Cannabis Stocks Explode Higher to Begin 2025

I am very bullish on cannabis stocks, which I have followed since 2013. They were crushed in 2024 and are down a ton since the peak in early 2021 and even more from the all-time high in 2018:

The Global Cannabis Stock Index, which ended 2024 at 6.88, fell that year by 15.2%, putting in an all-time low of 6.71 during trading on 12/30. The index goes back to the beginning of 2013 (at 100), which was after Colorado and Washington voters passed state-legal adult-use cannabis in their 2012 elections.

The index ran up sharply yesterday, the first day of trading in 2025, ending at 7.18, up 4.4%. I saw no news that would drive buying, but I assume that some stepped in because tax-loss selling was finally over (the threat of tax-loss selling).

At New Cannabis Ventures, we have been sharing this index in real-time daily for a long time, and we also offer three others: American Cannabis Operator Index, Ancillary Cannabis Index and Canadian Cannabis LP Index. Believe it or not, the Ancillary Cannabis Index rose a little in 2024, but it had performed poorly ahead of this year. Many cannabis investors focus exclusively on American cannabis companies, and those that buy only MSOs were crushed if they held in 2024 for the full year. Many like the largest cannabis ETF, MSOS, but it, like our index, fell to an all-time low. MSOS ended 2024 at 3.81 and posted an all-time low of 3.42 during trading on 12/17, dropping 45.6%. Here is the chart of the ETF, which I think is very poorly run, since inception:

As much as I dislike the way MSOS is run, I kind of would like it to go up. Why? My model portfolio at 420 Investor is loaded with MSOs. Yesterday, the portfolio had 55.3% invested in the sub-sector, with cash at 4%, Ancillary at 21.4% and Canadian LPs at 18.9%. The index at year-end had 21.4% in MSOs (6 of the 28 names at equal-weight as of 12/31). MSOS is heavily exposed to three stocks: Green Thumb Industries (GTBIF) at 34.2%, Trulieve (TCNNF) at 21.3% and Curaleaf (CURLF) at 15.2%. I think it is really silly to have this much of the fund (70.7%) in any three stocks. I don't include any of these in my model portfolio! My holdings include six other MSOs, including two very large ones, three Tier 2 names and another smaller one..

I recently conveyed that the cannabis industry is filled with investment opportunities, and it is. I don't think that yesterday's surge should be a warning bell for those not in yet. If one were to annualize the gains from yesterday, it would be up 42,900% in 2025. I don't think so!

The jump yesterday shouldn't encourage anyone to buy right away, and the plunge since February 2021 shouldn't be the sole factor to buy. It's all about 280E taxation going away. I discussed this potential catalyst a little over a month ago, and the DEA remains on track. If 280E goes away, taxes will fall for the American cannabis companies. This will help their cash flow and help deal with their outstanding debt. If 280E remains, there will be many more bankruptcies.

I think that 2025 will be excellent for cannabis stocks, but I did reduce my exposure a bit yesterday. Perhaps I am too used to the markets pulling back, but I think that the end of tax-loss selling season was the driver yesterday. Those that do decide to invest in cannabis stocks should remember that there is more to the market than the American cannabis companies. In my model portfolio, the largest position is a Tier 2 MSO. The next one is a Tier 1 MSO, but the third one is a Canadian LP and the fourth one is a REIT. Good luck to all!