicians is always difficult. So being in cannabis stocks requires patience – as you already know.

Here are some developments that may attract interest in cannabis stocks.

Federal Reform Progress

It is always risky to trust politicians. But Trump campaigned in part on the mantra “promises made, promises kept.” To win over voters, during the campaign, Trump said he supports all the key changes that would help cannabis stocks: Rescheduling, banking reform, and legalization or at least decriminalization at the federal level.

Next year, it will be time for him to show signs of coming through. He’s got a busy agenda, taking on big issues like immigration and government spending. But if he lives up to “promises made, promises kept,” cannabis stocks could move higher.

Analysts and cannabis company insiders remain positive. Consider these comments.

* “We don’t plan to change our fair value estimates on the election outcomes alone, as we still think it’s a question of when and not if prohibitions ease,” wrote Morningstar cannabis sector analyst Kristoffer Inton in a November 12 note.

* “Throughout his campaign, President-elect Trump confirmed his support for commonsense cannabis laws, support for SAFE banking and for rescheduling, the fact that no one should be arrested for personal cannabis use, and a state’s rights approach to cannabis legalization,” noted Cresco Labs (CRLBF) CEO and co-founder Charlie Bachtell said in his earnings call. “We look forward to working with the incoming administration to follow through on its commitment to developing a commonsense approach to cannabis laws including the passage of SAFE banking, rescheduling, and the fact that no one should be arrested for personal cannabis use.”

* “For the first time ever, both presidential candidates publicly touted pro-cannabis stances on the campaign trail,” said Curaleaf (CURLF) CEO Boris Jordan in his earnings call. “With President-elect Trump in office, we are hopeful that real federal reform, including rescheduling and safer banking, can pass. We’ve already been in touch with his transition team to ensure that the new administration follows through on its commitments made to the industry. In our expertise, historically, President Trump has put an effort to deliver on his campaign promises, and we see no reason why this time would be different.”

* “A Republican administration and Republican control of both Houses is what is going to get you SAFE banking. I think it is also going to be full speed ahead with rescheduling,” said AYR (AYRWF) interim-CEO Steve Cohen in a media interview. “It is a very good bet that the Trump administration on the federal level is going to be very good for cannabis. Overall, when you look at the political landscape bleak though it is for other reasons, from this industry standpoint I think we are in good shape.”

Here are some other bullish factors to watch. I offer more detail on these in the news roundup section below.

Insiders are buying

I track insider activity on a daily basis in my broader market analysis. I have created an insider portfolio for Cabot Cannabis Investor, which holds only non-plant-touching names. It is called the Cannabis Plus Insider Portfolio. It has vastly outperformed its benchmark index, and still does. In the current post-election cannabis sector pullback, insiders at actual cannabis companies are finally stepping up to buy. It’s not the best insider signal I have ever seen, but it is solid enough.

Pennsylvania may legalize recreational use next year

Pennsylvania looks like the next big state to legalize recreational use. It could happen next year. This makes sense, because the state is losing considerable tax revenue to surrounding states, almost all of which have legalized rec use.

“In Pennsylvania, we continue to be optimistic about the prospects for adult legalization in 2025,” said AYR Wellness (AYRWF) interim CEO Steven Cohen in the company’s third-quarter earnings call in mid-November. Cresco Labs (CRLBF) CEO Charles Bachtell agrees. “In Pennsylvania, we’re feeling optimistic about the governor’s support for bipartisan adult-use legislation in the first half of next year,” he said in the company’s third-quarter earnings call.

Foreign cannabis markets are growing rapidly

Two of our companies reported very robust sales growth in Europe, Israel and Canada. Europe has a consumer market bigger than the one in the U.S., and it continues to move forward with cannabis market reforms.

Banking reform redux

Politicians have recently been talking about trying again on the SAFER Banking. We have heard this for years, so analysts remain skeptical. Full passage of the SAFER Banking Act in the House and Senate would be a major catalyst. I see the odds of this as low. But it is a possible wild card.

A potentially pivotal court case gets a hearing

On December 5, a federal court will hold a hearing on a lawsuit challenging federal authority to regulate cannabis. In my opinion, the odds of success here are low. And an ultimate victory, if it happens, is more than two years away. However, this hearing could serve as a temporary cannabis sector catalyst, especially if we hear bullish commentary from the bench.

