An Analysis of 5 Companies Whose Shares Have Dropped By The Double Digit Numbers!

Since October 2015, we have been releasing a weekly newsletter titled New Cannabis Ventures, of which you are holding a copy right now. In addition to connections to the week’s top news, the email also features original analysis to help readers get a leg up. The New Cannabis Ventures Global Cannabis Stock Index fell 8.6 percent this week, bringing its year-to-date gain to just 4.3 percent.

We have lately utilized this email to warn our readers that the early-year rise was questionable. Compared to the 6.5% increase in the S&P 500, this is far worse. We were concerned because of the extremely low trading volumes and redemptions at the largest ETF, and because we believed that the general market’s weakness could have an adverse effect on cannabis investors.

Even if the index as a whole is up so far this year, there are 5 components that are down by more than 10%: In the wake of a strong recovery from its recent low, Village Farms has experienced some pullback. Stock is a tremendous bargain, in our opinion. An equity issuance with warrants caused the drop and currently shares trade at only 0.5X tangible book value.

Although cannabis is not the company’s sole focus, we estimate that it is worth significantly more than it is currently valued because of the cannabis business alone. The present market cap of $118m is only 4.9x adjusted EBITDA projections for 2024. As a result, the price gap in the preceding chart is likely to be closed. The predicted margins for Trulieve are significantly larger than those of its competitors, which has us concerned.

Its native state of Florida, in which it is vertically integrated, contributes significantly to its high-profit margin. Margin pressure is possible if the state advances toward enabling wholesale sales. New rivals have emerged in the state, increasing the pressure on the corporation. At 3.7X forward-looking adjusted EBITDA for the year 2023, the stock has an enterprise value of $1.6 billion.

The ratio of 4.6X would be cheaper than its larger competitors even if margins were 20% lower than predicted. After announcing problems with several tenants at the end of January, shares of Innovative Industrial Properties, a real estate investment trust (REIT), plummeted to a new recent low. The stock is trading at a low 1.3X tangible book value and 10.2X its expected adjusted fund from operations for 2023, indicating that the price gap is still wide open.

We were not surprised by Cura leaf’s deterioration because its 52.3% decline in 2022 was far less severe than the decline of its competitors. At 7.6X enterprise value to anticipated adjusted EBITDA for 2023, the valuation is significantly above the industry average. AdvisorShares Pure US Cannabis ETF (NYSE Arca: MSOS) has seen consistent outflows of capital, and this stock is the ETF’s second-largest holding, at 20.7%.

In 2023, MSOS has already cut its Curaleaf holding by 1.5%. We think the stock price of Cronos Group, which has hit a multi-year low, is fantastic. Profitability and revenue growth have contributed to the company’s strong financial position. The stock is trading for only 0.74 times its tangible book value. We still think Altria, a major stockholder, might buy the company.

In general, we recommend buying these dips if you’re interested in cannabis companies, which we continue to believe have significant upside potential. There are several other cannabis companies that we like better than Curaleaf, and Innovative Industrial Properties doesn’t stand out as particularly timely.

My model portfolio to outperform the Global Cannabis Stock Index include shares of Cronos Group, Trulieve, and Village Farms. The news and articles featured on New Cannabis Ventures are both original and handpicked. Some of this week’s most compelling business articles are as follows:

Exclusives

Can we now breathe easily? Whether or if this bodes well for the industry as a whole is still too soon to say. Sales in December 2022 were up 5.3% from the previous November, according to BDSA, a company that analyzes sales data from the cannabis industry.

Year-over-year expansion in the East Coast markets varied from a negative 11.6% in Maryland to a positive 32.0% in Michigan. Comparing western markets to the same period a year earlier, growth ranged from -22.2% in California to -6.4% in Arizona.

Earnings

There was a sequential increase of 25% in revenue for Aurora Cannabis, bringing the total for the second quarter to C$61.7. This is an increase of 2% over the first quarter. The expansion was credited to the company’s medical program abroad as well as its successful recreational and medical operations in Canada.

Additionally, the company’s first full-quarter results from the purchase of Bevo Agtech Inc. were included in this quarter’s totals. There was a 25% increase in net revenue from medical cannabis sales from the previous quarter to C$39.5 million, but a 14% decline from the same period a year ago. Revenue from cannabis sales to consumers increased by 7% year over year to C$14.6 million.

The company said in a press release, “We have right-sized our business while remaining the No. 1 Canadian LP in global medical cannabis revenues and having generated organic quarter-over-quarter revenue growth across all of our cannabis sectors during Q2 2023.” Third-quarter revenue for Canopy Growth dropped by 4% sequentially to $84.8 million and by 28% year-over-year.

To further decrease expenses, the firm declared that it will be selling off Canadian assets and eliminating 800 positions. More specifically, the company is shifting to a strategy in which it relies on third-party suppliers for cannabis-related products such as beverages, sweets, vape concentrates, and extracts, and is ending flower cultivation at its plant in Smiths Falls, Ontario.

To realize our goal of long-term dominance in the North American cannabis market, Canopy must become profitable. Our Canadian operations are being restructured to be more “asset-light,” and we are cutting staff numbers and headcount drastically. Despite their difficulty, “these changes are important to push our firm to profitability and development,” the company said in a press release.

Sales

With the sale of Blue Camo, LLC to AZ Goat, LLC, Ayr Wellness Inc. hopes to leave the state of Arizona for good. The deal is expected to close for $20 million in cash, with additional cash proceeds expected within six months of the deal’s close. Additionally, AZ Goat will take up Ayr’s lease commitments, relieving the company of long-term lease liabilities totaling around $15 million.

Three Oasis-branded dispensaries, a 10,000-square-foot cultivation and processing facility, an 80,000-square-foot cultivation facility, and a joint venture creating an outdoor cultivation facility are all part of the sale. In a press release, Ayr explained that the proposed sale of its Arizona properties was the latest in a series of optimizations aimed at “simplifying our operation and prioritizing existing and prospective regions where we can create depth.”

Ayr also declared it had negotiated option agreements allowing it to acquire full ownership of two Ohio companies that had been granted provisional licenses to open dispensaries for medical marijuana patients. Examine the daily and long-term trends of publicly traded cannabis companies with the help of the NCV Cannabis Stock Indices, a suite of indices administered by industry experts.