Green Market Report Index Archives - Green Market Report

The Green Market Report Cannabis Company Index has added six companies to the Index and published its second-quarter recap report. The Index experienced an overall 8% decline in the second quarter due to the drop in valuations of the companies. Year-to-date the Index is still up 27%. The second-quarter stock performance was almost the polar opposite from the first quarter. The first quarter saw the Index companies delivering mostly positive returns. In the second quarter, most of the Index companies turned in negative results with only a handful in the green zone. Consolidation continues in the industry and the gap between small and large companies seems to be widening.

New Company Additions

The Index will be adding the following companies for the third quarter: Ayr Wellness (OTC: AYRWF), Curaleaf (OTC: CURLF), Fire & Flower (OTC: FFLWF), Gage Cannabis, Turning Point Brands (NYSE: TPB), and Verano (OTC: VRNOF). In May, Ayr Wellness Inc. (OTCQX: AYRWF) reported its financial results for the quarter ending in March with revenue rising 74% to $58.4 million. The company said it was in the early innings of its 2021 strategic transformation having closed on acquisitions like Liberty Health Sciences and adding the fourth largest retail footprint in Florida. 

It’s hard to explain how Curaleaf wasn’t already in the Index, but it is now. In May, Curaleaf reported its first-quarter total revenue increased by 170% to $260 million versus $96 million in the first quarter of 2020. Growth in retail revenue was primarily due to strong organic growth across Curaleaf’s footprint, the opening of six new stores across Florida, Maine, and Pennsylvania, and the rapid acceleration of revenue growth in Arizona after the introduction of adult-use sales in January of 2021. In June, Fire & Flower Holdings Corp. (OTCQX: FFLWF) reported that in its first quarter ending in May the company saw its revenue rising 90.7% to $44.1 million. The company said it was the fourth consecutive quarter of positive Adjusted EBITDA of $2.3 million as compared to an Adjusted EBITDA loss of $1.4 million for the first quarter of 2020.

In Michigan, Gage Cannabis (CSE:GAGE) has managed to get itself on the radar of several research analysts this summer and all agree that the company is a buy. Eight Capital, Viridian Capital Advisors, and PI Financial have all issued reports with Buy ratings and target prices ranging from C$4.25 to C$7.50. Gage also reported that its revenue increased 1,972% for the full year of 2020 to $39.9 million versus $1.9 million in the fiscal year 2019.  Gage also noted that at this time it has eight cultivation facilities in operation today (three Gage operated and five contracted cultivation assets) and is expecting to expand to 13 cultivation facilities by year-end.

For a company that mostly sells papers, Turning Point Brands (NYSE: TPB) is turning into a behemoth in the cannabis industry. The company announced during its recent earnings results that it was increasing its guidance for 2021 net sales to a range of $422 million to $440 million. This is up from the previous guidance of $412 million to $432 million. In May, Verano Holdings Corp.  (OTCQX: VRNOF) reported that its revenue on a pro forma basis as if the AltMed acquisition were completed on January 1, 2021. With that in mind, the first quarter of 2021 revenues increased 117% from the first quarter of 2020 to $143 million. Verano has completed the acquisitions of Territory, Emerald, and Local Joint, all in Arizona, giving it the third-largest retail footprint in the state with six active storefronts plus two cultivation facilities.

Index Removals

The Index is removing the following companies for the third quarter: Aphria, Zynerba Pharmaceuticals, Aleafia Health, Auxly, Akerna Corp., and Slang Worldwide. The landscape for available cannabis companies to be placed in the index continues to grow. The choices for larger companies with better revenues have allowed for Green Market Report to be more discerning in its choices.

Aphria was removed because it was acquired by Tilray. Zynerba is true biotech and won’t have revenues until its products hit the market, which could be some time from now. Aleafia’s revenue declines have been disappointing. Auxly’s debt could become a problem even though the company has managed to extend maturities. The revenue just doesn’t seem to support this much debt and the company could run into trouble. Akerna has struggled to show improving revenue and while the company is valiantly making acquisitions to get there, the Index has found better candidates. The same could be said for Slang, which continues to strengthen the company. The management is making great moves, but the Index is looking to larger names with bigger revenue streams. 

