RESOURCES | Data Updates | Securities

CRB Monitor Cannabis-Linked Securities December 2021 Update

James B. Francis, CFA

Chief Research Officer, CRB Monitor

CRB Monitor tracks ~ 1,400 publicly-traded, Cannabis-Related Businesses (CRBs) globally, which have ~1,600 traded securities. We categorize CRBs into our proprietary cannabis risk tier framework and cannabis-linked (CLS) sectors.  In addition, CRB Monitor unravels and maintains complex corporate structures, linking publicly-traded parent companies to their underlying operational plant-touching subsidiaries. Custodian banks, broker/dealers, and asset managers find our data essential for pre-trade compliance, risk management, index construction, and portfolio analytics.

2021 CRB Monitor Securities Database Enhancements

2021 was a productive year for the CRB Monitor Securities Research team.  In addition to approximately 20% net growth in new securities and daily maintenance of more than 1,600 securities globally, we implemented the following enhancements:

Addition of Non-Cannabis Themed ETFs – CRB Monitor has added coverage of 51 mainstream ETFs that hold at least one Tier 1 “Pure Play” cannabis security.  This enhancement increases our total ETF coverage to 75 ETFs.  For more information, please see our September 2021 announcement.

Enhanced Coverage of Officers & Directors – We have added the profiles of hundreds of company Officers and Directors of Tier 1 CRBs and continue to expand our coverage of these individuals into 2022 and beyond.

Cannabis-Linked Sector (CLS) Classification – 2021 is when we added one of 25 “CLS” sectors for each of the ~1,400 issuers in CRB Monitor.  This rules-based classification system further explains each cannabis-linked issuer’s connection to the cannabis industry.  More information can be found in our May 2021 announcement.

CRB Monitor Securities Database Updates 

In 2021, CRB Monitor’s research team made thousands of database updates to securities’ profiles and added several thousand news-related source documents to the CRB Monitor database.  Here is a summary of the updates for December 2021:

Source: CRB Monitor

Cannabis News Updates: M&A

We continue our close watch on the cannabis news cycle, and December marked the end of a busy year for cannabis industry activity.  CRB Monitor has been tracking several cannabis-linked mergers and acquisitions throughout 2021.  Here are some of the December highlights:

The month of December began with the announcement on 12/1/21 that a subsidiary of Tier 1B CRB IM Cannabis Corp. (CSE: IMCC), a medical and adult-use recreational cannabis company with operations in Israel, Canada, and Germany would be acquiring 51.3% of the outstanding ordinary shares of Oranim Plus Pharm Ltd.  Oranim, centrally located in Jerusalem, is, according to the announcement, “a well-established brand with a fourteen-year track record of successfully serving the needs of medical cannabis patients in the area.”  Also mentioned in the announcement, “These transactions not only position the Company as one of the largest cannabis retailers in Israel, they also form a critical foundation of IM Cannabis' vertically integrated multi-country strategy.”

Once again making news was Tier 1B Verano Holdings Corp. (CSE: VRNO), which announced in December the opening of Zen Leaf West Chester aka Zen Leaf Retail LLC, Verano’s 13th affiliated Pennsylvania dispensary and second state location to offer convenient drive-through service.   This is the Company’s 91st location nationwide.  Verano Holdings Corp. holds both direct and indirect subsidiary businesses in 18 states across the US which hold 139 cannabis licenses that are either in active status or pending state approval.

Tier 1B multistate operator (MSO) Cresco Labs Inc. (CSE: CL) was in the news on December 7^th, with the announcement of the opening of its 44th retail dispensary in Pensacola, FL.  In the words of Charlie Bachtell, Cresco Labs CEO, “This is our fourth Florida new store opening since the closing of the Bluma Wellness acquisition, and we’re on target to double our store count in the state by the anniversary date,”  This new licensed dispensary expands Cresco’s footprint in the US, as they now operate in 11 states and through their subsidiary businesses, hold more than 100 cannabis licenses (for cultivation, retail, manufacturing, delivery, etc.) that are either active or pending state approval.

