I am systematically working through the MSOS ETF to look at the individual stocks and break them down as potential investments. During this time, I was also asked to break down the actual MSOS ETF as an investment opportunity. While breaking this down I was surprised at some of the things I came across. And, as you all know me, I look at the numbers and not the hype surrounding the cannabis industry.
A lot of these stocks I will be talking about here can be followed in the Complete List of Top 100 Cannabis Stocks and the Best Marijuana stocks to Buy as I cover them all the time on this site.
This ETF is supposed to be a way for individual investors to get involved in the cannabis industry. For many of us, we understand that this is a great opportunity to get involved with investing in the cannabis industry; a once-in-a-lifetime opportunity to create significant wealth. But, without a formal plan of what to do, where to look, what to look at, most retail investors may have a tough time figuring out what to look at.
For the MSOS ETF, instead of looking at each individual company and evaluating this all inclusively, I think it is best to look at the breakdown of the figures. By doing this, you can immediately see some obvious things that may be troublesome.
MSOS ETF Holding Breakdown
First, there are three things you should know about the holdings of the MSOS ETF. There are two types of companies and then something else. It’s that something else that I wanted to point out immediately because, this is kind of jaw-dropping once you put this into perspective.
Holdings
The fund has some $785M under management. Expectations are that some 80% are invested directly into pot stocks that derive at least 50% of their income from cannabis. But, at present, 52.41% of the funds are invested in a money market account. That, to me is a major red flag.
You can see this at the very bottom of this listing along with the percentage.
What does that mean to the uninitiated? Simple.
Money Market Fund
A money market fund is basically an elaborate savings account. Because of that, when it comes to earning interest on this you may be better off picking up pennies on the sidewalk. Interest rates are very low.
But, you have invested in an ETF that is representative of the cannabis industry. Given this, with a 52% investment in a money market fund you are only investing some 47.5% of your funds in cannabis and the rest in a basic savings account.
So, should you invest $1,000.00 into this, $525.00 of it goes into a savings account and the rest is invested in cannabis stocks. This means only half of what you are investing in goes towards cannabis opportunities. So, this is like having money to invest and only investing half of it.
Sorry, but if you want to invest $1,000.00, $10,000.00 in the cannabis industry you should do just that; not invest just half.
MSOS ETF other holdings
There are two types of companies that are listed here. First, there are companies that actually produce, distribute, or sell cannabis. Then there is another type of company, those that support the cannabis industry but do not actually handle cannabis itself.
For me, I am looking for pure-play because that is where the growth is. Also, I am mainly focused on adult use & medical cannabis companies, not the pharma cannabis companies.
But, there are five other stocks that are in the MSOS ETF that do not produce cannabis. I am looking at pure-plays simply because I want to get all of the juice out of the growth potential of these.
The list
Here is the breakdown of the core cannabis holdings to include name, symbol, and position size:
| Name | Symbol | Allocation |
|---|---|---|
| Green Thumb Industries | GTBIF | 4,205,220 |
| Curaleaf | CURLF | 8,593,295 |
| Trulieve | TCNNF | 3,009,918 |
| Cresco Labs | CRLBF | 8,803,120 |
| AYR Wellness | AYRWF | 2,550,911 |
| TerrAscend | TRSSF | 6,556,581 |
| Columbia Care | CCHWF | 8,326,892 |
| Verano Holdings | VRNOF | 2,700,784 |
| Planet 13 | PLNHF | 6,109,285 |
| Harvest Health | HRVSF | 8,905,031 |
| Jushi Holdings | JUSHF | 6,126,698 |
| 4Front Ventures | FFNTF | 20,016,571, |
| TPCO Holdings | GRAMF | 5,292,948 |
| Goodness Growth | GDNSF | 4,140,230 |
| Acreage Holdings | ACRHF | 2,538,467 |
| C21 Investments | CXXIF | 7,877,268 |
| Gage Cannabis | GAEGF | 2,503,000 |
| Lowel Farms | LOWLF | 4,564,5-3 |
| Ceres Acquisitions | CERAF | 4,856,256 |
| Glass House Brands | GLASF | 300,000 |
| Hempfushion | CBDHF | 400,000 |
| CBDMd | YCBD | 4,100,123 |
| Charlottes Web | CBHWF | 148,530 |
This listing only contains the core cannabis holdings and not the five other non-pure play companies. Also, I did not put the aforementioned Black Rock position.