What to Do Now

The best time to buy stocks is when they are widely hated, but plausible catalysts lie on the horizon. That is clearly the case with cannabis stocks now. But this is also the hardest time to buy stocks. That resistance may also be a signal to buy. As a general rule, some of your best stock purchase decisions will be the ones that are the hardest to make.

Consider taking both trading positions and multiyear positions in portfolio names now, or averaging down. I am personally averaging down in the current weakness.

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.

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 institutional investors will not ignore cannabis stocks 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.

* Cannabis insiders are buying stock. This is a bullish signal for the sector even if the buying is not widespread across many companies. Trulieve Cannabis (TCNNF) insiders recently bought around $470,000 worth of stock in mid-November at prices up to 7.19. A broad cluster of insiders from the CEO on down purchased. Cluster buys are a bullish signal in insider analysis. Tilray (TLRY) CFO Carl Merton purchased $35,400 worth of stock in mid-November at 1.36 a share.

* President-elect Donald Trump’s cabinet member nominations now offer a mixed picture for cannabis. His nomination of Robert F. Kennedy Jr. to lead the Department of Health and Human Services (HHS) is bullish for cannabis. RFK Jr. supports cannabis legalization and allowing banks to serve cannabis companies (SAFER Banking Act).

Trump’s nomination of Dr. Mehmet Oz to oversee the Centers for Medicare and Medicaid Services is bullish for the group since he supports medical cannabis use. “We ought to completely change our policy on marijuana. It absolutely works,” he said in a 2020 interview, referring to its efficacy as a treatment for some indications. Oz described cannabis as “one of the most underused tools in America.” He thinks cannabis for pain is a “safer solution than, for example, narcotics in many cases.” Oz has opposed recreational use of cannabis.

Trump’s current attorney general nominee Pam Bondi opposed cannabis reform as attorney general in Florida. “To be fair, she was following the governor’s direction on that at the time, in that role,” says Trulieve (TCNNF) CEO Kim Rivers, who thinks Bondi will be positive for the group. “I think she is a great pick,” says Rivers.

Trump’s nominee to head the Food and Drug Administration is cautious on cannabis use, which is not a great sign. Marty Makary has said he thinks cannabis causes psychosis in some people and that it can be a gateway drug.

The bottom line: RFK Jr. and Bondi are the key nominees to watch since they will play the biggest role in rescheduling. It will be months before we know who gets appointed to these roles since nominees have to go through Senate hearings before the Senate votes on them.

* Legislators on Capitol Hill like Senate Majority Leader Chuck Schumer (D-NY) suggest they may try to approve the Secure and Fair Enforcement Regulation (SAFER) Banking Act during the lame-duck session. The change would allow banks to serve cannabis companies. Sen. Jeff Merkley (D-OR), who sponsored the bill, speculated it might be added to the National Defense Authorization Act (NDAA). Sen. Steve Daines (R-MT), another sponsor, said he wants to see the measure “get done before the end of the year.” Sen. Cory Booker (D-NJ) says he’s “hoping to get something done in NDAA.” Lawmakers have touted progress so often, to no avail, that cannabis analysts remain skeptical.

* Former New Jersey governor Chris Christie recently speculated in a media interview that the Trump administration would skip rescheduling and fully de-schedule cannabis instead.

* Despite the big setback on legalizing recreational-use cannabis in Florida, voters in the heartland supported cannabis reform.

Nebraska voters approved two medical cannabis legalization measures. The initiatives would require lawmakers to set up legal protections for patients to possess cannabis if they have a doctor’s recommendation and establish a commission to create a medical cannabis regulatory framework. The initiatives are being challenged in court. A former Republican state senator filed a lawsuit challenging the validity of signatures of people supporting the initiatives.

Voters In Dallas, Lockhart and Bastrop approved cannabis decriminalization. Voters have approved similar initiatives in Austin, Denton, Elgin, Harker Heights, Killeen and San Marcos in the past few years.

Kentucky voters in over a hundred cities and counties approved laws to allow medical cannabis companies to operate. Kentucky approved medical cannabis last year. After a state legalizes medical cannabis, local governments can opt in or out. So far, only about twenty local governments have opted out in Kentucky.

