The AdvisorShares Pure US Cannabis ETF is down 25% in the past month, while the S&P 500 dropped 7%.
Courtesy of Trulieve
However bad the year has been for most stocks, it has been especially harsh for state-licensed cannabis sellers.
In just the past month, the AdvisorShares Pure US Cannabis exchange-traded fund (ticker: MSOS), which tracks America’s multistate operators—or MSOs—fell 25%, while the S&P 500 dropped 7%.
“The group does not seem to find a bottom,” said Cantor Fitzgerald analyst Pablo Zuanic in a July 5 note. Among the depressants, he lists the repeated failure of federal cannabis reform initiatives in Congress, tough year-over-year comparisons with 2021 stimulus spending, and falling wholesale cannabis prices.
Investors in these over-the-counter traded shares seem unmoved by the recent launch of recreational sales in New Jersey and New Mexico, or the coming launches in New York, Connecticut, and Rhode Island.
But Zuanic notes that the group’s fizzle has brought MSO stocks to levels at which he sees value. As the table below shows, the largest half-dozen multistate operators now trade at an average of less than twi times 2023 sales, and less than six times earnings before interest, taxes, depreciation, and amortization, or Ebitda—as forecast by the analyst tally of Sentieo.com. He has a Buy recommendation on all six of these stocks, while advising patience to investors who’ve had their hopes repeatedly dashed by Congress.
Late Bloomers
The recent launch of recreational marijuana sales in New Jersey should lift the sales of some state-licensed weed sellers when they report for the June quarter.
| Company / Ticker | Recent Price | YTD % Change | Market Cap (mil) | 2023E Enterprise-Value-to-Sales | 2023E Enterprise-Value-to-EBITDA | Next Earnings Report |
|---|---|---|---|---|---|---|
| Columbia Care / CCHWF | $1.45 | -49% | $519 | 0.9 | 3.4 | 8/15/2022 |
| Terrascend / TRSSF | 2.56 | -58 | 773 | 1.6 | 4.9 | 8/19/2022 |
| Cresco Labs / CRLBF | 2.93 | -56 | 1,185 | 1.5 | 5.2 | 8/19/2022 |
| Green Thumb Industries / GTBIF | 9.17 | -59 | 2,461 | 1.9 | 5.8 | 8/3/2022 |
| Trulieve Cannabis / TCNNF | 12.89 | -50 | 3,101 | 2.3 | 6.1 | 8/12/2022 |
| Curaleaf Holdings / CURLF | 5.15 | -43 | 3,675 | 2.4 | 8.0 | 8/8/2022 |
E=estimate
Source: Sentieo.com
When these companies report June-quarter results next month, several should see a meaningful bump in revenue for their exposure to New Jersey, where recreational sales began in the quarter. Those companies include Curaleaf Holdings (CURLF), Green Thumb Industries (GTBIF), TerrAscend
(TRSSF), and Columbia Care (CCHWF).
The cheapest of those stocks, TerrAscend and Columbia Care, have higher levels of debt and interest expense than the others. That probably played a part in Columbia Care’s March decision to sell itself to Cresco Labs (CRLBF) in a transaction that shareholders approved Friday. The combination gives Cresco exposure to Jersey sales now, of course.
The Garden State is a big deal for TerrAscend, which is one of four operators licensed in the northern part of Jersey that adjoins New York City. Two of its dispensaries are in the commuter suburbs of the Big Apple .
Green Thumb and Curaleaf are also pretty cheap for growing, high-margin businesses. And they’re both well-funded at a time when smaller operators find capital markets unwelcoming.
So pay heed, when these companies report their first quarter of New Jersey recreational sales.
Write to Bill Alpert at william.alpert@barrons.com
Source: finance.yahoo.com