Also in the state of Florida, Tier 1A CRB Trulieve Cannabis Corp. (CSE: TRUL), announced the opening of its newest medical dispensary in Okeechobee, Florida; this marks the opening of Trulieve's 111^th Florida cannabis dispensary.  In the words of Kim Rivers, CEO, "Trulieve looks forward to expanding access to medical cannabis in Okeechobee and building strong relationships with the community…after opening more than 40 new dispensaries across the state this year, we are proud to expand our retail presence in southeastern Florida."  Trulieve currently operates only in the state of Florida, and holds a Medical Marijuana Treatment Center license issued by the Florida Department of Health.

Not exactly M&A activity but notable nonetheless, was the December news that  Innovative Industrial Properties, Inc. (NYSE: IIPR), A Tier 2 Real Estate Investment Trust (REIT) focused on the regulated U.S. cannabis industry, announced that it closed on the acquisition of a portfolio of 27 properties in Colorado, Pennsylvania and North Dakota that are “100% leased for use as regulated cannabis dispensing, processing and/or cultivation facilities.”  According to the announcement, the aggregate purchase price for the portfolio was approximately $72.7 million (excluding transaction costs).  The list of lessees reads like a “Who’s Who” of CRB’s, and includes subsidiaries of Columbia Care Inc. (CSE: CCHW), Curaleaf Holdings, Inc. (CSE: CURA), and Medicine Man Technologies, Inc. (Schwazze) (OTCQX: SHWZ).  While IIPR has been issued no cannabis licenses directly, the CRBs that lease its properties hold, either directly or through subsidiary businesses, more than 1,000 cannabis licenses issued by licensing authorities across 32 states in the US.

Select M&A/Subsidiary Highlights: 

Security/Exchange Highlights:

Select New Additions to CRB Monitor:

Cannabis News Updates: Regulatory Updates

While lawmakers in the federal government wrestled over proposed new regulations for interstate cannabis banking, several states are in the process of putting forward legislation that is aimed at cannabis legalization and/or decriminalization.  These stories will continue to make news in 2022 and CRB Monitor will be following them closely, with the goal of updating our database to reflect the current state of the cannabis ecosystem.  The following is just a sampling of the legalization stories that we are tracking: 

In mid-December, the US Senate edged closer to the legalization of cannabis-related financial transactions, but not without a significant speed bump.  Some Senate Democrats were taken aback when marijuana banking reform was omitted from a defense bill — a move that was apparently initiated by Democratic Senate leadership.  The omission from the bill was at the behest of Senate Majority Leader Chuck Schumer (D-NY), who insisted that “broad justice-focused marijuana reform should be addressed before passing something like the SAFE Banking Act.”  The implication is that the SAFE Banking Act, while a significant achievement on behalf of small businesses, does not address the history, and current state, of incarceration for cannabis-related felonies.

In Montana, following a bill that was signed in March 2021 by Gov. Greg Gianforte (R), retail marijuana sales for adults 21 and older will commence on January 1.  Thanks to a 2020 voter-approved initiative, adults in Montana will be able to purchase up to one ounce of cannabis at a time and all marijuana products will be taxed at 20 percent at the state level.

Meanwhile in Louisiana, where marijuana was decriminalized in August, Governor John Bel Edwards (D) signed a new law that will give patients legal access to smokable medical marijuana products.  This law goes into effect on January 1.

In California, Governor Gavin Newsom (D) signed a bill in September (SB 311), known as “Ryan’s Law,” which “requires healthcare facilities to reasonably restrict the manner in which a patient stores and uses medical cannabis to ensure the safety of other patients, guests, and employees of the healthcare facility.”  That law went into effect on January 1st.  The bill’s sponsor, Senator Ben Hueso (D), had been pushing for his measure to allow cannabis use in medical facilities for terminally ill patients over multiple sessions. Newsom vetoed an earlier version out of concern about potential federal repercussions for medical institutions that permitted such consumption, but eventually signed this version.

