Cannabis Reversal

Want to see MSOS above $32.75. I have calls. The top-10 holdings of MSOS offer a rich choice of stocks. Use cannabis tag below for prior posts.

Cannabis Stocks are Cheap

I posted 7 Pot Stocks for an Election Speculation last week. Aside from the great charts, I mentioned these companies are growing quickly. Using valuations such as PEG ratios, these stocks are really cheap. All six of these companies are in my list of seven. All of them are growing rapidly within target state markets. More states will legalize marijuana in 2020 and..

Many believe that the Democrats taking control of the Senate would usher in full legalization. We are much less confident that this would be the case, but we certainly believe that it would help engender some reforms that would be enormously helpful, including the ability of consumers to buy cannabis with their credit card of choice, cultivators and processors to access mortgage debt and cannabis operators to list on major exchanges.

Here's the good news: Even if the outcome of the elections isn't as robust as 2016, the status quo is looking very promising. The markets may overshoot with optimism heading into the elections and then sell off a bit with even good news or more if the outcome isn't favorable, but, shortly after the elections, the next big catalyst will kick in: earnings reports.

We think that investors will be excited by this earnings season. First, the revenue and profit growth are likely to be very robust. Second, we expect that more companies will be willing to provide some guidance for 2021. Third, even without the guidance, we anticipate that many investors are going to look more closely at how 2021 could play out for the large operators and like what they see.

Taking a look at the Q3 revenue expectations (in millions and in USD) for the six MSOs that have a market cap in excess of $1 billion (per financial and corporate research platform Sentieo), the projected growth looks quite robust:

Trulieve has a trailing P/E of 26, the rest have losses, but several are on the cusp of profitability. The pandemic depressed earnings this year as well.

7 Pot Stocks for an Election Speculation

In the stimulus bull proposed by House Democrats, the word cannabis appears more than the word jobs. If Democrats control the two branches of government, they will open the door for nationwide cannabis companies. If Biden wins, Democrats will win the House and will likely win the Senate. (Full disclosure: I'm betting heavily on Biden losing Minnesota and Republicans gaining in the Senate because the odds are extremely favorable, about 20x return on my money if the GOP gains in the Senate.)

Some of these companies are cheap without legalization. They trade at PEG ratios below one. I think of Trulieve as a value stock. The charts for most look really good though. I currently own Trulieve, Cresco and Village Farms, but I bought them several months ago. I prefer smaller companies because I expect legalization will trigger at least one buyout as larger players decide it's safe to enter the market.