Very Rough Times for American Cannabis

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 remain very volatile, but they are down a lot so far in 2025 despite the recent strength. The NCV Global Cannabis Stock Index closed yesterday at 5.36, which leaves it up 11.5% in April but down 22.1% year-to-date. Popular cannabis ETF MSOS has dropped 27.0% this year (and seen some redemptions).

Earnings season f0r MSOs kicked off yesterday, with Trulieve ahead of expectations but with revenue that was flat from a year ago. Green Thumb Industries missed its projected revenue, but grew sales by 1% from a year ago. In its 10-Q, it highlighted Ohio’s adult-use legalization and strength in New York. This morning, Verano missed expectations for its Q1.

While GTI is clearly the best large MSO financially, things were not great about the quarter. One thing that stood out to me was the very short conference call at just 22 minutes with questions by only 3 analysts. I like the realism of CEO Ben Kovler, who isn’t expecting things to get much better for the industry, as he discussed again on that conference call:

We are forging new paths that can realize the value we have created, while staying true to our mission. Fortunately, we have the capital resources and a strong balance sheet that we believe will support our long-term plan over the next four years and beyond. What keeps us focused is how we can optimize the long-term opportunity related to consumers.

I concur that the company does have a strong balance sheet, as net debt of only $42 million stands out. GTI is the only large MSO to have positive tangible book value, and it trades at just 2X that level. There are problems, though. First, while the income tax situation is better than its peers, there is $111 million of deferred income taxes and income tax payable that is not included in that net debt calculation. Second, gross margins fell compared to a year ago, and operating expenses increased. The net impact of the quarter was that free cash flow (operating income less capital expenditures) fell from $77 million a year ago to just $44 million.  The stock does seem cheap at an enterprise value of just 4.3X its projected adjusted EBITDA for 2025, but this is higher than peers. One of my big concerns is that MSOS owns 19 million shares, which represents 31% of the fund.

GTI is one of the few cannabis companies repurchasing its shares. Last week, when I discussed this trend, I included the company’s actions that had been conveyed in its 10-K. Today’s 10-Q pointed to a smaller action in Q1, with the company paying $6.49 for just 160K shares. The stock closed lower yesterday ($6.02), and it traded below $5 in April.

I see GTI as very popular with investors, which is not surprising given its solid execution over many years, its conservative practices and its strong balance sheet. As cheap as it appears to be, I don’t like the stock right now. In my model portfolio at 420 Investor, I am down to just 9% exposure to MSOs, including Verano and Planet 13 and not GTI. The stock is down 26.3% year-to-date, but it outpaced peers in 2023 and 2024. Since the end of 2022, GTI, at down 30.2%, which is a much smaller decline than all of the other large MSOs.

MSOs have bounced from terribly low levels in April, but they face tremendous risks. Even GTI, with its low valuation and relatively strong balance sheet, faces the likely reality that 280E taxation will remain. As I have been writing, Florida, a large market where the MSOs are very active, is facing a challenging medical cannabis market. This week, Pennsylvania took a step closer to something that would be very bad for the MSOs: state-run dispensaries for adult-use. I continue to view other parts of the market as offering better risk-reward, including Canadian LPs and some ancillary companies. While I am quite discouraged about the prospects for the publicly-traded MSOs in the near-term, investors need to appreciate that things do change. Let’s hope that they do!

Sincerely,

Alan

This week’s newsletter is sponsored by Paul E. Saperstein Co.

On May 13th, equipment from bankrupt Revolutionary Clinics is being auctioned in Fitchburg, Massachusetts at 11am ET. All bids must be delivered online. Find out more about the 174 items being auctioned.

Interested parties may contact Michael Saperstein at 617-227-6553 or by email at msaperstein@pesco.com.

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

Exclusives

Cannabis Sales Remained Pressured in April

Financial Reports

Green Thumb Industries Q1 Revenue Slips Sequentially and Grows Just 1%

Trulieve’s Q1 Was Flat to 2024-Q1

Verano Q1 Revenue Declines

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