In late December the State of Colorado announced that its Governor, Jared Polis (D) had granted 1,351 pardons for convictions of possession of two ounces or less of marijuana.  Governor Polis implemented this action, stating that it is “unfair that 1,351 additional Coloradans had permanent blemishes on their record that interfered with employment, credit, and gun ownership, but today we have fixed that by pardoning their possession of small amounts of marijuana that occurred during the failed prohibition era.”  

Also in Colorado, a new law has been passed that drastically reduces the amount, per day, of medical cannabis that can be purchased legally in the state.  The purchase limit, lowered to eight grams from forty, can be breached if “a doctor certifies that it’s medically necessary and they have a designated primary dispensary to obtain the medicine.”  The law also stipulates that the limit is two grams when it applies to people aged 18 to 20.

Meanwhile in Arkansas, two new cannabis-related laws will be effective starting on January 1.  The first (SB654)  will allow cannabis access, for up to 90 days, to out-of-state medical marijuana patients. The other (SB703) will allow for doctors to issue medical marijuana recommendations via telehealth services.  All this is happening while Arkansas cannabis activists have several legalization initiatives underway that will appear on the 2022 ballot.

Cannabis-linked Equity Performance

Source: CRB Monitor, Sentieo

The CRB Monitor basket of the top 13 ($1b+ market cap) pure play Tier 1 CRBs, equally-weighted, fell by 3.0% in December 2021, in a continuation of the slide that began all the way back in early February.  An equally-weighted basket of the top 17 Tier 2 CRB’s was down by 4.3%.  Looking at the chart above, broad equity indexes (S&P 500, MSCI EAFE, Emerging Markets) rebounded and outperformed the CRB baskets in December.

Since its high on 2/10/21, the equally-weighted Tier 1 basket had a return of -64.8%.  For the full year 2021 the Tier 1 basket had a return of -28.9%.  The Tier 2 basket fared much better, returning +20.8% for 2021 (this is an estimate as several holdings in the basket IPO’d after the beginning of 2021).  The broad equity markets generally had a good year, with the S&P 500 and MSCI EAFE up 22.9% and 10.9%, respectively.

Tier 1 Pure Play CRBs w/Mkt Cap Over $1B – Dec & Year 2021 Returns

Source: CRB Monitor, Sentieo

Tier 2 CRBs w/Mkt Cap Over $100mm – December 2021 Returns

Source: CRB Monitor, Sentieo

CRB Monitor Tier 1

Cannabis equities continued their downward slide in December, closing out 2021 largely on a sour note and in negative territory across the board. What’s happening to the cannabis industry?  While we see operations generally growing and a wealth of M&A activity (see above), equities continue to languish. One explanation is that the pace of legalization has been too slow for investors to hold onto their strategic positions; another is the incredible shrinking balance sheets of the Tier 1 companies like Canopy Growth Corporation (TSX: WEED) and Aurora Cannabis Inc. (TSX: ACB), two CRBs that are kept alive by big beverage and tobacco.  In May 2020, Tier 1B CRB Constellation Brands, Inc. (NYSE: STZ) increased their ownership stake of Canopy to 38.6% from 20% and could end up owning as much as 55.8% of WEED through their outstanding warrants. Investors in Canopy are not holding their collective breath, as these warrants are deeply out of the money given the dreadful performance of WEED stock over the last 18 months.  In the case of Aurora Cannabis, tobacco giant Altria Group, Inc. (NYSE: MO) purchased 45% of the shares of ACB in December 2018 for $1.8 billion.  Since that time, ACB’s share price has fallen by 91% and the market cap has fallen by approximately 80% ($5.1b > $1.3B).

Are there reasons to be hopeful?  Yes!  While the outlook in the near term looks bleak, legalization/decriminalization at the state level continues to plod along (see above).  And the passage of the SAFE Banking Act, besides providing for the ease of non-cash transactions, could lead to new listings on US exchanges by several large US plant-touching CRBs.  If this were to come to pass, we would likely see the inclusion of these CRBs in cannabis-themed indexes and ETFs, and possibly lead to the eventual launch of retail cannabis-themed funds by the “top tier” issuers, which has yet to happen due to compliance restrictions.  With all of that said, the key to all of this upward market pressure would appear to be a significant move toward legalization by the federal government, and if this fails in 2022 we could be in for another weak year.

