The marijuana sector, in general, remains in a correction.
The high for the sector was six weeks ago, while the most recent bottom was two and a half weeks ago. Since then, one of our stocks, Trulieve (TCNNF), has hit a new high, while another, TerrAscend (TRSSF), has broken down below its recent low.
Going forward, if we see more weakness, we could sell even more from our portfolio, which is now 58% in cash. Alternatively, if the sector strengthens, we could jump back in.
But right now, with the entire market in an unstable rotational phase, and the Nasdaq looking particularly weak, I still believe a defensive stance is appropriate. In fact, by holding cash (we sold a bunch within a day of the top), we’ve been able to lose less than the index; as I write, our portfolio is up 36.3% YTD, while the Marijuana Index is up 31.7%.
Long-term, of course, the future remains extremely bright for this sector, as the companies in our portfolio are still enjoying very rapid growth, as evidenced by recent quarterly reports, the most recent of which are summarized below along with a few news items.
On March 18, Cresco Labs (CRLBF) announced an agreement to acquire Cultivate Licensing of Massachusetts for $90 million plus an earnout of up to $68 million. Cultivate has approximately 42,000 sq. ft. of flowering canopy, planned indoor expansion of approximately 20,000 sq. ft. of additional flowering canopy, two operational dispensaries in Leicester and Framingham, and a third dispensary in Worcester, estimated to be opened in Q2 2021. Massachusetts is not only the largest adult use market in the Northeast, it’s currently a supply-constrained market, with the second-highest per-gram pricing within U.S. adult-use markets. The transaction is expected to close in the fourth quarter of 2021.
Green Thumb (GTBIF) released its quarterly results after the market close on March 17. Revenue was $177 million, up 134% year-over-year, and the company posted its second consecutive quarter of positive GAAP net income, $0.11 per share. In the fourth quarter, Green Thumb generated revenue from all 12 of its markets: California, Colorado, Connecticut, Florida, Illinois, Maryland, Massachusetts, Nevada, New Jersey, New York, Ohio and Pennsylvania. Comparable sales growth (stores opened at least 12 months) was 60% on a base of 32 stores, driven primarily by increased transactions.
TerrAscend (TRSSF) released its quarterly results before the market open yesterday. Net sales were $65 million, up 152% year-over-year, while adjusted EBITDA was $26 million, up 46% quarter-over-quarter. The company cited growth of operations in California, Pennsylvania, Maryland and New Jersey. Also, the company raised full-year 2021 guidance for net sales to exceed $290 million and adjusted EBITDA to exceed $122 million, both exceeding the high end of previously announced ranges. So that’s all good. However, the stock sold off, falling below its recent low, on the news that CEO Jason Ackerman would be leaving the company immediately, and that Jason Wild, current Chairman of the Board, would assume the position of Executive Chairman. Wild cited “differences in philosophy over management style and culture.” Interestingly (though it’s irrelevant), this is the company that once had three men named Jason in the executive suite; Jason Marks, Chief Legal Officer, is still there.
More relevant is the action of the stock. Last week I told you that TRSSF was our weakest holding, and that if it fell through support at 11, we might sell more—and now it has. But there are still two reasons to hold, aside from the fundamental growth of the business. First, the stock appears to have support at 10, which is a nice round number some investors like. Second, and more relevant, is the fact that we know why the stock fell (Ackerman’s ouster); if we didn’t know why the stock fell, there would be more to worry about. So, given that our position is already pretty small (it’s 2.7% of the portfolio), I’m going to hold.
Trulieve (TCNNF) on Monday announced that it has entered into a definitive agreement to acquire Mountaineer Holding of West Virginia. Mountaineer brings a cultivation permit and two additional dispensary permits to Trulieve, resulting in six dispensaries throughout the state. Also, Trulieve announced it had begun planting at its Holyoke, Massachusetts cultivation and processing facility and expects the first harvest in the second half of 2021. Then on Tuesday before the open, the company announced fourth-quarter revenues of $168.4 million, up 111% from the previous year, and EPS of $0.32, for its 12th consecutive quarter of profitability. Trulieve opened 11 new retail dispensaries in the fourth quarter, ending the year with 75 stores in the U.S. and ended 2020 with a 49% market share in oil and 53% market share in flower in the state of Florida. Lastly, the company estimates 2021 revenues in the range of $815 million to $850 million, and $355 million to $375 million in adjusted EBITDA.
Looking forward, both GrowGeneration (GRWG) and Innovative Industrial Properties (IIPR) are schedule to release their quarterly reports after the market close today, while Cresco Labs (CRLBF) is scheduled to release its report before the market open tomorrow.
Next week in the regular monthly issue of Cabot Marijuana Investor I’ll provide a full summary of the quarter’s reports as well as an analysis of all the charts—and perhaps a look at possible new buys, if I see any that look good.