You’re reading a copy of this week’s edition of the New Cannabis Ventures weekly newsletter, which we have been publishing since October 2015. The newsletter includes unique insight to help our readers stay ahead of the curve as well as links to the week’s most important news.
2021 has seen tremendous appreciation in cannabis stocks, but the past eleven trading sessions have left prices well below the peak on February 10th. The New Cannabis Ventures Global Cannabis Stock Index is up 50% in just the past 8 weeks, and this follows a 62% advance in Q4, but the index has declined almost 28% since February 10th:
The strength since the end of the year can be attributed to the Democrats taking control of the Senate in early January following two runoff elections in Georgia. Investors have become excited by the prospects for federal legalization. Despite a substantial amount of equity offerings, strong investor demand, which includes institutions taking down some of these new issues, has helped the stocks to maintain most of their gains.
In our view, the market got a bit ahead of itself (we warned our subscribers at 420 Investor at the end of the first week in February), but this recent pullback sets the stage for a potential advance in the coming weeks, especially for American operators, as they are poised to benefit from what we expect will be a very solid earnings season that kicks off when Curaleaf reports on March 9th. For a look at all of the currently scheduled releases, please consult the New Cannabis Ventures earnings calendar.
We expect Q4 was yet another quarter of solid financial performance for the largest MSOs, with strong revenue growth and improving profitability, and investors are likely to be pleased. Taking a look at the leading MSOs by market cap and/or revenue using Sentieo as our data source, the typical MSO is expected to report year-over-year revenue growth of 112%.
Of the 11 companies, six are expected to show acceleration from the prior quarter. Of the five that are expected to slow, all but one are still more than doubling revenue from a year ago. These numbers are likely to excite investors in our view.
Like last quarter, we are hopeful that more companies will provide guidance for 2021. That wasn’t the case in November, with still only Jushi Holdings and TerrAscend guiding at this time. In an interview with New Cannabis Ventures in December, Curaleaf CEO Joseph Bayern stated that the company would provide 2021 guidance when it releases Q4 financials. Given that the company’s guidance is very likely to be in excess of $1 billion revenue (consensus is $1.26 billion), this could be a catalyst for the entire sector, as the media is likely to pick up on this potential milestone.
Cannabis stocks have performed quite well in 2021 thus far, but this has been due primarily to political developments. We see Q4 earnings reports as a catalyst especially for MSOs, as investors are likely once again to be reminded of how robust industry growth is currently.
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Alan & Joel