Always volatile Tier 1B Tilray, Inc. (NASDAQ: TLRY) handed investors a -24% return in December 2021, which was a fitting end to a year that found TLRY stock dropping like a boulder off a cliff from its high in early February ($64 down to $6.60).  The February spike was not related to fundamentals, but rather a “Gamestop-esque” aberration, as a large group of traders pushed the price of TLRY (among other CRBs and other small caps) to their highs before knocking the air out of them, after which they settled in for a long, painful decline over the next 10 months.  Sadly we could see this happen again, given the undersized float in CRB space and activists’ appetite for drama and quick profits.  Nevertheless, TLRY’s fundamentals are actually not bad and its subsidiaries hold more than 270 licenses across Canada; with that said, US federal legalization might be the only thing that can provide any meaningful upward pressure on the stock price.

Tier 1B MSO Cresco Labs Inc. (CSE: CL), struggled in December, falling by 18% for the month and finishing 2021 down 33%.  Cresco is in the midst of a growth spurt, having acquired several cannabis businesses in recent months, the latest in Pennsylvania.  Their operations have expanded to 11 states and through their subsidiary businesses, CL now holds more than 100 cannabis licenses that are either active or pending state approval.  And analysts believe that Cresco’s expansion is just beginning, with the possible acquisition of more than 180 cannabis licenses in Cresco’s home state of Illinois, as the result of a pending lawsuit.  With that said, CL’s stock price has followed a similar pattern to most of the CRB Tier 1 basket, and apparently, investors believe that a long-term commitment is still premature.

On a happier note, Green Thumb Industries Inc. (CSE: GTII) had a positive 11.7% return for December and finished 2021 down 9.7%, which made it one of the best performing Tier 1 CRBs for the year.  One reason for a strong December were Q3 financials, where GTII reported that “revenue increased 5.3% sequentially and 48.7% year-over-year to $233.7 million.”  Green Thumb also sports a hefty cash position on its balance sheet of $285 million.  Like Cresco, GTII has been steadily expanding operations and now has cannabis businesses in 16 states with 82 licenses that are either active or pending state approval.

CRB Monitor Tier 2

An equally-weighted basket of the largest CRB Monitor Tier 2 companies had a -4.3% return for December, which underperformed the performance of the equally-weighted Tier 1 basket by 130 basis points.  When these two portfolios deviate, it could be a signal for investors to rebalance into (out of) the Tier 1 basket and out of (into) Tier 2’s given the direct revenue relationship, but the time it takes to mean revert is not so easy to predict.  

The Tier 2 basket (+19.3%) had a far better year than the Tier 1 basket (-15.7%), despite the perceived high correlation between the two tiers.  This could be due to the fact that Tier 2 businesses have the ability to diversify their revenue opportunities across several CRBs, and while there is a high longer-term correlation in returns between Tier 2’s and Tier 1’s (approximately 66% over the trailing 3 years) there are periods when returns will diverge and 2021 was one of those periods.  [It is important to note that a number of holdings in the Tier 2 basket are showing 0% return for the year, as they did not start trading until after Jan 1.  These are not included in the 1-year return calculation.]

One excellent example of a company with stable revenue in the volatile cannabis ecosystem is Innovative Industrial Properties, Inc. (NYSE: IIPR).  IIPR is an internally-managed real estate investment trust (CLS sector -  REIT) focused on the acquisition, ownership and management of specialized properties leased to experienced, state-licensed operators for their regulated state-licensed cannabis facilities.  We tend to write about IIPR frequently, largely due to the fact that its stock has defied the volatile price patterns of the cannabis space as it has consistently outperformed its peers as well as its CRB-customers.  It is also, by far, the largest Tier 2 CRB by market capitalization.

