Knocking Over the Glasses
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,
The environment for cannabis companies has changed dramatically over the past year. It appeared that the United States was going to reschedule cannabis from Schedule 1 to Schedule 3, but this no longer seems to be the case. While I never said here that it would happen, I did share my view of how beneficial wiping out 280E taxation would have been. Just like I never said that 280E was not necessarily going away, I am not saying that it will not be going away. You never know!
Cannabis stocks are extending the bear market that began in early 2021, with the NCV Global Cannabis Stock Index now down 26.6% year-to-date to 5.05. The popular ETF MSOS is down 42.8%. At 2.18, it is relatively close to its all-time low of 2.02 in early April and down 96% from its peak in February 2021.
In November, I discussed a silly cannabis stock move, as Agrify (NASDAQ: AGFY) sold a lot of stock at a big discount to its then current price of $38.76, raising more than $25 million at $22.30. New Cannabis Ventures has plenty of historical coverage on Agrify, which failed at its mission to provide equipment to cannabis producers, but the company was migrating to THC beverages and was in the process of buying a small private company.
I concluded that newsletter article by saying, “I am not predicting failure for Agrify, but the stock seems overdone in the short-term. I continue to believe that THC beverages sold nationally and not through dispensaries could be a great product idea, but it’s too early for investors to chase this idea. I am very bullish and am glad to see a cannabis stock soaring, but there are so many better ideas than Agrify.”
AGFY closed at $22.82 yesterday, so it is down, but it soared as high as $84.44 after my article. It is down 21.3% year-to-date, which is less of a decline that the Global Cannabis Stock Index, and it is outpacing Green Thumb Industries (GTBIF), which has dropped 38.8%. GTI is the company that has been pushing Agrify. The Chairman and Interim CEO of AGFY is Ben Kovler, the Founder, Chairman and CEO of GTI. Here is the price action of the two of them over the past six months:
In April, I wrote that the state-regulated cannabis industry was beginning to embrace hemp-based THC beverages. The largest 3 MSOs by revenue or market cap, including GTI, were doing so. While I like the idea of THC beverages, they face some risks that I called out in that article, including potential regulatory changes at the state level or the federal level. Since then, my own state of Texas has had legislation approved by legislators that is awaiting a final approval from the Governor that would outlaw hemp-based THC products. In just a few days we will learn if this will become a law later this year. I understand what drove the Governor and the Lieutenant Governor to push this legislation, but I think that they should have opted for better regulation rather than prohibiting the products. There remain issues in other states, and even the federal government is considering legislation to constrain the legalization of hemp in the Farm Act of 2018.
I know that a lot of investors read New Cannabis Ventures and this weekly newsletter. What should investors do about the potential negative news for THC beverages? First, I continue to be very negative on Agrify, which traded as low as $13.22 in April. That company is totally exposed to THC beverages and is very expensive in my view. Second, while I have other reasons to avoid the three largest MSOs, they face a risk if their most recent commitment to THC from hemp is stifled. The big reason to avoid them is that MSOS owns so much of them (currently 69%). Even if THC beverages do very well, it is difficult to see how these companies will benefit that much in the short-run. Third, for investors who believe in THC beverages, there are non-MSO ways to participate.
Investors and anyone who supports cannabis legalization should embrace hemp as a source of cannabinoids and fight for better regulation. Hemp-based cannabinoid products and all cannabis products should be safe for consumers of adult-age and not sold to minors. They should be tested, and they should be natural and not synthetic.
Sincerely,
Alan
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