2021 3 TOP CANNABIS STOCKS - Midas Letter
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3 TOP CANNABIS STOCKS COLUMBIA CARE INC. (OTCMKTS: CCHWF CNSX: CCHW) Website: https://col-care.com Investor Relations: https://ir.col-care.com You could still argue that New York is just a small piece Weighted average common shares outstanding of Columbia Care’s pie. The footprint and scale of this - basic and diluted: 264.7M company is second only to Curaleaf Holdings Inc. - trading at almost 5X Columbia Care’s market cap. Market Capitalization (At market close March 31, 2019): US$1.9B Columbia Care has licenses in 18 U.S. jurisdictions and Cash & Cash Equivalents: US$61M operates 27 U.S. cultivation facilities with 87 dispensaries. 2020 Revenue: US$197.9M All-in-all the company has over 1 million square feet of production and 300 plus acres of outdoor cultivation Y/Y Rev. Growth: 151% capacity at its growing disposal.4 Q4 Revenue: US$81.8M Q/Q Rev. Growth: 51% *as of December 31, 2020 unless otherwise stated As New York became the 15th U.S. state to legalize recreational cannabis for adult-use1, it begs the question which weed stock is poised to benefit the most from state-by-state recreational legislative change? New York will quickly become one of the largest adult-use markets in the nation. With a population of around 19.5 million2 , New York is touted to generate up to $7 billion in annual sales once the market is fully established.3 *These picks are not in order of priority or New York City headquartered Columbia Care Inc. could expected performance. They are in alphabetical find itself best positioned to captain the new legal Empire order. Do your own due diligence, and only invest (State). The company is vertically integrated in all of the with the advice of a registered investment markets it operates in and already has wholesale professional in your jurisdiction. distribution, a cultivation/manufacturing facility, and four dispensaries in New York. 1 https://www.nytimes.com/2021/03/31/nyregion/cuomo-ny-legal-weed.html 2 http://www.populationu.com/us/new-york-population 4 https://d1io3yog0oux5.cloudfront.net/_ 3 h ttps://www.businessinsider.com/guide-new-york-legal-marijuana-timeline- fe270c2c6e3bf48c50a3a306a395bf60/colcare/db/354/2637/pdf/ stocks-investor CCHW+Presentation+Q4+2020+_+vFINAL%282%29.pdf midasletter.com 2
3 TOP CANNABIS STOCKS These impressive stats allow Columbia care to have The company purchased Green Solutions - the largest fully an addressable market of over 53% of the total U.S. integrated operator in Colorado. Green Solutions adds 23 population. That’s a population of 173.6 million people dispensaries and six cultivation/manufacturing facilities generating estimated 2021 sales of $14.28 billion - and that are expected to generate approximately US$88.5 that sales figure is expected to almost double to $27.86 million in revenue and US$18.5 million in adjusted EBITDA billion by 2026.5 in FY 2020.6 The positive news for shareholders is out of the 18 Next, Columbia Care completed the acquisition of Project jurisdictions Columbia Care operates in, only seven have Cannabis. Project Cannabis creates the foundation for full recreational legality. As discussed with the conversion scaled success in California. Project Cannabis adds over of New York state, the company is well-positioned in states 100 dispensaries to its wholesale distribution network that could come online in the future. Florida, Pennsylvania, throughout California and immediately turns Columbia and Virginia are just three examples of states that the Care’s Californian operations to adjusted EBITDA and cash company has already established itself within for the flow positive.7 California is the world’s largest cannabis medical market - these states will have significant upside market with annual sales above $4 billion. Expect California potential if the states were to eventually allow recreational to be one of the biggest stories with MSOs this year. sales - let alone federal de-prohibition. As mentioned, the two previous acquisitions establish Columbia Care made three major acquisitions in late 2020, Columbia Care in the two largest cannabis markets in the which positions them for solid growth in the future. world, California and Colorado. But perhaps more importantly, its acquisition of Green Leaf Medical expands Columbia Care's operational scale and footprint into four key, limited license markets.8 The deal enhances the scale 5 https://d1io3yog0oux5.cloudfront.net/_ fe270c2c6e3bf48c50a3a306a395bf60/colcare/db/354/2637/pdf/ 7 https://ir.col-care.com/news-events/press-releases/detail/95/columbia- CCHW+Presentation+Q4+2020+_+vFINAL%282%29.pdf care-signs-definitive-agreement-to-acquire 6 h ttps://col-care.com/2020/09/01/columbia-care-completes-acquisition-of- 8 h ttps://ir.col-care.com/news-events/press-releases/detail/109/columbia- the-green-solution/ care-signs-definitive-agreement-to-acquire-green midasletter.com 3