IIPR did not disappoint investors in December 2021, returning a positive 5.6% for the month.  This capped a terrific year for the REIT, which not only posted a return of +47.5% but met its legal obligation to pay out 90% of its earnings in dividends.  In December, IIPR declared a quarterly dividend of $1.50 per share, which translates into an annualized dividend of $6.00 or about a 2.7% annual yield.  This dividend can serve as  both a blessing and curse for institutional investors, who typically seek to avoid Tier 1 dividend-paying CRB’s as they are considered a money laundering risk.  IIPR, a Tier 2 CRB, is neither licensed nor plant-touching and many institutions will allow it as a holding based on that technicality.  Conversely, CRB Monitor has several subscribers that take the more conservative position that IIPR’s revenues are directly tied to US Marijuana and will prohibit their investments from holding it.

Tier 2 CRB Forian Inc. (NASDAQ: FOR A) (CLS sector IT Services & Software) a company that provides SaaS services to companies in the cannabis industry, had a +7.9% return in the month of December (-8.0% for the year). Contributing to this performance were Forian’s 3^rd Quarter results, which were reported in mid-November.  According to their filing, “Revenue for the quarter was approximately $5.0 million, an increase of $4.8 million versus the prior year. On a pro forma basis, revenue grew 62% year-over-year and 9.1% sequentially over the second quarter of 2021.”  Even though Forian also reported net losses for the quarter, investors were encouraged by the strong revenue growth and how CEO Dan Barton has positioned the Company for growth in the near term.

CRBs In the News

The following is a sampling of highlights from the December 2021 cannabis news cycle, as tracked by CRB Monitor. Included are CRB Monitor’s proprietary Risk Tiers.

• IM Cannabis to Acquire Oranim, Jerusalem's Leading Medical Cannabis Pharmacy (Tier 1B)
• Halo Collective Confirms Stock Symbol Reverts Back to HCANF (Tier 1B)
• OLB Group Acquires CBD Merchant Portfolio with Annual Transaction Volume Over $400 Million (Tier 3)
• Verano Affiliate Expands Pennsylvania Footprint with Opening of Zen Leaf West Chester Dispensary (Tier 1B)
• Seasoned Consumer Packaged Goods (CPG) Expert Joins Allied as Chief Commercial Officer (Tier 1B)
• CSE Bulletin: New Listing - Medcolcanna Organics Inc. (MCCN) (Tier 1B)
• Turning Point Brands, Inc. and ReCreation Marketing Announce that ReCreation Marketing Has Changed Its Name to Turning Point Brands Canada (Tier 1B)
• Blackhawk Growth to Complete Strategic Investment of Digital Mind Technology; Fully Funds Phase 1 Clinical Trial for Digital Mind and Phase 2 Clinical Trial for MindBio Therapeutics (Tier 1B)
• EVIO Inc. Executes Letter of Intent to sell C3 Labs, LLC to Digipath, Inc. (Tier 1B) 
• Limitless Venture Group, Inc. Signs LOI to Acquire 100% of Cannabis Grow Operations and Facility in Oklahoma (Tier 2)
• Jushi Holdings Inc. Opens 27th Nationwide Dispensary, 17th BEYOND / HELLO™ Retail Location in Pennsylvania and Third Store in the Greater Pittsburgh Region through its Subsidiary, Franklin Bioscience - SW LLC (Tier 1B)
• Appointment of New Chairperson and Director Resignations (Tier 1A)
• Rapid Dose Therapeutics Strengthens Leadership Team with Addition of Rodney Butt & Appoints New Advisory Board Member (Tier 1A)
• Innovative Industrial Properties Acquires 100% Leased Portfolio of 27 Properties in Colorado, Pennsylvania and North Dakota (Tier 2)
• Turning Point Brands Names Former Liberty Media Executive Yavor Efremov as CEO (Tier 1B)
• CannAmerica Announces Acquisition of Arsenal Oils & Extracts in Colorado (Tier 1B)
• Arcadia Biosciences (RKDA) Appoints Kevin Comcowich to Interim CEO (Tier 1A)
  
  

Wondering what a Tier 1, Tier 2 or Tier 3 CRB is?

See our seminal ACAMS Today white paper Defining "Marijuana-Related Business" and its update Defining "Cannabis-Related Business"