In early June, we began to express our bullishness on cannabis stocks in this newsletter. The Global Cannabis Stock Index is down significantly since then, but it is up 2% in July from its…
lowest close ever on June 30th:
The overall cannabis market is still down 54.2% year-to-date. We remain optimistic about cannabis stock prices, and today we want to point out some great action. Our model portfolios at 420 Investor have performed exceptionally well recently. Since month-end, the returns for all three have been in excess of 11%, well ahead of the market.
One of our big weightings has been in ancillary stocks, and we have been increasing our exposure. It is the largest part of the index at 41.3% (we are 31% in one portfolio and 37% in the other long-term focused model portfolio), and the stocks, which all trade on the NASDAQ or NYSE, have been hammered this year. Two that have helped us this month include CEA Industries (formerly Surna), up 22%, and GrowGeneration, up 17%. We find these stocks as well as others to be very inexpensive.
Our biggest relative and absolute exposure is to multi-state operators. The index is 29.3% MSO (multi-state operators) and SSO (single-state operators), but the model portfolios are 41-46%. Some big moves this month have taken place, with 5 of the top 10 stocks advancing more than 15%, including Ascend Wellness (+33%), Columbia Care (+16%), Cresco Labs (+26%), Jushi Holdings (+22%) and Green Thumb Industries (+19%). Our model portfolios currently have about 24% invested in four of these names.
Of those that want to invest in multi-state operators, many pick AdvisorShares Pure US Cannabis ETF, which can be enticing, but not fully correct, as the portfolio valued at $585 million includes a REIT, Innovative Industrial Properties, as a top-10 holding. Other companies that don’t actually produce cannabis products include AFC Gamma, Agrify, Hemp Fusion Wellness, Hydrofarm, Power REIT, RIV Capital and urban-gro. These companies represent just 6.4% of the portfolio, which also has cash of 2.9%.
While the ETF has become more focused on cannabis operators this year, its reliance on ancillary names hurt the performance. Year-to-date, it has dropped 55.5%. This is worse than the overall market, as measured by the 54.2% return in the Global Cannabis Stock Index, but it’s a lot worse than the return of the American Cannabis Operators Index, which has declined 44.2%. The AdvisorShares Pure US Cannabis ETF is having a good July at up 10%, ahead of the Global Cannabis Stock Index but behind the 11.6% return of the American Cannabis Operators Index.
The third part of our portfolio is in Canadian LPs, which are 18.9% of the index but almost 22% of the model portfolios. We have added to…
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