In Closing

While the second quarter was rough for cannabis stocks. The third quarter looks to be turning around and hopefully, valuations will continue to recover. The catalysts for the industry are overwhelmingly positive. New Jersey sales could begin in 2021 giving the state a jump on capturing the New England market. Then New York and New Mexico are both set for April 2022. Sales for these states are expected to be in the millions.

As retailers are slowly able to recover from COVID lockdowns and restrictions, more sales records are bound to be broken. Canadian retailers that suffered from store closures in the first quarter and are happy to be opening their doors once again. In the U.S., tourism is on the rise and people who have been stuck at home are ready to get out of town and party.

The Green Market Report Cannabis Company Index fell sharply in the first-quarter of the year, dropping 21.9 percent, with only a few components ending the period in a positive manner.

Much of the concern came from an increasingly hostile regulatory environment, as U.S. Attorney General Jeff Sessions rescinded the Cole Memorandum. While the full results of the rescinded memorandum have yet to amount to anything more than tough talk out of Washington, it has put a damper on the sector in the short-term.

There’s also been a cooling of the market in Canada as well, despite extreme optimism from investors that the country would legalize cannabis for adult use. Instead, Prime Minister Justin Trudeau and his team have hinted that recreational use could start in the fall, as opposed to July, as had been previously thought.

Much of the downfall seen in the U.S-based stocks occurred due to a correction in the so-called “California trade,” where investors were buying shares of companies hand-over-fist in anticipation of California’s legalization that began in January. The rollout of the legalization has been bumpy, with legal sales taking a back seat in some cases to black market sales due to heavy taxation in some cities and counties; as such, some cities, such as Berkeley, Calif., which recently cut the tax it placed on sales of legalized marijuana to 5 percent, down from 10 percent.

Signs Of Hope

Despite the negative headwinds seen throughout the broader cannabis sector, there were a few standouts in the index, most notably MariMed (MRMD), which gained 46 percent. The company, which participates in the red-hot Nevada market with its Kalm products, was able to raise $2.8 million in the quarter, pay off some existing debt and develop facilities in Maryland and Massachusetts.

Other companies that performed well in the index were Invictus MD Strategies (IVITF) and Kush Bottle (KSHB), which gained 16 percent and 14 percent, respectively. The only other company that had a positive return for the first three months of 2019 was Canopy Growth, which squeaked out a 0.92 percent gain.

Losers Really Struggle

Losers in the index really struggled, including Axim Biotechnologies (AXIM), which plunged 65 percent. The company is working on a chewing gum formula for medical marijuana, but investors are currently uneasy about the company, at least in the short-term, as evidenced by the 71 percent decline seen in its shares over the past year.

Other losers include Namaste Technologies (NXTTF), which dropped 50 percent, WeedMD (WDDMF) and Aohria (APHQF), both which fell 44 percent, respectively.

Changes To The Index

Green Market Report announced changes are being made to the index, adding Hiku Brands (DJACF), removing Corbus Pharmaceutical (CRBP), as Green Market has made the determination the company does not have “much real exposure to cannabis.”

Though Hiku Brands offers promise for the future, thanks to its DOJA, Tokyo Smoke and Van der Pop brands, the company has not issued a financial statement since significant changes took place in recent months, with the last coming in Sept. 2017 and no revenue to speak of.

Brighter Days Ahead?

Despite the negative headwinds seen in the first-quarter, there are some recent positives for investors to grasp onto, most notably Sen. Majority Leader Mitch McConnell (R.-KY) introducing a bill that would remove hemp from the controlled substance list, potentially paving the way for it to be a cash crop similar to tobacco or cotton.

In addition, former Speaker of the House John Boehner joined the board of directors of cannabis company Acreage Holdings. And just last week, Senator Cory Gardner (R.-CO.) said that he had a telephone agreement with President Donald Trump to “protect states that have legalized marijuana,” including California, Colorado, and Nevada.

In total, 9 states have legalized marijuana for recreational use. The majority of states allow marijuana to be used for medicinal purposes, while just Idaho, South Dakota, Nebraska and Kansas prohibit the use of cannabis.