My Cannabis Stock Rankings
I started following the cannabis sector in early 2013 when I saw an article on Seeking Alpha about a cannabis stock, Medical Marijuana (MJNA). I had started contributing to Seeking Alpha in 2007 and was one its most-followed contributors. I was writing about regular companies, but I shared my first article on cannabis stocks shortly after I read the piece:
MJNA and the other cannabis stocks were OTC scams from what I could tell and which ultimately proved true. As I wrote negatively about these stocks, many Seeking Alpha readers accused me of being paid off by pharmaceutical companies, alcohol companies or tobacco companies. No one was paying me! I was just sharing my perspective as a professional stock analyst.
Those who thought I was a hater of the cannabis industry were very wrong. I used to be a cannabis consumer before I had even known that word. It was marijuana when I was in college, and I remember smoking some for the first time (and I hated smoking in general). When I lived in NYC and worked on Wall Street, I smoked a few joints too, but that had been more than 25 years earlier.
While I was approaching these penny stocks cautiously, I was also spending time learning about the laws and also the potential health benefits of cannabis. I put in a lot of time then and continue to do so. As I wrote just negative pieces, I ended up getting a lot of people more interested in my views.
Someone suggested that I consider opening a stock-picking service focused on the sector, but I wasn't sure. I was excited about the pending launch of adult-use in Colorado on 1/1/14, but I was unsure if it was going to happen, as the federal government had said nothing about it after Colorado voters approved it in late 2012 at the ballot box. In August, President Obama cleared the way with what was known as the Cole Memorandum. I was running a stock-picking service at Benzinga, and I convinced them quite quickly to let me open up a new one, 420 Investor, in September 2023.
420 Investor was launched ahead of what turned out to be the biggest bull market for cannabis stocks, and it had 2000 subscribers at its peak. The problem, though, was that the stocks were not very representative of the industry and all traded over-the-counter. That powerful bull market didn't last long! Here is a chart of the New Cannabis Ventures Global Cannabis Stock Index, then known as the Benzinga 420 Marijuana Index, for all of 2014:
The index, which was formed as of the end of 12/31/2012 with an initial value of 100, was still up from inception, but it ended 2014 down 16.6%. This was down almost 87% from its peak on March 18th.
While that bear market played on, I ended up launching New Cannabis Ventures in 2015 with a partner. The idea there was to fix cannabis media, which we did in lots of ways.
Why I Am So Excited About Cannabis Stocks
The Global Cannabis Stock Index over the past 10 years is down now trades down over 90% since that 12/31/12 inception and over 99% from the peak in 2014:
I have written a lot since late 2022 about the cannabis sector and the need to get rid of 280E taxation on American cannabis companies. I called it one of the two essential things in December of 2022.
Well, the good news is that the DEA has indicated that it intends to reschedule cannabis from Schedule 1 to Schedule 3, which would wipe out 280E taxation. It is not a done deal, but is very likely to happen in Q1 of 2025. I had been concerned that the outcome of the Presidential election could impact it, and it might, but it seems like both candidates support it.
Looking at the chart over the last three years shows a bottoming process, with a recent surge on 4/30. This was the day that the DEA announced it was intending to reschedule cannabis:
We are down a ton since that spike on 4/30! Since then, the Global Cannabis Stock Index has dropped 28.2%. Stocks, as measured by the S&P 500 ETF (SPY), have rallied 13.8%. Year-to-date, the GCSI is up 3.7%, while SPY has gained 20.1% (before dividends).
The cannabis sector doesn't have too many institutional investors, as it is mainly held by individuals. These people are tired of losing money! To me, this looks like a bottoming process, but clearly we are not yet in a bull market for cannabis stocks.
When it comes to investing, I definitely think that charts matter. I also think that fundamentals and valuation matter! In my view, cannabis stocks were often very expensive in the past and are very cheap right now. I don't find all cannabis stocks attractive, but I can't believe how cheap some appear to be.
On the fundamentals, there has been a big slowing in cannabis consumption and in pricing. I think this is due to the pandemic spike in demand ending and to companies getting more efficient at growing cannabis and producing products. Another problem is that consumer spending in general has become pressured. The slowdown in cannabis is evident in both the U.S. and in Canada. While many states are maturing (along with Canada), there are some things going on that excite me. The main one is the state of New York's rapid growth finally. I am also excited to see some cannabis companies begin to use THC from industrial hemp, as this allows products to be sold in regular places and not cannabis dispensaries. It's still early on this one, and it could come under legal pressure.
While the end of 280E is directly helpful to American cannabis operators, it could help other cannabis companies in my view. The ancillary companies that sell goods or services to the 280E tax payers would have a healthier customer. Also, I think that investor sentiment towards the sector will improve a lot, and this will help not only the ancillary companies but also Canadian Licensed Producers that have no indirect exposure.
