Cabot Cannabis Investor Issue: October 30, 2024

Given that the majority of Americans on both the left and the right favor cannabis legalization, it’s no surprise that marijuana has emerged as a significant campaign issue.

Therefore, it makes sense to think about election outcome scenarios and what they mean for cannabis investors.

Big picture, no matter what happens in the presidential election, cannabis wins. That’s because both candidates support major cannabis reform in one way or another. But obviously, some outcomes are better than others. Here are the three main scenarios, from best to worst.

1. Vice President Kamala Harris and Minnesota Gov. Tim Walz (D) take the White House and Floridians vote to approve recreational-use cannabis.

This is the best outcome. It implies very significant reform at the federal level. And the country’s third biggest state with huge tourist traffic would launch recreational-use sales. A Harris victory and a Florida defeat would be a less bullish but still a positive variant of this outcome. That’s because federal reform like rescheduling and outright legalization are more significant than rec-use legalization in Florida.

Polls suggest Floridians will approve legalization of recreational use, but it looks like the vote will be close. Cannabis companies have been betting big on the change, which also suggests it might happen. The third-quarter store count was up 43% to 665 from 464.

Harris put legalizing cannabis in the number six slot out of fourteen on her to-do list of policy reforms she hopes to achieve if she becomes president. Walz also favors legalization.

2. Donald Trump takes the White House and Floridians approve recreational use.

This would still be bullish for cannabis investors. Trump favors significant cannabis reform. He implicitly supports federal-level legalization, because he backs Florida’s Amendment 3, which would green-light rec-use legalization.

Trump explicitly supports rescheduling cannabis to Schedule III from Schedule I under the Controlled Substances Act (CSA). Of all the possible cannabis reforms on the horizon, this is the big one. It’s bigger than even Florida legalization or banking reform that would allow more banks to serve cannabis companies.

The reason: Moving cannabis to Schedule III would neutralize an IRS provision that blocks the deduction of operating expenses against revenue from the sale of Schedule I substances. The change would instantly give cannabis companies a cash injection that would improve cash flow and earnings per share in a big way. Trump says he favors moving cannabis to Schedule III because it would allow a lot more medical research. Trump cites anecdotal evidence from contacts who tell him cannabis is useful in treating various ailments.

Trump’s running mate, Sen. JD Vance (R-OH), favors letting states decide on legalization. That’s less of a ringing endorsement of reform than Trump’s policy positions. But it’s the president who sets the tone on policy issues.

3. Trump takes the White House and Florida rejects legalization.

This would be a mixed outcome, but still a positive scenario. That’s because federal change in the form of rescheduling or a “Cole memo” statement that the feds won’t enforce cannabis law in legalized states is far more important to cannabis than Florida.

The big question is how sincere Trump is about cannabis reform. Democrats allege he’s merely jumped on the bandwagon to garner votes. It’s tough to know what’s true here, but his explicit backing of Amendment 3 in Florida suggests he is sincere.

Certainly, any new administration will likely face some serious budget issues at the outset, and Trump has obviously prioritized immigration. But his desire to see more medical research suggests that, like President Joe Biden, Trump would pressure the Drug Enforcement Administration and Department of Justice to reschedule. In short, rescheduling seems de-risked because Trump and Harris favor it.

Congress

Note that in each of the scenarios above I have not addressed outcomes in Congress. I left that out for simplicity. Clearly, a Harris victory plus a Democratic sweep in Congress would be the best outcome. The bullishness of a Harris victory diminishes in scenarios where Republicans take one or both arms of Congress. A Trump White House victory and Republican sweep of both branches of Congress would be less favorable. Democrats would have no committee leadership positions to use to advance legislation like banking reform.

Florida Updates

* A recent poll suggests Floridians will approve legalized recreational-use cannabis next week. But the vote will be close. The poll found that 66% of Florida voters support Amendment 3, which would make the change. The University of North Florida’s Public Opinion Research Lab (PORL) found that 30% of voters oppose the change and 4% are undecided. To become law, the referendum must get at least 60% of the vote.

The referendum has bipartisan support. The poll found 78% of Democrats, 53% of Republicans and 73% of independents support the measure. Former President Donald Trump says he supports the change, but Governor Ron DeSantis (R) opposes it.

* Trulieve (TCNNF) recently contributed another $28 million to the campaign to convince voters to approve the referendum. So far, Trulieve has contributed $141 million to the Smart & Safe Florida campaign, giving reform proponents a big edge in spending.

* The Teamsters want legal recreational-use cannabis in Florida. Teamsters Local Union No. 769 last week endorsed Amendment 3, the referendum that would legalize rec-use cannabis. The union represents 16,000 Teamsters in South Florida. The union cites jobs, tax revenue, individual freedoms and its opposition to cannabis possession arrests.

