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.
You probably wouldn’t believe it if you looked at your portfolio, but the cannabis market has rallied four straight weeks now, with the New Cannabis Ventures Global Cannabis Stock Index increasing 10.5% since July 16th:
While the index has certainly rallied, most stocks have declined, as the market is experiencing a bout of bad breadth. Quite simply, the extremely strong performance of just a few stocks is masking what has been continued weakness.
Over the past four weeks, two names in the index have increased more than 100%, including two NASDAQ-listed IPOs from 2021, Flora Growth (+441%) and Agrify (+113%). These outsized gains account for more than the entire increase in the index.
The index, which was rebalanced at the end of Q2, has 44 members that were equally weighted at the time. While the average return since then has been -2.1%, the median return has been a loss of 14.8%. In other words, the typical stock has underperformed the index by almost 13%. Popular ETFs MJ and MSOS have declined 17.3% and 12.6%, respectively, so far in Q3, reinforcing how challenging the market has actually been.
Among the 44 index members, there are six stocks that have produced double digit gains thus far in Q3, including Flora Growth (362%), Agrify (143%), urban-gro (27%), Innovative Industrial Properties (22%), Clever Leaves (22%) and The Valens Company (10%). At the same time, 17 companies have declined by more than 20%. In the table below, it’s clear that the weakest stocks are diverse in nature in terms of their U.S. listing and their industry focus:
Over the past eight years of managing the index, we don’t recall ever seeing such a divergence between the index return and the typical return of cannabis stocks. We don’t believe there are any conclusions to be drawn from this extremely narrow rally over the past four weeks, but we are glad to see at least some cannabis stocks are rallying. We wanted to make sure our readers understood this dynamic, as the index return has been at odds with the returns that most investors have experienced thus far in Q3.
In the weeks ahead, it’s very possible that a stock like Flora Growth, which tanked after its IPO and lost over 40% of its value before soaring over 500% off the low, could reverse some of its gains, similar to what happened with index member India Globalization in July. The index, which was equal-weighted at the end of June, is now heavily weighted to Flora Growth after its rise, and any decline or further increase will have a relatively large impact on the overall index return. As of Friday, the stock represented 10.7% of the index.
For several years, operations-focused MSO Body and Mind has developed proprietary strains that have the perfect balance of body and mind benefits. It grows in small batches, without the use of synthetic pesticides, all with a goal of continuing to create award-winning products that resonate with cannabis consumers. The company has recently arranged a debt facility to further fund its growth initiatives. After winning two Chicago retail dispensary licenses with partners, the company will be entering its fifth state of operations.
Get up to speed by visiting the Body and Mind Investor Dashboard that we maintain on their behalf as a client of New Cannabis Ventures. Click the blue Follow Company button in order to stay up to date with their progress.
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