Avoid These Really Dangerous Cannabis Stocks

I have been following cannabis stocks since early 2013 and work full-time in the industry, running 420 Investor, New Cannabis Ventures and, most recently, THC Shopping. I have worked in investments professionally since college and started investing in stocks when I was 13.

Cannabis stocks are in a very big bear market that started in February 2021, though they are bouncing right now on recent news about potential rescheduling of cannabis that was announced earlier this month. Cannabis stocks are off their recent peaks, but the New Cannabis Ventures Global Cannabis Stock Index, which includes currently 23 qualifying names, is still up 23.7% in August and 31.1% so far in Q3. At 6.58, it has lost 4.4% for the year so far. It is down still over 90% from the 2021 peak and even more from where it peaked in 2014.

I started this blog in 2023, and I have said that my intention is not to cover cannabis stocks extensively here. You can see the cannabis articles that I have written, and you can also see the other categories. The main places that I write about cannabis stocks are at NCV, where I share a free weekly newsletter, and Seeking Alpha, where I run 420 Investor and where I write cannabis stock articles regularly. I also maintain a blog there that is open to all free of charge.

I remain very committed to cannabis stocks, though I am very cautious right now, as I expressed on 8/12 after the market soared on 8/11. Since I warned readers to reduce exposure now to cannabis stocks, the index has increased by 0.2%. I have been very busy adjusting my model portfolio that I share with subscribers at 420 Investor and downgrading at Seeking Alpha cannabis stocks that have rallied too much.

I cover 19 stocks closely at 420 Investor and don't write at Seeking Alpha on the stocks I don't cover at 420 Investor. While I don't cover many stocks, I can tell that they are bad news. Yesterday, I wrote again on two that just reported their Q2 financials that I don't like, MedX Holdings (MEDH) and Leef Brands (LEEEF), and I have also written here a couple of times about Agrify (AGFY), which is a big stock that is in the index.

When I wrote that piece warning about the sector last week, I shared my model portfolio's structure. I followed up on that warning article with a piece on 8/16, a Saturday, and I shared the portfolio structure again as well as my views on the 19 stocks that I do follow closely. Updating it, I continue to have a lot of cash and similar exposures:

The holdings are the same five names, with one Canadian LP, Organigram (OGI), and four ancillary companies, including WM Technology (MAPS), my largest position, GrowGeneration (GRWG), which I like less now and two cannabis REITs, Innovative Industrial Properties (IIPR) and Chicago Atlantic Real Estate Finance (REFI).

I am limited by my rule that I do follow to keep cash at 20% or less when I do any trades, or I might have fewer cannabis stocks. The ones I include now are very risky in my view. Yes, they could go up, especially if 280E taxation does go away, but some could get wiped out over time.

I am sharing this today because I am very worried about people reading things and buying cannabis stocks without fully understanding the current situation. There aren't that many good sources of information out there, especially free of charge. Many of the people "advise" under no name or background information using social media. Another common source of information is an underwater investor hopeful for a rally. Even the CEOs and other execs can be overly optimistic.

There is no new information here today - just an update that on my cautiousness. I have mentioned (again) three stocks that I do not cover that concern me, and I continue to view AdvisorShares Pure US Cannabis ETF (MSOS) very negatively. At $4.34 last night, it is down since my warning article on 8/12. Among the companies I do follow, the ones that worry me the most right now are Curaleaf (CURLF) and Trulieve (TCNNF) among the MSOs, Canopy Growth (CGC) and Tilray Brands (TLRY) among the Canadian LPs and Hydrofarm (HYFM) among the ancillary companies, though they all do face risk.

I am rooting for 280E taxation to go away, but I am not betting, yet, that it will. If you think it is going away, you should make sure that you understand all of the challenges to it doing so and the problems if it does not go away.