Investing in Hashish Has Grow to be Extra Nuanced – New Hashish Ventures

You are reading an issue of New Cannabis Ventures’ weekly newsletter, which we have been publishing since October 2015. The newsletter contains unique insights to help our readers stay up to date, as well as links to the week’s most important news.

Friends,

It wasn’t long ago when investing in the cannabis space was largely about choosing between Canadian operators, American operators, and CBD companies. These choices still exist today, but none of them are the bulk of the New Cannabis Ventures Global Cannabis Stock Index, which currently has 42 members who qualified by the end of September. Instead, it is the subsidiary sector, which has 12 names and currently accounts for 29% of the index.

The minor sector is now the largest

We launched the Ancillary Cannabis Index in late March due to the proliferation of publicly traded names following several recent IPOs and SPAC mergers to help our readers better track this subsector. Small caps benefit from the fact that they can be traded on higher exchanges, are not subject to 280E taxation, and can scale their businesses across state lines. As indicated when the index was launched earlier this year, we are not surprised by the subsector’s growing popularity as investors with liquid stocks gain access to the growth of the American market. After ancillary costs, American cannabis operators follow with 25% and Canadian LPs with 17%. The rest consists of biotech (12%), CBD (9%), international (6%) and Canadian retailers (3%).

Companies are increasingly entering new subsectors

While we have broken down the sector exactly into these categories, there are several companies in the index and also active in several sub-sectors. A great example is Canopy Growth, which has international, Canadian retail, CBD, and ancillary businesses. Lately we’ve seen other companies venture into the CBD space as well, such as Village Farms. High Tide, a Canadian cannabis retailer, has added acquisitions to its side business and also bought up CBD companies. TerrAscend is the only index member that produces cannabis in both Canada and the United States. Curaleaf is mainly focused on its American operations, but is also positioned in the European market through an acquisition earlier this year.

Several companies have significant non-cannabis businesses

We also saw a number of companies with extensive cannabis businesses that also operate in non-cannabis markets. Looking at the current index, Canadian LPs Canopy Growth and Tilray have significant non-cannabis businesses. Canopy owns the majority of sports drinks maker BioSteel and skincare company This Works, while Tilray is active in pharmaceutical distribution, craft beer, and hemp nutrition. In the secondary sector, several companies are also active in other markets, including AgriFORCE, Turning Point Brands and urban-gro. Of course, the relief supplies provider Scotts Miracle-Gro generates the majority of its sales and income from its lawn and garden business. Biotech Jazz Pharma has only a modest exposure to cannabis after acquiring GW Pharma earlier this year, but is still a major company in the space.

Investors need to be careful when valuing various companies

With the increasing diversification of cannabis companies both inside and outside the industry, investors need to think more about valuation. Companies inside and outside the cannabis industry have different growth rates, profitability, and capital needs. We discussed the challenges of analyzing companies that have had significant exposure outside the cannabis industry in the past, and suggested that investors need to use sum analysis to rank the valuation. Companies diversifying their business within the cannabis industry also require the use of this analytical tool. Using Canopy Growth as an example, ratings for Canadian retailers, ancillary equipment, and CBD companies are very different from Canadian LPs.

As the cannabis industry matures, we are likely to see more companies try to expand beyond their original focus. Investors might benefit from having companies with exposure to different regions and different parts of the supply chain, but they will need to spend time and effort understanding the potential synergies, if any, and ensuring they are useful when considering the. use the correct multiplier for the company’s total sales or profit.

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Sincere,

Alan & Joel

Alan is based in Houston and leverages his experience as the founder of the online community 420 Investor, the first and still largest due diligence platform focused on publicly traded stocks in the cannabis industry. With his extensive network in the cannabis community, Alan continues to find new ways to connect the industry and enable its sustainable growth. At New Cannabis Ventures he is responsible for content development and strategic alliances. Before Alan, who began his career on Wall Street in 1986, switched his focus to the cannabis industry, he worked as an independent research analyst after over two decades in research and portfolio management. A prolific writer with over 650 articles published on Seeking Alpha since 2007, where he has 70,000 followers, Alan is a frequent speaker at industry conferences and a frequent source for the media including the NY Times, the Wall Street Journal, Fox Business , and Bloomberg TV. Contact Alan: Twitter | Facebook | LinkedIn | E-mail

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In this article:

ayr, ayr wellness, AYRWF, gaegf, Gage, gage growth, high tide, hiti, HMBL, humbf, bescheiden und Rauch, OGI, Organigram, Planet 13, PLNHF, PLTH, TILT, Tilt Holdings, TLLTF

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