Canopy Growth Corp (NYSE:CGC) (TSE:WEED) (FRA:11L1), Trulieve (CNSX:TRUL) (OTCMKTS:TCNNF), Curaleaf (CNSX:CURA) (OTCMKTS:CURLF), Cresco Labs (CNSX:CL) (OTCMKTS:CRLBF) (FRA:6CQ), Green Thumb (CNSX:GTII) (OTCMKTS:GTBIF) (FRA:R9U2) have all emerged as leading contenders in the fight for world cannabis dominance.
You can see it in the Midas Letter Cannabis Indices too. (see above). There are two markets that are firmly in recovery, and two that are still bouncing along a bottom.
The Midas Letter Large Cap index is the group of Canadian companies above a $500 million market cap. Led by Canopy Growth, it is obviously replete with companies whose share prices are more green than red since the beginning of 2020, and that trend looks like it will continue.
Similarly, the Midas Letter CSE Index in the lower right demonstrates the same characteristics, and is being led higher by the US MSO contingent of the index, which makes up more than 85 percent of the entire cannabis-related market cap of the CSE. As you can see in the table below, nine out the top ten companies listed on the CSE by market cap in the cannabis space are US MSOs.
|CURA||Curaleaf Holdings Inc.||8.83|
|GTII||Green Thumb Industries Inc||12.69|
|TRUL||Trulieve Cannabis Corp||14.28|
|CL||Cresco Labs Inc||8.1|
|HARV||Harvest Health & Recreation Inc||3.69|
|FFNT||4Front Ventures Corp.||0.68|
|IAN||iAnthus Capital Holdings Inc||1.94|
|PLTH||Planet 13 Holdings Inc – Ordinary Shares||2.18|
|LHS||Liberty Health Sciences Inc||0.7|
If you were to sweep the 153 companies in cannabis listed on the CSE off the board, the performance on the index since January 1st would actually outperform the Large Cap index, which is still plagued by the undertow caused by members like Hexo and Aurora who are decidedly not part of the recovery being enjoyed by the rest of the group.
So what’s our actionable takeaway here?
The favorite overused cliche at this point of the cannabis cycle is “bifurcation”, which most use to differentiate the US MSO’s versus the Canadian large caps. Canopy, however, is incrementally becoming a US -or more aptly – a global MCO (multi-continent operator), so that term isn’t really applicable. Especially if Canopy is able to one day close its acquisition of Acreage Farms.
The better perception described by bifurcation would be haves and have-nots. The larger companies that have major external investors more focused on the long term than the shorter term volatility that shakes out weak sisters, and who are not staggering under crushing debt and blown out capital structures, are likely going to pull away from the far more numerous smaller companies that have hit the wall in terms of ability to raise more cash at decent valuations, or have done egregious financings with predatory intermediaries.
So make sure you understand that there are definitely two levels to this cannabis game now. One is in a solid recovery, and could actually zoom to new highs with just a couple more sector-wide catalysts to give it a boost, and the other is of the “dead man walking” variety, who are going to run out of cash, trade at pennies, and then become a shell.
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