What Scares Me
As much as I like the cannabis sector, it does have risks. First, the big catalyst that I discussed above, rescheduling, may not happen. I don't think rescheduling has very many benefits that are that helpful to investors except the end of 280E taxation. If cannabis isn't rescheduled, 280E will remain, and this will be disastrous. 280E taxation suppresses cash flow, and many of these American cannabis companies have a lot of debt. If 280E remains, we will have companies go out of business or get seized by the lenders. It will also be bad for the other companies.
The other thing that has bothered me for a long time is that the space is led by CEOs who have limited or even no experience running companies. Too many of the companies are run by investors. Some are run by lawyers. I have nothing against either of these types, but I like to see proven executives that have successfully led a company. The cannabis industry has seen a lot of shake-ups this year, and I fear that the things will be bad if we don't get some better CEOs.
How to Invest in Cannabis Stocks
Readers who want to invest in the sector have many choices, and there is no "right choice" in my view for investing in cannabis stocks or stocks at all. Like most things in life, there are positives and negatives for any approach.
Many investors don't like to pick stocks and prefer funds. I have been watching the funds for a while and don't like any of them. I have written a lot negatively about AdvisorShares Pure US Cannabis ETF (MSOS), and I remain very negative about it. It is not very actively managed, and the top 5 stocks represent 84% of the fund. This is very poor diversification. Another fund that has captured my interest historically is Amplify Seymour Cannabis ETF (CNBS). I like Tim Seymour, but his fund stinks in my view. He has a lot invested in stocks that I don't like, and little or none in some that I like. Neither fund is doing better than the Global Cannabis Stock Index in 2024:
So, the other alternative is to invest in individual stocks. The challenge with that concept is which ones? It is very challenging to get help on that front in my view. I offer it in many ways, whether it is reading my newsletters on New Cannabis Ventures, which are free of charge and require no registration, reading my articles on Seeking Alpha, or subscribing to one of the two services that I offer at Seeking Alpha.
As I described above, I launched 420 Investor in 2013 at Benzinga, and I moved it to Seeking Alpha near the end of 2022. I really like that platform, and I put a lot into the service. Subscribers get a lot of information from me, including news updates, previews of financial quarterly reports and 10-Q reviews, two videos per day, a newsletter delivered monthly and model portfolios that can inspire them to take actions. My Beat the Global Cannabis Stock Index is up 19.2% so far in 2024, way more than the index and also ahead of those two ETFs.
Earlier this year, I launched The Big Picture, a sub-service of 420 Investor. It includes Top Picks. The good news is that it is a lot less expensive and includes some great things, like the monthly 420 Investor Newsletter and a weekly update. This service helps people stay on top of the cannabis sector but doesn't offer nearly as much as the full 420 Investor service.
My Current View on 23 Stocks
In October, I added a piece to the 420 Investor Newsletter November edition that I shared with 420 Investor and The Big Picture subscribers on 10/31 when I published it and that I had described in early October to my 420 Investor subscribers.
In the write-up that I shared on 10/13 describing this new feature, I pointed to the rankings being based on six factors: quality of management, balance sheet strength, growth, valuation, the chart, and liquidity, with scores ranging from very good to very bad.
Here is the current ranking as of 10/31:
I am not going to explain my views on each stock here, but I will point to where you can read some of the things that I have published recently. I understand that some can't access my articles on Seeking Alpha unless they become a member of what I think is a good offering: Seeking Alpha Premium. It currently costs $299 for a year, and it offers unlimited access to premium articles, unlimited access to conference call transcripts, ratings on stocks, lists of top stocks and the the ability to compare stocks side-by-side. I used to pay for this service, but I receive it for free as a Seeking Alpha contributor.
I do publish a weekly blog that can be read by anyone on the internet. This past week, I started sharing articles about cannabis stocks on my blog, writing about three (Trulieve, Ascend Wellness and WM Technology):
I have been contributing Seeking Alpha cannabis write-ups for the past two years now. Here are the recent titles:
Sometimes I write about a stock on the newsletter published weekly at New Cannabis Ventures. Like my Seeking Alpha Blogs, these are open to anyone with access to the internet. Here is a recent post on Green Thumb Industries:
While I don't like to write about individual cannabis stocks on this blog, I have written about Organigram (OGI) in the past.
The stock has dropped 14.4% since that first post. The NCV Global Cannabis Stock Index has declined 5.5%. Since I shared the optimistic piece in late April, just a few days ahead of the 2024 high for cannabis stocks, it has dropped 7.0%, while the index has fallen 11.1%.
I also shared a piece on October 9th about my three top picks, Organigram (OGI), Village Farms (VFF) and WM Technology (MAPS).
My opinions do change, and 420 Investor subscribers have access to me real-time and can ask me questions about the 23 stocks I currently follow on my Focus List.
Conclusion
I like cannabis stocks, and I didn't like them much for most of 2023 and earlier this year. I have explained why I like them now, and I have shared some risks too. If you want to buy cannabis stocks, I am available to help you in a lot of different ways. With or without me, I wish you the best!
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