There were some heartland setbacks, however. North Dakota and South Dakota voters defeated a cannabis legalization initiative.

* Two cannabis groups want the Drug Enforcement Administration (DEA) removed from the rescheduling process. They believe the DEA is impartial because it has an inherent bias against the reform. Attorneys for the veteran’s group Hemp for Victory and the cannabis company Village Farms have asked the DEA administrative law judge to transfer authority for oversight of rescheduling to the Department of Justice (DOJ).

Attorneys for the two cannabis groups claim the DEA is tainted because of alleged contact with the prohibitionist group Smart Approaches to Marijuana (SAM). That would be a violation of the federal Administrative Procedure Act (APA). In social media posts, SAM president Kevin Sabet said he had private conversations with the DEA about rescheduling. The DEA and SAM dismiss the allegations as mere “gossip.”

Attorneys for the cannabis groups also argue the DEA is not impartial in part because its preferred witness list for hearings on rescheduling is stacked in favor of prohibitionists. Federal agencies must recuse themselves from decisions when they act with an “unalterably closed mind” and are “unwilling or unable to consider rationally argument that [the proposed rule] is unnecessary,” the attorneys argue. “The evidence that DEA has an ‘unalterably closed mind’ regarding the proposed transfer of marijuana to schedule III in this case is nothing short of overwhelming,” say the attorneys.

At issue is a Department of Health and Human Services proposal to move cannabis to Schedule III from Schedule I under the Controlled Substances Act (CSA). The change would help cannabis companies by neutralizing an IRS rule prohibiting the deduction of operating expenses against revenue from the sale of Schedule I substances. The change would also clear the way for considerably more medical research on cannabis.

* A federal court will hear oral arguments in a case challenging federal jurisdiction over cannabis on December 5. Cannabis stocks may rise ahead of this hearing, but the event is unlikely to generate lasting support for the group. The court case, filed by the law firm of David Boies, argues the federal government does not have jurisdiction over cannabis businesses that operate intrastate. It also argues that the federal government no longer has jurisdiction over cannabis because it has failed to enforce federal cannabis laws for so long. Several legal analysts question the viability of the case, but proponents argue some Supreme Court justices are interested in addressing issues raised in the case. The case is unlikely to get before the Supreme Court before the spring of 2026, if at all.

* Legal cannabis sales in New York are on track to hit $1 billion this year. As of late November, sales hit $863.9 million, compared to $500 million in August, says the state’s Office of Cannabis Management (OCM). It predicts sales will hit $1 billion for the year. OCM says a crackdown on unlicensed shops helped boost legal-market sales.

* Around 70% of Indiana registered voters support cannabis legalization. The survey was conducted by Causeway Solutions.

Portfolio Company News

Big picture, more store openings in New Jersey and Illinois hurt cannabis companies in the third quarter by putting downward pressure on prices. Price wars in Pennsylvania also hurt pricing. Revenue growth from store openings in Ohio, which recently legalized recreational use, was not strong enough to offset these pressures. Some companies also blamed the hot weather, but this seems more like a convenient excuse. “The weather” often gets blamed for company results it did not impact. Foreign markets are one bright spot. Two of our companies reported impressive sales growth in Europe, Canada and Israel.

AYR Wellness (AYRWF)

AYR reported flat sales growth for the third quarter. Revenue came in at $114.3 million. The launch of recreational-use sales in Ohio failed to offset increased competition in New Jersey and Pennsylvania and “ongoing macroeconomic pressure,” said interim CEO Steven Cohen, an apparent reference to weak consumer sentiment. Same-store sales were down 11.6%. The decline was offset by an increase in wholesale revenue.

Adjusted gross profit held steady at $60.4 million, but losses widened to $0.44 per share from $0.25. That was due to an increase in interest expense linked to a debt extension, and severance costs.

For 2025, the company plans to expand its presence in Ohio and develop an initial footprint in Virginia. The company will open five stores in Ohio in the first half of 2025. It has exclusive rights to operate in a region of Virginia. AYR also recently got a license to operate a medical cannabis business in New York called Amethyst Health.

AYR guided for flat sales and adjusted EBITDA for the fourth quarter compared to the third quarter. It ended the quarter with cash of $51 million.