Cannabis companies with the biggest Florida exposure

If you want to bet on a positive Florida outcome, here are the companies with the most exposure to Florida, by various metrics.

By flower volume share, Trulieve is on top at 38.2% of sales. Curaleaf (CURLF) comes next at 10.2%, followed by Verano (VRNOF) at 7.5%, AYR (AYRWF) at 6.4%, and Cresco (CRLBF) at 5%. As measured by extracts, the ranking is similar with Trulieve on top (31.4%) followed by Curaleaf (12.7%), AYR (12.2%), and Verano (8.6%).

In the past year, cannabis operators have been betting big that Amendment 3 would pass. The third-quarter store count was up 43% to 665 from 464. By store count, Trulieve ranks first with 155, followed by Verano (79), AYR (67), Curaleaf (66), Cresco (33) and Green Thumb (GTBIF (20).

By percentage of company stores in Florida, here’s the ranking. AYR tops the list followed closely by Trulieve (both have around 70% of their stores in Florida), followed by Verano at 50%, Cresco at 46%, Curaleaf at 40% and Green Thumb (GTBIF) at 20%.

Cannabis exchange-traded funds (ETFs) would also get a boost from a Florida reform victory (see names, below).

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.

Note that our Trulieve will be the biggest beneficiary of a positive Florida vote on legalizing rec-use sales, which seems increasingly likely. Other portfolio names that would benefit the most are Ayr Wellness, Cresco, Curaleaf and Verano, because of their large and growing presence in the Sunshine State.

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.

More election updates

* Almost 60% of Nebraska voters support medical cannabis legalization, according to a new poll. The poll found that 59% of voters say they approve of the change. A third oppose reform, and 8% say they are not sure. The proposed change is being put to voters in two referenda. The poll was conducted by Emerson College Polling and the Midwest Newsroom. The validity of signatures supporting the referenda is being challenged in court.

* Polls suggest the vote on legalizing rec-use cannabis in South Dakota will be close. A recent poll says half of likely voters oppose the change, 45% support it and 5% are undecided. Voters approved legalization in 2020, but it was shot down on technical grounds. Voters rejected a second attempt in 2022. Voters approved legal medical cannabis in 2020. The most recent survey was conducted by Emerson College Polling. The state’s Republican party and two Catholic dioceses oppose the change. The initiative is called Measure 29.

* A referendum in Arkansas that might have expanded the state’s medical cannabis program is off the table. The state Supreme Court has ruled the measure didn’t fully explain what it would do which made it misleading, grounds for tossing it out. The measure would have broadened the definition of medical professionals who could recommend medical cannabis and expanded qualifying conditions. A recent survey found that a majority of likely voters in Arkansas favored the initiative.

State and national legalization progress

* Voters in two key Pennsylvania House of Representatives districts overwhelmingly favor cannabis legalization, according to a recent poll.

The poll results are significant to cannabis investors for two reasons. First, Pennsylvania is a key swing state in national elections. So, the results suggest both presidential candidates this year will keep cannabis reform as a significant campaign issue.

Second, Pennsylvania is probably one of the next big states to legalize recreational use. The poll results confirm this as a likely outcome. Gov. Josh Shapiro (D) favors rec-use legalization.

Pennsylvania will be a billion-dollar market, like neighboring Ohio. The first two months of legalized rec-use sales in Ohio put that state on track to be a billion-dollar market in its first year, but it will continue to expand. History shows that after rec-use legalization, cannabis markets take a few years to grow, as more stores are approved and opened.

The Pennsylvania poll conducted by the cannabis advocacy group Responsible PA found that 67% of voters in House District 44 (outside of Pittsburgh) and 68% of voters in House District 18 (near Philadelphia) favor legalized rec-use sales. A majority of Republican voters in both districts favor the change, or around 55%. About a third of voters in each district said they’d be more likely to back a candidate who supports legalized rec use. Both districts are represented by Republicans, but election results are typically close.

* Voters in conservative red states increasingly support cannabis reform. A recent survey by Emerson College Polling found that 56% of voters in Kansas support rec-use legalization and 72% support legalization of medical cannabis. Kansas does not currently allow rec use or medical use. A poll conducted by Noble Predictive Insights found that half the people in Utah support rec-use legalization. Utah has a medical cannabis program.

* An Irish legislative committee on drug policy has called for the legalization of cannabis. The recommendations came from the Oireachtas Joint Committee on Drugs Use. Cannabis reform in Ireland would be part of a broader trend toward reform playing out in Germany, the U.K., Malta, Poland and Czechoslovakia.

