Cannabis Stocks Are Now More Attractive
October 22, 2023 at 8:00 am
Friends,
Two weeks ago, we warned our readers that we are still in a bear market. Since that newsletter was published, the New Cannabis Ventures Global Cannabis Stock Index has fallen 7.5%. The index is now down 19.5% in 2023:
With the decline since the market peaked on September 11th, the index has declined 32%. It sits just 7.3% above the all-time closing low of 7.29 on August 24th.
Again, we think that rescheduling could lift the American cannabis stocks, as it might wipe out 280E taxation. We warned previously that it may take a while, and the DEA might move cannabis from Schedule 1 to only Schedule 2 rather than to Schedule 3, as the Department of Health and Human Services has recommended. 280E would not go away under that scenario, as we discussed in mid-September when we warned that the stocks of American cannabis operators were riskier.
While the MSOs have retreated recently, the NCV American Cannabis Operator Index is still up year-to-date by 9.8%. Since the peak on 9/11, it has dropped 26.2%. Here are the 5 largest MSOs since then:
The 28% decline on average has been worse than the American Cannabis Operator Index decline. The MSOS ETF, which is about 75% in just these five names, is down 26.8% since it peaked on 9/11.
While the MSOs look more attractive at the lower prices, the failure of 280E to go away would still likely lead to losses for investors. We continue to believe that there is upside if it does go away.
Buying the 5 largest MSOs is not the only way for investors to position for the potential regulatory changes ahead. At 420 Investor, the model portfolio I run that aims to outperform the Global Cannabis Stock Index is currently about the same exposure as the index in terms of its weighing in MSOs at 26%. The exposure is through 2 of the 5 largest MSOs at 7.3%, with the balance in 3 others.