MSOS Is Plunging - Here Is Why

On September 1, Labor Day, I posted that MSOS could plunge. While it did move up from that $5.57 level on 8/29, the end of August, it is now 4.76, down 14.5%. In August, it rallied 96.8%. Even after the retreat, it is up 24.9% year-to-date. This is much better than the overall cannabis sector as measured by the New Cannabis Ventures Global Cannabis Stock Index, which has gained 5.1% so far in 2025. It has declined a lot less than MSOS since the end of August, down just 6.6%.

A Look at the MSOS Performance

First, looking at the action since the end of August, MSOS has massive exposure to three names: Curaleaf (CURLF), Green Thumb Industries (GTBIF) and Trulieve (TCNNF). The larger two, which I don't like at all, represent currently 46.1%, while GTI, the third-largest, is 20.3%. There are six names currently in excess of 5%, and the total for these six stocks in the ETF is 86.6%, which is terribly concentrated:

I don't like CURLF or TCNNF at all here, though I do kind of like GTI, certainly relative to peers. I currently am pretty bearish on cannabis stocks. Here is how my model portfolio at 420 Investor compares to the Global Cannabis Stock Index:

GTI, at 5.8%, is my largest holding and overweight relative to the index, while Verano (VRNOF), at 4.4%, is my third-largest. I also own a smaller MSO.

As I said above, I don't care for CURLF or TCNNF at their current prices, and I also don't care for Glass House Brands (GLASF), which is not on my 420 Investor Focus List. TerrAscend (TSNDF) fell below 5%, but I still don't care for it at the current price.

Here is the price action on the seven largest holdings in MSOS since the end of August:

During a time that MSOS has declined 14.5%, three stocks have dropped more, three have dropped less, and one has even rallied.

Now, looking at the year-to-date action, it has been even more mixed:

One stock, GTI, has dropped, greatly lagging the 249% rally in MSOS, and four of the other six have done better than the ETF, CURLF, which is up the most by far, and TCNNF, GLASF and CRLBF..

While MSOS has declined very recently, one thing has gone up: the number of shares outstanding. Now at 188.225 million, the share-count has gone up 44.2% year-to-date, with most of the gains happening after July:

There was a massive boom higher in 2023 and 2024 as potential rescheduling kicked in, and, while strong, the 44% growth over the past year trails the growth then.

MSOS has added two names recently, SNDL (SNDL) and Village Farms (VFF). I don't follow SNDL closely, but I do keep my eye on it and warned my readers recently in a Seeking Alpha article published in September. The stock has declined slightly since then. I used to loudly love VFF stock, but I lost my interest as it soared.

Looking at the action in its big 3 holdings, GTI has seen slower growth, and CURLF has seen very heavy growth. Since the end of June, MSOS has seen its share-count increase 42.5%. CURLF shares controlled has increased by 45.8%, Trulieve shares controlled have gained 37.2%, and GTBIF shares are up just 23.6%. These three stocks, currently 66.5%, represented 69% on June 30th (GTBIF at 33.4%, TCNNF at 21.9% and CURLF at 14.2%) and 71.2% at year-end (GTBIF at 36.4%, TCNNF at 19.5% and CURLF at 15.3%).

My Outlook

If 280E taxation gets wiped out, it will be good for the MSOs, but this is not likely to happen quickly. It also could not happen at all. The MSOs do seem cheap, but they are not cheap if 280E taxation remains. Another challenge has been the hemp industry. Hemp was legalized in 2018, and companies have developed products from hemp and have also introduced synthetics. The industry remains highly unregulated and is at risk in some states and even federally. So, MSO investors and traders are very excited right now, but I think that they are overly optimistic. Even if things do improve, many of the MSOs will need to sell stock.

MSOS have run up a lot. The reasons they are pulling back is that rescheduling was supposed to be figured out in weeks, but is not yet figured out two months after the Trump press conference on 8/11, and sales trends continue to be challenged.

Better Ideas

For many years, too many investors have been focused exclusively on American cannabis operators. I have long said that investors need to focus on other parts of the market, like ancillary companies and Canadian LPs. These other parts of the market currently represent 62.3% of the Global Cannabis Stock Index. Both sub-sectors open investors to the NASDAQ or NYSE, and there are many companies that have better balance sheets or even outside ownership by a strategic partner.

In ancillaries, I still like the REITs and have a large position in two of the four. My favorite ancillary is WM Technology (MAPS). Canadian LPs are tougher right now, as they are not as cheap as they were. I have positions in Cronos Group (CRON) and Organigram (OGI) in my model portfolio. I like that both have a lot of cash and outside investors that are strategic partners.

Conclusion

I am very bearish right now on cannabis stocks, with a large underweighting in MSOs relative to the index and a smaller one in the Canadian LPs. Maybe things improve for the MSOs, but, if not, the potential downside is massive. MSOS is down a lot over the past several years, but it has rallied sharply since June. It is still below its level right before the elections in 2024.