The Good, The Bad & The Ugly of pot stocks
When you look at the above list it is solid in some regards. But, there are a few ball-and-chains in there. Instead of breaking down each individual stock I am going to the totality of these numbers. And, I did this as I do best by putting it all together in spreadsheet form:
Individual Breakdown of MSOS ETF Stocks
| MSOS Representation | Price | Market Cap | Revenue | EBTIDA | EBITDA/Revenue Percent | Earnings Per Share | Shares Outstanding | |
|---|---|---|---|---|---|---|---|---|
| GTBIF | 4,025,220 | $28.04 | $6,147,985,408 | $800,000,000 | $240,000,000 | 30.0% | $0.296 | 219,296,004.2 |
| CURLF | 8,593,295 | $12.29 | $8,638,125,056 | $985,000,000 | $237,400,000 | 24.1% | -$0.107 | 702,858,019.2 |
| TCNNF | 3,009,918 | $29.10 | $5,389,581,824 | $700,000,000 | $317,800,000 | 45.4% | $0.725 | 185,208,997.4 |
| CRLBF | 8,803,120 | $9.25 | $2,473,320,448 | $1,000,000,000 | $206,900,000 | 20.7% | -$0.228 | 267,385,994.4 |
| AYRWF | 2,550,911 | $25.50 | $1,505,374,592 | $240,000,000 | $66,600,000 | 27.8% | -$4.747 | 59,034,297.7 |
| TRSSF | 6,556,581 | $7.13 | $1,314,087,168 | $200,000,000 | $108,700,000 | 54.4% | -$0.890 | 184,403,005.8 |
| CCHWF | 8,326,892 | $4.15 | $1,508,184,704 | $675,000,000 | $7,000,000 | 1.0% | -$0.334 | 363,418,001.0 |
| VRNOF | 2,700,784 | $11.87 | $1,449,694,976 | $475,000,000 | $291,000,000 | 61.3% | $0.541 | 122,131,000.5 |
| PLNHF | 6,109,285 | $4.63 | $909,294,976 | $97,000,000 | $11,300,000 | 11.6% | -$0.036 | 196,392,003.5 |
| HRVSF | 8,905,031 | $3.31 | $1,306,208,640 | $322,900,000 | $41,000,000 | 12.7% | -$0.151 | 394,624,966.8 |
| JUSHF | 6,126,698 | $4.34 | $734,775,104 | $146,600,000 | $2,700,000 | 1.8% | -$1.689 | 169,303,019.4 |
| FFNTF | 20,016,571 | $1.06 | $773,056,896 | $82,000,000 | -$1,300,000 | -1.6% | -$0.102 | 729,298,958.5 |
| GRAMF | 5,292,948 | $3.19 | $312,561,952 | $95,000,000 | -$45,000,000 | -47.4% | -$0.110 | 97,981,803.1 |
| GDNSF | 4,140,230 | $1.54 | $196,630,272 | $52,000,000 | -$12,000,000 | -23.1% | -$0.106 | 127,681,994.8 |
| ACRHF | 2,538,467 | $2.36 | $291,049,344 | $143,000,000 | -$58,000,000 | -40.6% | -$0.829 | 123,325,993.2 |
| CXXIF | 7,877,268 | $0.75 | $87,739,136 | $37,500,000 | $11,500,000 | 30.7% | $0.000 | 117,534,006.7 |
| GAEGF | 2,503,000 | $1.94 | $268,051,760 | $66,900,000 | -$29,000,000 | -43.3% | -$0.152 | 138,171,010.3 |
| LOWLF | 4,564,503 | $1.06 | $83,534,256 | $50,000,000 | -$9,200,000 | -18.4% | -$0.243 | 78,805,901.9 |
| VEXTF | 4,856,256 | $0.66 | $45,383,144 | $30,000,000 | $3,100,000 | 10.3% | $0.042 | 69,149,998.5 |
| CERAF | 300,000 | $9.90 | $29,697,000 | $2,000,000 | -$1,500,000 | -75.0% | -$3.353 | 3,000,000.0 |
| GLASF | 400,000 | $5.25 | $250,000,000 | $5,000,000 | $1,000,000 | 20.0% | -$0.250 | 47,619,047.6 |
| CBDHF | 4,100,123 | $0.24 | $36,394,688 | $4,400,000 | -$23,700,000 | -538.6% | -$0.392 | 151,771,009.2 |
| YCBD | 409,220 | $2.04 | $117,865,280 | $46,400,000 | -$15,700,000 | -33.8% | -$0.521 | 57,777,098.0 |
| CWBHF | 148,530 | $2.04 | $282,211,584 | $100,000,000 | -$37,400,000 | -37.4% | -$0.298 | 138,339,011.8 |
The Averages
The averages of the above chart tell the full story and once you start to break this all down you begin to see that there are some challenges here.
