CRB Monitor Cannabis-Linked Securities 4th Quarter 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 more 1,700 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.
CRB Monitor Securities Database
As of December 31, 2021, the breakdown of publicly traded, cannabis-linked securities was as follows:
Of the thousands of announcements and filings reviewed during Q4 2021, our research resulted in a total of 823 updates to the CRB Monitor database (213 updates to issuers’ records, 610 news releases added). The complete list of securities and detail for these updates can be found in the CRB Monitor database. And for plenty of detail on our updates to the CRB Monitor database, please refer to our monthly newsletters: CRB Monitor October 2021 newsletter, CRB Monitor November 2021 newsletter, and the CRB Monitor December 2021 newsletter.
CRB Monitor Securities Database Updates
Source: CRB Monitor
CRBs In the News
The cannabis news cycle remained active during the fourth quarter of 2021 with regard to mergers and acquisition and other corporate activity. And while cannabis investors suffered, Federal and state-level regulatory news continued to flow as well. The following is a sampling of highlights, with links to the articles, from the cannabis-linked security news cycle, as tracked by CRB Monitor throughout the period. Included are CRB Monitor’s proprietary Risk Tiers.
In October, Wakefield, MA Tier 1A Curaleaf Holdings, Inc. (CSE: CURA), now the largest pure play CRB by market capitalization, expanded its operations in Colorado with its acquisition of Los Sueños Farms and its related entities. In the words of Curaleaf’s Executive Chairman, Boris Jordan, “The vertical integration of our business in Colorado significantly strengthens Curaleaf's market presence in the second largest state cannabis market in the U.S.” When this acquisition is final the strategic addition of Los Sueños Farms increases Curaleaf’s active (or pending approval) license total to 131, covering a total of 20 states in the US.
Also in October small cap Tier 1A CRB Agrify Corporation (NASDAQ: AGFY) announced their $50 million acquisition of Cascade Sciences. According to the announcement, “Agrify has expanded its core business beyond cultivation by gaining instant access to complementary and highly attractive areas of the supply chain.” Located in Massachusetts, Maine, and Delaware, Agrify currently holds a MA license to cultivate industrial hemp, but is clearly looking to expand operations through this acquisition.
In November, Tier 1B powerhouse MSO Columbia Care Inc. (CSE: CCHW) announced that it completed its acquisition of Medicine Man (aka Futurevision Ltd), a licensed Tier 1A Colorado operation. According to the press release, “This acquisition adds one cultivation facility and four dispensaries to Columbia Care’s Colorado operations, including the Medicine Man Longmont location, which is anticipated to close in Q1 2022. Columbia Care’s footprint in Colorado will now total 26 dispensaries and six cultivation and manufacturing facilities, including those under The Green Solution brand.” The Futurevision purchase brings CCHW’s active & pending license total, according to CRB Monitor Research, to 111 across 18 states.
Finally, Tier 1B multistate operator (MSO) Cresco Labs Inc. (CSE: CL) was in the news on December 7th, 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.
Regulatory Updates
In Mississippi, one of just a handful of states that have not legalized medical use cannabis, lawmakers have been working on a proposal to create a medical marijuana program, but Republican Gov. Tate Reeves has not said when he will call a special session to put it into law. Among other updates, this version of the bill would increase the size of growing facilities and impose a 5% excise tax on marijuana sales, which would be the original $15/ounce in the last version of the bill. And while Republican Gov. Tate Reeves spent most of the summer suggesting that he'd call a special session to pass a cannabis program into law, he has not done so, citing a disagreement with legislators over allowable dosage sizes. We similarly reported in September that Governor Reeves slowed the progress on a medical cannabis legalization bill and we will be following the progress in Mississippi in the months to come.
Early in November, Ohio Senators filed legislation that, if passed, would revise the state’s medical marijuana system to allow access to cannabis if a physician “reasonably” believes their patient’s symptoms would be relieved or they would otherwise benefit from said cannabis. According to an article published in the Ohio Capital Journal, this legislation represents “a potentially massive expansion of eligibility for patients after years of piecemeal additions to the list of qualifying conditions.”
This proposal joins three other proposals in the state of Ohio that would legalize recreational cannabis – two in the legislature and one referendum proposal.
Also in November, several Republican members of Congress introduced a bill that would federally legalize and tax marijuana. This bill represents an alternative to the current far-reaching Democratic-led proposals and the more narrow GOP cannabis descheduling legislation that has been circulating on Capitol Hill. The so-called States Reform Act, if passed and signed into law, would end federal marijuana prohibition while taking specific steps to ensure that businesses in existing state markets can continue to operate unencumbered by changing federal rules. Rep. Nancy Mace (R-SC) is the sponsor of this bill.
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.
