Cannabis Stocks Were Crushed by the Elections

I have been writing a lot more optimistically about cannabis stocks recently, but today they will be down a lot it appears. It's very early in pre-market trading, but the losses are huge. What's going on?

The Florida Voters Don't Approve Adult-Use Legalization

This is not the first time voters in Florida failed to approve adult-use legalization, but it was highly expected and a big controversy in the state. Governor DeSantis was very much against it, while Donald Trump was advocating in favor of it. In Florida, 60% of voters must approve a ballot initiative to amend its laws, and only 57% voted in favor.

Florida has a very large medical cannabis market that launched several years ago. Few have been writing what I have been sharing at New Cannabis Ventures, but the medical market has become highly competitive and is showing signs of declining. Most analysts and investors have been expecting the MSOs that operate there to do much better. I have written very negatively about Trulieve (TCNNF) recently. Last week, I wrote on my blog at Seeking Alpha that it is not a good cannabis stock to buy. It was then $13.05, and it closed yesterday at $11.65. This was before the bad news came out yesterday, but after their Q3 financials and conference call. Future estimates for the company by analysts fell due to a revenue short-fall. Now, investors will likely scramble. There are some gaps in trading in the $9 and $9.5 area. The stock ended 2023 at $5.21, though I don't think there is a good chance of it going that low unless 280E taxation remains.

Very Early Stock Action

As I write this, it is about three hours before the market opens. There is some pre-market trading.

The first thing I look at every day are the Canadian LPs, as they trade on the NASDAQ and are very popular with traders and investors. At this moment, Canopy Growth (CGC) is down on 296K shares of pre-market trading, offered at $4.65. This is down 17%. Of course, Canopy Growth has nothing at all to do with Florida. Tilray Brands (TLRY) has traded 415K shares and is offered at $1.61, down 9%. Are these dips to buy? I don't think so, as I don't think those stocks are worth nearly where they are trading now. I reduced it a little yesterday, but one of my favorite Canadian LPs is Organigram (OGI). I may add to that one. Cronos Group (CRON) is much cheaper than CGC or TLRY, and it has traded just 6K shares so far. It is offered at $2.14, which is down 4%. I would buy that over CGC or TLRY!

Given that the news will impact MSOs, I want to know how they are doing, but they don't trade in the pre-market due to being traded Over-the-Counter and not on the NASDAQ or NYSE. AdvisorShares Pure US Cannabis ETF (MSOS), though, trades in the pre-market and it has 84% invested in the top 5 MSOs. It has traded 221K shares already, and it is offered at $6.05, down 12% and near its 52-week low of $5.71. In late August, when the DEA announced a hearing regarding rescheduling, it traded as low as $5.99. I am not a fan of this ETF at all (poor diversification, not really actively managed).

What to Do

I remain very bullish on stocks, and I have purposefully avoided most of the large players in Florida. An exception is Verano Holdings (VRNOF), though I did trim that one in my model portfolios. That stock is down a lot in 2024, ending at $3.20 yesterday compared to $4.48 at year-end. The stock looks very cheap to me. Here is the chart since 8/29/23 for it and Trulieve as of last night:

That date, 8/29, was the day before the news hit that the Department of Health & Human Services had recommended to the DEA that it reschedule cannabis. I am not sure why earlier this year, investors got so excited about Trulieve but totally disregarded Verano. So, I would suggest that investors buy any dip on Verano today.

There are other MSOs that are smaller in Florida or not in the state at all, and these could be interesting too if they fall sharply today. Of course, the Canadian LPs too look ripe for dip-buying. Beyond Organigram, which I own in my model portfolio, and Cronos Group, which I do not currently include, I have a lot of Village Farms (VFF). I really like VFF, and it should be at the top of the list for any investors looking to enter the cannabis sector. Of course, it has no upside from 280E taxation going away. My top pick for stocks that will benefit, though not directly, is WM Technology (MAPS), as I explained recently on my blog at Seeking Alpha. I called it my favorite cannabis stock.

So, today is a good day to buy some cannabis stocks in my view. I wrote on 9/13 that the cannabis bull market is still coming, and I think it is. I have never had Florida legalization as part of the bull market strategy, though I had an idea for a stock that I like that should have done very well in Florida if voters had approved adult-use cannabis. Buckle up! Today could be very rough for cannabis stocks, but things should get a lot better for many cannabis stocks.