Cresco Labs (CRLBF)

Cresco recently reported a $0.03 per share loss for the third quarter. Revenue fell 5.65% year over year, to $179.8 million.

On the bright side, the company reported $49 million in operating cash flow, its highest ever. So far this year, it generated $103 million in operating cash flow. It is using the cash to invest in the business and pay down debt.

The cash flow increases were due to cost cutting and a reduction in taxes. Like many cannabis companies, Cresco thinks it can deduct expenses against sales to reduce federal taxes. Technically, that seems like a violation of IRS rule 280E, which bars this activity. But this tactic is increasingly more common in the sector. At some point, we will learn if the IRS goes along with this tax strategy.

The company ended the quarter with $157 million in cash.

Cronos Group (CRON)

Cronos recently reported earnings per share of $0.02. Net income rose to $7.3 million compared to a loss of $1.6 million the year before.

Cronos posted a 37.9% increase in revenue to $34.3 million for the third quarter compared to the year before. Revenue grew by $9.5 million. The increase was primarily due to higher cannabis flower and extract sales in Canada, higher cannabis flower sales in Israel, and increases in sales in Australia, Germany and the U.K. The global sales are being generated by its GrowCo division.

Its Spinach brand became the number one Canadian brand, with 4.8% market share. Its Peace Naturals is one of the top brands in Israel.

The company has been unable to meet demand. This could be a bullish sign, assuming it can catch up. It is investing more in GrowCo to get the job done.

“Over the past year, we’ve seen a rapid increase in demand for our flower products, after taking market share in Canada and Israel,” said CEO Mike Gorenstein said in the earnings call. “We’ve also seen additional growth in international markets, particularly Germany and the UK. As a result, we have not been able to fully meet flower demand. We believe the driver of this increased demand is a combination of our genetic breeding program and the cultivation capability of GrowCo. With European growth picking up and the shortage of high-quality flower in Canada, we only see demand increasing from here.”

Cronos is probably the most financially sound company in the sector. It ended the quarter with $862 million in cash. “With an industry-leading balance sheet, we are well-positioned to expand into new legal markets and drive future growth opportunities,” said Gorenstein.

Curaleaf (CURLF)

Curaleaf recently reported a third-quarter loss of $0.07 on sales of $330.5 million, a 1% decline from the year before.

One bright spot was international revenue, which grew 82% to $30 million, though for context, this is a big percentage gain off a small base. Curaleaf has been expanding in Germany, the U.K. and Poland, among other countries. The company reported operating free cash flow of $42.3 million.

The company ended the quarter with $90 million in cash, against $557.4 million in debt.

Green Thumb (GTBIF)

Green Thumb recently reported third-quarter earnings per share of $0.04 on a 4.2% increase in revenue to $286.8 million.

Green Thumb reported $48 million in cash flow from operations, even though it is taking the conservative route of paying all its federal taxes. Unlike many cannabis companies, Green Thumb is not ignoring IRS rule 280E which bars the deduction of operating expenses against the sale of Schedule I substances.

The company extended maturity on $225 million four years to 2029, giving it the freedom to continue to invest in the business. “We plan to double down on our efforts to build brands that Americans want and love, said CEO and founder Ben Kovler. “As we begin our second decade as a company, we are even more confident in the future of cannabis in America as a means for well-being, and America needs a healthy dose of well-being now more than ever.”

Greem Thumb benefitted from growth in New York and Maryland, and the addition of recreational-use sales in Ohio. The increase was partially offset by continued price compression in some markets. Same-store sales declined 2.7%.

After the quarter closed, Green Thumb announced new stores in Nevada and Minnesota pushing its national store count over one hundred.

Green Thumb ended the quarter with $174 million in cash.

Trulieve Cannabis (TCNNF)

Trulieve recently reported a loss per share of $0.06, on 3.3% sales growth to $284.3 million. Like other cannabis companies, Trulieve cited price wars as one factor suppressing sales growth. It saw wholesale revenue growth in Maryland and Pennsylvania. Gross margins advanced to 61%, compared to 52% the year before. This supported year-to-date operating cash flow of $241 million.

Trulieve ended the quarter with cash of $319 million.

After the quarter closed, Trulieve announced plans to open three new Florida stores in Jacksonville, Dania Beach and Spring Hill.