Cannabis-linked Equity Performance
Source: CRB Monitor, Sentieo
The CRB Monitor basket of Tier 1 Pure Play cannabis-linked equities with greater than $1 billion market cap retuned a negative 19.7% in Q4 2021, on an equally-weighted basis. It is not surprising that this basket underperformed the major equity indexes (US large cap, International, Emerging Markets) for the period. Tier 2’s fared better, as the Top 19 largest (equally-weighted) basket of Tier 2 companies returned -11.8% for Q4 2021.
Tier 1 Pure Play CRBs w/Mkt Cap Over $1B – Returns 4th Quarter 2021
Source: CRB Monitor, Sentieo
Tier 2 CRBs w/Mkt Cap Over $100mm – Returns 4th Quarter 2021
Source: CRB Monitor, Sentieo
CRB Monitor Tier 1
We continue to monitor the cannabis equity space as CRBs respond to impact from significant ongoing forces - new legalization/decriminalization measures emerging at the state level; the economic and financial impact brought about by the COVID-19 pandemic; the ongoing threat of black market cannabis, and, perhaps the most interesting, are the latest developments coming out of the US Federal Government.
2021 was like watching an endless, lopsided little league game without the benefit of a mercy rule. Since the precipitous free-fall beginning in mid-February 2021, investors never witnessed the bottom of this market throughout the rest of the year. With that said, there are rays of hope related to all of the headwind-generating factors mentioned above, and we will be writing about them as we make our way into 2022.
The only Tier 1 CRB on the $1B+ market cap list with a positive return in Q4 was MSO Verano Holdings Corp.(CSE: VRNO). Verano, with its ever-expanding US operations, returned a positive 11.8% in Q4 amid the news that institutional lender to CRBs, Tier 2 AFC Gamma, Inc. (Nasdaq: AFCG), announced that it funded $50 million of a $120 million credit facility tranche to Verano. Verano has been growing fast in the US, acquiring Tier 1 businesses in several states over the last 6 months and the $50 million should facilitate further growth. VRNO now has a presence in 18 states and holds, through its subsidiaries, more than 130 active or pending-approval cannabis licenses.
The worst-performing company in this basket was Tier 1B Ayr Wellness Inc. (CSE: AYR.A). Ayr’s 31 direct and indirect subsidiaries operate in nine states and hold 69 cannabis licenses that are in either active or pending-approval status. Ayr, a vertically-integrated, U.S. multi-state operator, took a veritable nosedive in Q4, falling by 42.9% as investors lined up to sell AYR shares throughout the second half of the quarter. As we reported in our November securities newsletter, this negative performance was a bit of a curiosity given that Ayr has been expanding operations into several states over the last two quarters. With that said, Ayr’s 3rd Quarter results reported on November 22nd revealed a second consecutive period of operating losses and negative EBITDA growth.
Green Thumb Industries Inc. (CSE: GTII), in spite of a weak Q4 (-18.5%), was down 9.7% for 2021, which made it one of the best performing Tier 1 CRBs for the year. The Q3 financials were likely a reason for this, 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. 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.
Also one of the best performing stocks in the basket, Tier 1A CRB Trulieve Cannabis Corp. (CSE: TRUL) had a respectable return of -4.5% for the fourth quarter of 2021. Trulieve’s shares rebounded following a weak October and finished strong by the end of Q4. In December, Trulieve announced the opening of its newest medical dispensary in Okeechobee, Florida, which marks the opening of Trulieve's 111th Florida cannabis dispensary. TRUL’s 2021 performance of -18% was nothing to write home about; however, it outperformed the equally-weighted basket by 10% for the year.
CRB Monitor Tier 2
An equally-weighted basket of the largest CRB Monitor Tier 2 companies had a -11.8% return for the fourth quarter 2021, which outperformed the performance of the equally-weighted Tier 1 basket by about 8%. 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.
Not surprisingly, the basket of Tier 2 CRBs was led in Q4 (+14.4%) by 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.
Q4 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 a 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.
On the other end of the Tier 2 return spectrum was Corbus Pharmaceuticals Holdings, Inc. (Nasdaq: CRBP), a phase-III, clinical-stage pharmaceutical company focused on the development and commercialization of novel therapeutics that target the endocannabinoid system in the fields of autoimmunity, fibrosis, and cancer. CRBP’s Q4 return of -39.6% caused its market cap to plunge below the $100 million threshold and capped a year in which the company lost essentially half its value. In December it was reported that Corbus poached Takeda Chemical’s Rachael Brake, Ph.D., to serve as Chief Scientific Officer following a catastrophic summer during which the Company’s oral cannabinoid type 2 agonist “failed a phase 3 test in cutaneous systemic sclerosis and a phase 2b study in cystic fibrosis” in autumn 2020.
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"