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.
It was 13 months ago that we shared our perspective that a new bull market had begun in March. Since then, the New Cannabis Ventures Global Cannabis Stock Index has indeed rallied spectacularly, rising more than 84% since we discussed the “third wave in cannabis investing” last May. We cited several factors that led us to believe the rally that was underway would be sustainable, including additional states legalizing, which has been the case, and improvements in key markets that had already legalized. After a massive rally in Q4, we reiterated our optimism, discussing 9 potential growth drivers for the year ahead.
As we near the mid-point of the year, we are pleased with how events have played out so far. The stocks have tracked the progress being made, with the Global Cannabis Stock Index up 33.7% so far. Of course, we are far from the highs set in February, with the index almost 36% below the 2021 closing high. We explained near the end of Q1 why stocks had pulled back, and now, 2 1/2 months later, the index has consolidated slightly lower.
We think this is a time for long-term investors to be patient. The fundamentals are as good as they have ever been for the industry, even if the stocks are acting like no one cares. Ultimately, the prices will track the fundamentals, and strong growth is likely baked in for years to come as recently legal markets, like Arizona, Illinois and Michigan, continue to ramp up and new markets launch adult-use sales, like New Jersey, New York and Virginia. The MSOs are dominant in all three of these markets and are poised to benefit as the new programs go live.
Beyond overall market growth, we continue to view M&A as an additional growth driver for many MSOs, with the highly fragmented industry ripe for consolidation. The well-capitalized MSOs continue to pay what appear to be very attractive prices for assets. M&A isn’t limited to just MSOs, as we are seeing substantial consolidation by Canadian LPs as well as ancillary companies.
Cannabis stocks overheated early in the year, and the cooling off period has now hit four months. A consolidation of this nature can test one’s patience. As we reevaluate our bullish thesis that we shared going into the year, we are even more excited by the fundamental prospects for the cannabis industry. For subscribers at premium subscription service 420 Investor, we assess not only the fundamentals, but also valuations, technicals and sentiment, which we refer to as the four legs of the chair. From our perspective, the chair is very sturdy, and we remain optimistic that cannabis investors will continue to be rewarded in 2021.
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This week’s newsletter is sponsored by Global X
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New Cannabis Ventures publishes curated articles as well as exclusive news. Here is some of the most interesting business content from this week:
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Alan & Joel