Cannabis sales trends

* Cannabis keeps getting cheaper. That’s one reason Michigan cannabis sales fell nearly 10% in September compared to August. Cannabis sales came in at $266.9 million, compared to a record $294 million in August. September sales were down 2.9% from $275 million the year before. Analysts blame the declines in part on price compression. Cannabis prices fell to $76.66 per ounce, from $100 the year before. Year-to-date sales are at $2.2 billion. For the full year 2023, sales were $3.1 billion. Michigan legalized rec-use sales in 2019.

* New York legal cannabis sales continue to ramp up sharply. August sales came in at $97.4 million, putting the state on track to surpass a $1 billion annual run rate. The sharp sales increase since May is linked in part to stepped-up efforts to shut down unlicensed stores which proliferated particularly in New York City. Weekly sales have jumped 75% since May 25th. There are now over 200 rec-use stores in the state. A New York court recently shot down the approach used by police to close stores ahead of legal proceedings. But crackdown efforts will continue.

* Medical cannabis sales in Germany will hit $454 million this year and surpass $1 billion a year in 2028, says “The German Cannabis Report” from Prohibition Partners, a London-based research group. Suppliers there say sales have been growing sharply each month since a favorable policy change in April.

Germany legalized medical cannabis in 2017, but sales began increasing sharply earlier this year when the country took cannabis off its narcotics list in April. This made it easier for doctors to recommend medical cannabis use. Doctors can suggest it for any condition they want. The country’s national health care system reimburses the cost of cannabis purchased in pharmacies.

* Canadian cannabis sales in August grew compared to the prior month. Statistics Canada says August sales advanced 2.6% to C$465.1 million compared to C$453.1 million in July. Analysts speculate that August sales advanced because of an increase in the number of stores and ongoing price declines, which pull consumers in from the illicit market. August sales were down 0.8% from the record level set a year ago. Tilray (TLRY) CEO Irwin Simon says price compression may be leveling off in Canada.

Medical news

* A new report confirms that cannabis legalization does not increase cannabis use among teens. The report looked at trends in usage by teens between 2011 and 2021, when more than a dozen states legalized rec use. It found that 39.9% of adolescents reported ever having tried marijuana in 2011. That declined to 27.8% in 2021. The number of teens who said they consumed cannabis at least once in the past month fell to 15.8% from 23.1%. The study, published in the journal Pediatric Reports, used data from the Centers for Disease Control and Prevention’s (CDC) Youth Risk Behavior Survey, which polls ninth through 12th graders on health issues.

* Allowing cannabis to be prescribed for pain would save Britain’s National Health Service (NHS) $5.2 billion a year. The change would cut costs by reducing the use of pain medications and the number of visits to the doctor. The study by the York Health-Economics Consortium was paid for by the Cannabis Industry Council and Drug Science. “Given the government is advocating prescribing weight loss drugs on the NHS to improve health and boost the economy, our research shows it would be entirely logical to do the same with medical cannabis,” said the council. The study was published in the Expert Review of Pharmacoeconomics & Outcomes Research.

* A study in New Brunswick, Canada found illicit cannabis products contain high levels of various pesticides and heavy metals like cadmium, lead, and mercury. Over 90% of the illicit products had pesticides. The study also found the illicit products had anywhere from 16% to 86% less THC than the amount stated on the label. The study tested vape cartridges, cannabis oil, infused pre-roll, flower and edible products.

“You really don’t know what you’re getting and these products are not being screened for contaminants,” said RPC research director Andrien Rackov. He thinks tests in other areas of Canada would show similar results. The study was funded by the government of New Brunswick.

Meanwhile, a separate study found that Illegal cannabis available in the U.K. contains harmful substances like mold, lead and synthetic cannabinoids, according to a study by Manchester Metropolitan University. The study was funded by Curaleaf (CURLF) which sells medical cannabis in the U.K.

These studies support the case for legalization, and the transition to legal markets from illicit markets by consumers, especially as legal-market prices decline and become more competitive.

* Medical cannabis improves pain symptoms and helps patients struggling with psychological issues like depression, anxiety and sleep problems, according to a new study. About half of the patients in the study reported they ramped down the use of medications for pain, depression, anxiety and sleep as a result of cannabis consumption. The study authors speculate that chronic exposure to THC may desensitize pain receptors.

The research confirms similar results in other studies. Many patients and health care providers believe cannabis is an effective tool for pain management, based on anecdotal evidence.

But the study also found that many of the benefits fade over time. The study was published in the Journal of Pain and Palliative Care Pharmacotherapy. The observational study by researchers at the University of Melbourne in Australia tracked 96 patients.

Separately, a recent meta-analysis of neuropathic pain research including five placebo-controlled randomized studies also concluded that cannabinoids offer significant relief from chronic pain. This meta-analysis was published in the journal Cureus.