- 5,118,925:- Position Size in MSOS ETF
- $7.25 – Average Price of all Shares
- $34.155B Total Market Capitalization of all stocks
- $1.422B Average Market Capitalization
- $264.8M Average Revenue (TTM)
- $54.716M EBITDA (TTM)
- -$0.539 Average EPS
These numbers are actually solid.
- 24 total cannabis pure-play companies
- 14 companies are EBTIDA profitable with 10 unprofitable
- 20.7% Average EBTIDA/Revenue profits
- 6 companies Net Earnings Profitable
- 197M Average number of shares outstanding
The numbers don’t really lie too much; they are decent. The EPS number scares me a little bit but, a few of these companies are getting closer and closer so this would be both a growth & value investment opportunity.
Is MSOS ETF a good buy?
Nope.
Here’s the rationale. Right now, pot stocks are in the pot and no one is really interested. That’s too bad because as many of my followers/subscribers know I break down the financial data on all of these stocks. These stocks are all significantly undervalued.
If you were to look at the 6 stocks with positive net earnings you would see that if you used the exact same model for the S&P 500 and valued these stocks they are well below where they should be. That, of course, is a buying opportunity for a savvy investor. Eventually, these companies are going to become profitable. But, that does not necessarily mean the stocks will be attracting new investors any time soon. Pot stocks are out of favor and it may be a while before they start seeing new interest enough to pull these individual stocks upwards.
Valuations of Pot Stocks
If you think this through, all of these stocks are undervalued. And, if the stocks would move higher, then this would pull the MSOS ETF upwards along with it. But, if each of these stocks were to be valued at levels that make sense on a comparative basis versus the S&P 500 then you would see significantly higher stock valuations. But, you are not going to get 100% of the juice out of this particular investment simply because they are only invested 47.5% into stocks, let alone the pure-play aspects of it.
Then there is the fact that you are going to only ever get about 80% of that pure-play growth. The fund is expected to invest up to 80% of the funds into stocks. The rest goes in to cash. So, getting involved in the MSOS ETF would mean you are only investing 80%, at most, of your money into these cannabis stocks.
… and, furthermore
As for the other holdings? They are already being valued at the market at levels that are around the price valuation they should be. How much more juice can you squeeze out of that?
I am making a recommendation to the guys I’m working with that they remove their position in the MSOS ETF and build their own mini-ETF portfolio instead. They got in because they wanted to be involved because they know that the US Cannabis story is a simultaneous value & growth story. But, the price action was not working out.
Now, with valuations as low as they are they can build themselves a portfolio and positions and take advantage of this great value & growth story. But, they will not be hindered by anything that could slow them down.
I’m thinking not that much.
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You have a fair point on a number issues.
BUT,,, the reason that this ETF is a good buy right now is exactly because it has 52% in cash. It was just Saturday that I also noticed the cash amount, and my first thought was good move on the Fund Managers part. They reduced holdings as market fell and now have ample resources to buy back at greatly reduced prices. You assumed that they plan on keeping all that money in cash.
Also prices bounced back twice off the $29-$30 level. Which is about 76% retracement from the highs (fibonacci). Which is a buy indicator for the ETF and in general.
I’m a small buyer, but more for diversification and to keep a pulse on the larger market.