Too Much Love for This MSO

You’re reading 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. We no longer send these by email as we did in the past, but we post this and all of the newsletters on our website here.

Friends,

Cannabis stocks have been in a bear market for 4 years now, with the NCV Global Cannabis Stock Index now down 93% since the closing high of 2021 on February 11th. Some stocks have declined by more, and few have rallied. In this newsletter, we have shared negative views on several stocks or ETFs, including Canopy Growth and Tilray Brands in Canada, the largest MSOs in Florida and the MSOS ETF. I am no longer negative on most of these and am long Tilray Brands in my model portfolio at 420 Investor for now.

The MSOs face very large challenges with their debts if 280E taxation does not end, and most MSOs are down in 2025. The American Cannabis Operator Index is down 4.2% in 2025 so far after getting crushed in January. The ETF MSOS has dropped 9.2%. Looking at the 5 largest MSOs, they are all down:

Leading the way down has been Green Thumb Industries, which is one of the two double-digit decliners. I think that MSOs, though very risky, are attractively priced, and I have very large exposure to them in my model portfolio at 34.7% in four names This is substantially more than the GCSI, which has an MSO weighting of about 22%. The MSOs that I hold are 2 Tier 2 MSOs and 2 Tier 1 MSOs, but I don’t hold GTBIF.

In early December, I shared with my 420 Investor subscribers a piece that appeared in the January edition of the 420 Investor Newsletter that explained why I had no GTBIF positions. I said then that the stock was undervalued but that it had modest growth expectations relative to peers, which remains the case.

Today, at the lower price, I still don’t hold the stock in my model portfolio, and I want to share my concerns. I do think that the company stands out relative to its large peers on the balance sheet, and management has been very stable. I like the company and its prospects, but I do not like the stock currently.

While the stock has dropped a lot from its peak, it is way above the lows of early 2020 after the pandemic. It is the only large MSO that has held that low. Here is the price action since the end of 2019:

Since its all-time low, the stock is 27.6% higher, while its peers have all dropped by more than 43%. Since 5 years ago, GTI has dropped 13%, but the others are down 54% or more.

Just because all of its peers have made new all-time lows does not suggest that GTI will get back below $5 again, but it might. I think that consistent results and a stronger balance sheet has gotten investors on board with the stock.

Looking at the valuation, GTI trades at an enterprise value to projected adjusted EBITDA for 2025 of 5X, which is very low. Among the 5 largest MSOs, it is the highest ratio, tied with Curaleaf, which has a lot of debt and negative tangible book value. GTI, which has very low net debt now, trades at 2.6X tangible book value. The other 3 large MSOs trade at 3-4X, but they do not have as strong a balance sheet as GTI.

One of the big challenges for GTI is that the ETF MSOS holds a very large position of 20.37 million shares. This represents 31% of the ETF’s holdings. The ETF has seen its shares outstanding rise in 2025 by 4.8%, bu its holdings of GTI have decreased by 7.7% since year-end. I have been highly critical of the ETF for being too concentrated. Currently, the 3 largest holdings represent 65.7% of the ETF, and this is down from 71.2% at year-end. GTI has dropped substantially (fewer shares, lower price), while MSOS has boosted the number of Curaleaf shares by 7.9%.

While I have been worried about the impact on the MSOs if MSOS sees redemptions again, like it did near the end of 2022, it has seen inflows. Yet, it has moved to sell some GTI down in price. In the future, this position could come under more pressure, especially if MSOS experiences redemptions.

My interaction with Seeking Alpha readers suggests that GTI is seen as a better company than its peers. I do applaud the company for being prudent in many ways and for not getting overly indebted, but recently there have been some issues that have concerned me. The first was when CEO Kovler wrote a letter to the founder of Boston Beer in June suggesting that the two companies merge. Coincidentally, I owned the stock just ahead of this, but I exited it at a profit in late May. I bought it this week as well after being out of it since October. The merger might be a good thing, but it was something that doesn’t seem possible for now unless Boston Beer wanted to give up its NASDAQ listing. Since the news of the letter hit, SAM is down 24% and GTI has dropped 40%.

Newsletter readers are familiar with the second thing that bothered me: Agrify.  I called out a silly cannabis stock move in November when Agrify sold stock. It had closed at $38.76 the night before it announced the offering at $22.30. While this was a large discount, the stock was up a lot from where it had been and from where GTI had first invested in the company. It is currently just below $25, but it ran up as high as $84 after the sale! GTI bought some shares in that offering, and investors got excited, perhaps seeing a merger with a way for GTI to get a NASDAQ listing. I do like the idea of THC beverages, as I have discussed in this newsletter, but AGFY seems overpriced. CEO Kovler is the Interim CEO and Chairman of the Board at Agrify, which I think could be a distraction.

I like GTI as a company, but I don’t include it in my model portfolio for the reasons I have shared. The bottom-line on GTI is that cannabis investors who think that 280E is going to go away can find better MSOs to own. For those who expect 280E to continue, some Canadian LPs and perhaps some ancillary companies (no 280E taxes, NASDAQ-listed, net cash) are better options.

Sincerely,

Alan

New Cannabis Ventures publishes curated articles as well as exclusive news. Here is what we published this past week:

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