My Top Picks – What I am Buying & Selling

Over the course of the next few weeks we will see one of the final pieces of the puzzle come to a conclusion: Rescheduling of cannabis to Schedule III under the Controlled Substance Act.  This will effectively mean cannabis is legalized, but regulated.  This changes everything for companies who deal in cannabis and are publicly traded.  This has been a long time coming, but it is finally here.  

From this point forward, cannabis stocks only have one more major step to take and the final pieces of the puzzle will be in place once and for all: up-listing to major exchanges.  Up-listing would mean higher liquidity and better access to capital.  This also means the short-selling game would be all but taken out.  

As cannabis shifts to Schedule III, this means companies will be more profitable.  280E will no longer be a barrier and companies are likely to pay about 7.5% – 12.5% less in tax liability.  Also, companies will have better access to terms with borrowing capital as risk levels will be narrowed.  Combined, up-listing to major exchanges, better tax liabilities, and lower borrowing costs, would mean that these companies are far, far better positioned to be more profitable.  Finally, these companies could be viewed as solid value investments.  

Given this, here are my positions that I have and what I am adding to my portfolio:

Stocks I am Buying

The common theme with the stocks below are that they are profitable and overlooked.  Many of these companies are going to continue to grow and create shareholder value.  These companies below area already net earnings positive, but are also under appreciated in their valuations.  This is true for many cannabis stocks.  However, being profitable would mean that these stocks would more than likely be appreciated more accurately.  This is a sign of the sector.  

• Cannara Biotech (LOVFF)
• Grown Rogue (GRUSF)
• InterCure (INCR)
• Vext Sciences (VEXTF)

I am either adding, or have added additional shares over the past few months getting ready for the inevitable moves in cannabis stocks.  But, these stocks have largely not moved much at all.  I may continue to add more shares over time if these companies continue to be under appreciated by the market – and, if I have capital to invest.  

Stocks I like (A lot) but don’t own

One of the most important things about a company that is up-and-coming is where it is with EBITDA profits at any given time.  A company that achieves EBITDA profitability is on its way to scaling upward to the point where that particular company is going to achieve net earnings profitability.  With cannabis companies, these companies are still investing heavily in CapEx.  This wears on net earnings profitability.  But, if you look at what a company is earning EBITDA profits versus Gross Revenues, on a percentage basis, this is an excellent indicator of what an company may be set up to accomplish in the future.  Companies that are printing above 20% EBITDA/Revenue are solid performers despite not being net earnings profitable.  CapEx investments, lack of easy credit terms, and other factors would play in to why these companies have not gotten to net earnings profitability.  These companies are solid in this regard:

• Ascend Wellness (AAWH)
• Avant Brands (AVTBF)
• AYR Holdings (AYRWF)
• Green Thumb Industries (GTBIF)
• Nova Cannabis (NVACF)
• Tilray (TLRY)

Stocks I am Holding

I have been buying these stocks below over the course of the past three years.  My plan is to hold these stocks for a longer period of time – perhaps about 10 years.  I expect these companies to continue to grow over time.  I also expect a solid amount of M&A activity, so I expect that of my top picks, many of these will be merged in to a much bigger company along the way.  

• Decibel Cannabis (DBCCF)
• High Tide (HITI)
• Jushi Holdings (JUSHF)
• MariMed (MRMD)
• Planet 13 Holdings (PLNHF)
• Schwazze (SHWZ)
• TerrAscend (TSNDF)
• Trulieve (TCNNF)
• Verano Holdings (VRNOF)
• Vext Sciences (VEXTF)

Stocks I am Dumping

I have given most of my holdings about an even try.  They are all down.  I have managed my portfolio by selling options on ETFs so that I can pull in continuous amounts of profits while the portfolio itself has fallen in value.  While I have mitigated the losses significantly, my portfolio is still down somewhat.  Now, however, I expect interest in cannabis stocks across the board to increase.  Because of that I have shifted, or I am shifting, out of these stocks.  Basically, stocks that are down I am shifting out of into other stocks that are down.  I expect these stocks to move upward with all cannabis stocks on the news and because they would not be better value investments.  But, these stocks may lag overall and I am shifting in to other holdings instead of waiting out these stocks moving upward:

• C21 Investments (CXXIF)
• IM Cannabis Co (IMCC)
• Lowell Farms (LOWLF)
• Yourway (YOURF)

Conclusion

We are now at that point where cannabis stocks are true value investments for shareholders.  The barriers to investing in cannabis stocks are all but gone.  The next step is to move to bigger exchanges – that would be the final piece of the puzzle.  

Along the way, companies will do two things to continue to grow and add shareholder value:

• M&A activity; and,
• Up-list to major exchanges.

Interest in cannabis stocks will expand significantly.  It finally can do so.  Because of this, the short-selling game will be all but taken out.  Companies need to expand to a point where their operating costs are relatively less costly overall relative to total revenue.  Likely, we will see more and more mergers long the way.  Also, we are going to see more and more companies opening up more and more dispensaries and getting deeper into their footprints.  This will mean more revenues and better economies of scale overall.  

I expect that this industry can, from this point, become a true value investment and the principles that drive these stocks are going to be what drive valuations.  I am shifting more toward analyzing cannabis stocks as a value investment now that the last barriers are gone.