Cannabis banking

* Banks could reap as much as $2.4 billion in interest on cannabis sector loans over the next ten years, says a new study. Cannabis companies will need $65.6 billion to $130.7 billion in capital for capital spending and refinancings, predicts the study by CTrust, Whitney Economics and Green Check Verified. That would net $1 billion to $2.4 billion in interest.

The report also predicts national annual cannabis sales will grow to $87 billion by 2035 from $28.8 billion in 2023. The report says the number of licensed operators will nearly double to 40,000. Now you know why the American Bankers Association regularly backs federal-level reform that would let banks directly serve cannabis companies, known as the Secure and Fair Enforcement Regulation (SAFER) Banking Act.

Company News

Cronos (CRON)

HiFyre Retail Analytics reports that the Cronos Spinach brand is now the top-selling brand in Canada.

Curaleaf (CURLF)

Curaleaf has opened a new store in Miami, taking its Florida store count to 66 and its overall U.S. store count to 151.

Green Thumb (GTBIF)

Green Thumb is teaming up with New York City’s popular Magnolia Bakery to offer edibles sold under the cannabis company’s incredibles brand. The partnership will feature THC-infused banana pudding and red velvet cake bars. The products will be available at RISE stores in New York and New Jersey, and online.

Trulieve Cannabis (TCNNF)

Trulieve Cannabis seems pretty certain Florida voters will approve recreational-use cannabis legalization on November 5. Since October 15, the company has opened four new stores in the state. The stores were opened in Lake Placid, Orlando, Bonita Springs and St. Augustine. For the moment, of course, the stores only sell medical-use cannabis. But of course, the plan is to convert them to rec-use sales sometime in 2025, if voters approve Amendment 3, which would legalize rec-use sales.

Tilray (TLRY)

Tilray reported on October 10 that year-over-year sales rose 13% to $200 million, driven in part by acquisitions. Tilray Beverages sales rose 132%, thanks to the acquisition of several brands from Anheuser-Busch (BUD). Net cannabis revenue fell 13% to $61.2 million. The company blamed it on price competition in Canada, which hurt sales because Tilray chose not to go along and discount pricing, and import-export permit timing issues in Europe.

Gross profit increased by 35% to $59.7 million in the first quarter compared to $44.2 million in the year-ago quarter. Gross margin increased to 30% in the first quarter compared to 25% in the year-ago quarter. Net loss per share narrowed to four cents a share from ten cents a share a year ago.

Medical cannabis sales in Germany advanced 50%. “We already have a dominant share of the market, and we believe that our current positioning in Germany provides us with several unique competitive advantages to capture a significant share of the expected medical cannabis market, which is projected to be approximately $3 billion in the medium term,” said CEO Irwin Simon in the earnings call. Tilray has a distribution partnership in Germany with CC Pharma and a grow facility called Aphria Rx. “We expect European opportunities could represent a potential $45 billion medical market over the long term,” says Simon. That would be phenomenal growth. The European cannabis market saw $2.17 billion in sales in 2023.

Simon said price compression may be leveling off in Canada.

The quarterly results were as of August 31.

In addition to selling cannabis flower and related products, Tilray is the fifth-largest U.S. craft beer brewer, with a 5% market share.

It recently launched a beverage division called Tilray Alternative Beverages. This division offers hemp-derived Delta-9 THC drinks through Tilray’s beer distribution network in Florida, Texas, Louisiana, Minnesota, North Carolina, South Carolina, Ohio, Georgia, Alabama, Oklahoma, and Tennessee. These hemp-based products are legal under federal law. Brands include Happy Flower, Herb & Bloom, and Fizzy Jane.

The company gets 28% of its revenue from its beverage alcohol business, 31% from its cannabis business, 34% from its medical cannabis and wellness product distribution business, and 7% from its wellness product business which sells hemp-based foods and ingredients and hemp-derived CBD beverages.

Verano (VRNOF)

Verano has converted all its Waterbury, CT, stores to rec-use and medical-use sales, from medical-only sales.

Cannabis Plus Insider Portfolio News

Chicago Atlantic Real Estate Finance (REFI)

Our cannabis sector lender Chicago Atlantic Real Estate Finance announced a deal to borrow $50 million in unsecured term loan debt from two institutional lenders at an interest rate of 9%. The funds are being used to repay debt in the company’s senior secured revolving credit facility and for other working capital purposes. The new debt has a BBB+ from Egan-Jones.

Sector Performance

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

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 8.06% this year as of the October 29 close. The decline was below the 6.4% 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 58.34% since I launched it on March 29, 2023. That’s more than twice the 26.3% 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 12.34% and 13.41%. 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 0.35 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 0.78. 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 0.78 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 1.68. 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 2.28. 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 1.22. BUY

Tilray Brands (TLRY) 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) 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 1.95. 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 1.3. BUY

The next Cabot Cannabis Investor Issue will be published on November 27, 2024.

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