Verano (VRNOF)

Verano recently reported a third-quarter loss of $0.11. Sales fell 9.7% compared to the year before, to $216.7 million. The company cited disruptions to production in Florida caused by expansion efforts, and weakness in Illinois and New Jersey as competitors continued to win more permits and aggressively open stores. The company reported operating cash flow of $30 million. Verano guided for continued weakness in the fourth quarter.

Verano ended the quarter with $65 million in cash.

Cannabis Plus Insider Portfolio News

Advanced Flower Capital (AFCG)

Advanced Flower Capital reported third-quarter net income of $1.4 million or $0.06 per share and distributable earnings of $7.2 million or $0.35 per share. It paid a dividend of $0.33 per share.

The company surpassed its 2024 target of $100 million in new loan originations during the quarter. “This achievement highlights our ability to identify and support high-quality operators in key markets, and we look forward to continuing to build on this momentum as we close out the year,” CEO Daniel Neville said in the earnings call.

Sunrise Realty Trust (SUNS)

Sunrise Realty Trust recently reported third-quarter net income of $1.7 million or $0.26 per share and distributable earnings of $1.9 million or $0.27 per share.

“Our strong performance this quarter highlights the continued momentum we’ve maintained since our listing as an independent, public company,” said CEO Brian Sedrish. The company closed $87.4 million in lending deals.

After the quarter closed it signed a $50 million revolving credit facility to support loan growth. That can be expanded to $200 million in borrowing capacity. “This facility enhances our flexibility to capitalize on our robust $1.2 billion pipeline, positioning us to drive long-term value for our shareholders while expanding our presence in key Southern U.S. states,” said the CEO.

The company paid a $0.21 per share dividend. It has declared a $0.42 per share dividend for the fourth quarter, based on expected growth of the loan portfolio. Sunrise Realty Trust has no exposure to cannabis, but we own this as a spin-off from Advanced Flower Capital.

Chicago Atlantic Real Estate Finance (REFI)

Chicago Atlantic Real Estate Finance recently announced third-quarter earnings per share of $0.56 and 5.3% sales growth to $14.5 million. It reported distributable earnings of $11.2 million, or $0.56 per share, a sequential increase of 12%.

The company closed the quarter with outstanding loans worth $362.3 million to twenty-nine cannabis companies. Weighted average yield to maturity was 18.3%. Real estate collateral coverage was 1.2 times loan value. Two-thirds of the loans are variable rate.

“We have managed our portfolio and its maturities very well throughout 2024 with extensions, modifications and refinancings while improving credit quality and loan coverage,” said co-CEO Peter Sack. “A strong pipeline in both existing states and a growing number of new states that have recently added adult use, or soon to do so, keeps us well-positioned for the balance of the year and into 2025. Chicago Atlantic remains at the forefront of this industry with the largest platform focused on cannabis, and we expect to continue to lead as a preferred capital partner.”

The company affirmed prior guidance. It reports a book value of $15.05 per share.

Sector Performance

Our Cabot Cannabis Plus Insider Portfolio is doing very well. But our plant-touching Cabot Cannabis Investor portfolio is trailing.

The blended return of the two portfolios is up 15.1% this year, compared to a loss of 8.3% for the New Cannabis Ventures Global Cannabis Stock Index.

Because our plant-touching cannabis portfolio is leveraged, it lags in severe sector downturns. That is the case now. Our Cabot Cannabis Investor portfolio cannabis portfolio was down 33.7% this year as of the November 26 close. The decline was worse than the 8.3% loss for the New Cannabis Ventures Global Cannabis Stock Index.

Our plant-touching 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.

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. This one invests in cannabis-related names that do not touch the plant, where insiders are buying. It is up 63.2% since I launched it on March 29, 2023. That’s almost twice the 36.9% 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 11.71% and 13.71%. The dividends were recently confirmed even though they look suspiciously high.

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 recently reported $71 million in cash and $607 million in net debt. This debt overhang is one reason why Ayr trades at 0.15 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 0.55. 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 0.75 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 1.07. 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 a 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 chain of 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 1.93. 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 1.1. 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 1.38. 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 .98. 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 .54. BUY

The next Cabot Cannabis Investor Issue will be published on December 26, 2024.

Copyright © 2024. 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.