3 TOP CANNABIS STOCKS and capabilities of its seed-to-sale operations and substantially expands its footprint and operating scale in the Northeastern states and the Mid-Atlantic. The Northeastern coastal states that Green Leaf Medical opens for Columbia Care are the states coming online for legal adult consumption. New Jersey and New York were the most recent to be approved for recreational sales. Green Leaf Medical also brings vertical integration to Pennsylvania and Maryland, immediately positioning Columbia Care as a leading wholesaler in those states. Those two states have also already seen legislation to legalize recreational sales. Columbia Care reported 2020 annual revenue growth of 151% up to $197.9 million, helped by its fourth-quarter revenue increasing 51% QoQ to $81.8 million.9 These record company results, along with its gross margin expansion, show the success of its expansion and acquisition strategy. The company ended the year with $61 million in cash, having raised $149.5 million from a bought deal public offering, which supports any long-term continuation of its growth initiatives.10 Columbia Care has provided Pro Forma 2021 revenue guidance of up to $530 million. However, this does not include any additional revenues coming online in newly legalized states such as New York and New Jersey. With revenues expected to reach over half a billion without any recreational approvals, shareholders could see significant upside in the future. The company has a market cap of $1.1 billion - a valuation significantly cheaper than the largest MSOs. With large revenues and margins expected to keep improving from recreational successes. In the state that never sleeps, could Columbia Care find itself king of the hill and top of the heap? 9 https://col-care.com/2021/03/16/columbia-care-reports-record-fourth- 10 https://ir.col-care.com/news-events/press-releases/detail/113/columbia- quarter-and-full-year-2020-results-reaffirms-2021-guidance/ care-announces-closing-of-bought-deal-public midasletter.com 4
3 TOP CANNABIS STOCKS GREEN THUMB INDUSTRIES INC. (OTCMKTS: GTBIF CNSX: GTII) Website: https://www.gtigrows.com Investor Relations: https://investors.gtigrows.com/ investors/overview/default.aspx Connecticut, Florida, Illinois, Maryland, Massachusetts, Shares Issued and Outstanding: 213.2M Nevada, New Jersey, New York, Ohio and Pennsylvania. Fully Diluted: 217.2M The company’s growth strategy focuses on States with Market Capitalization (At market close March 31, 2019): large populations and limited licenses. The company looks US$6.5B to enter States with a strong medical cannabis market Cash & Cash Equivalents: US$83.8M where recreational legalization is a real possibility in the future. To keep this report concise, we focus on two 2020 Revenue: US$556.6M specific States that we see as the key growth markets this Y/Y Rev. Growth: 157.2% year; Pennsylvania and Illinois. Q4 Revenue: US$177.2M Cannabis is still illegal for recreational use in Pennsylvania Q/Q Rev. Growth: 12.8% but has a roaring medical market. Pennsylvania is the *as of December 31, 2020 unless otherwise stated fifth-largest state by population and has exceeded original projections for patient number growth.12 The State is expected to bring in $1 billion in cannabis sales within the next three to four years.13 This makes the State the fastest- growing medical cannabis market in the U.S. According to the Oxford dictionary, to possess a green thumb relates to the natural talent of growing plants. Well, the multi-State cannabis operator (MSO), Green Thumb Industries Inc., may have expanded that definition simply from growing cannabis plants to scaling its business. Green Thumb has six brands that sell across 12 U.S. States. The company has 13 production facilities, 56 stores, and 97 retail licences.11 Green Thumb’s brands are produced, distributed, and sold in the following U.S. markets: California, Colorado, 11 https://investors.gtigrows.com/investors/overview/default.aspx 12 h ttps://mjbizdaily.com/pennsylvania-successful-medical-cannabis-market- 13 https://mjbizdaily.com/pennsylvania-successful-medical-cannabis-market- brightens-recreational-prospects/ brightens-recreational-prospects/ midasletter.com 5
3 TOP CANNABIS STOCKS Another key point to outline is the high barrier to entry/ cannabis sales were $109.1 million in March 2021 - a 204% competition within the State regarding obtaining licences. increase YoY and 35% since the previous month.18 In 2020, The State has a licensing cap limited to a specific number Illinois sold more than $1 billion of legal cannabis and has of cannabis licences available. Green Thumb is one of the already seen an increase of 153% in sales this year early entrants into this market and a clear beneficiary of compared to last. This upward trend is bound to continue. such regulation. Green Thumb recently opened its 55th national store within the Prairie State.19 As more states pass bills to legalize cannabis recreationally, you could make a case for Pennsylvania to It is no surprise that the last two retail openings were in be the next candidate. Recently, lawmakers have introduced these two States. However, it is important to point out after a bipartisan bill to do precisely that.14 According to recent these store openings, Green Thumb is one retail location polls, two-in-three voters support allowing the sale of shy of reaching its retail licence limit in both of these adult-use cannabis.15 The companies with significant States. With only one more available store to open in these market share and infrastructure already in the State will States, shareholders will be looking for major retail growth take advantage of any change in this regard. Green Thumb in other locations such as Florida and New Jersey - but will just recently opened its 56th national retail location within be confident with the increase in sales and already the Keystone State.16 prominent market share within stores in PA and IL. Where Green Thumb can continue to expand across all of its Illinois is another state Green Thumb has established markets is its wholesale business pillar. strong retail and wholesale presence within. The cannabis wholesale is the other side of Green Thumb’s Illinois became the 11th State to officially legalize coin, making the value proposition attractive. The company recreational marijuana in 2020.17 Total recreational has invested heavily into cultivation to supply other 14 https://www.mpp.org/States/pennsylvania/ 15 ttps://drive.google.com/file/d/18rM2UjQGvrqL0FHk64TR_dA-LzelHCgA/ h view 16 h ttps://investors.gtigrows.com/investors/news-and-events/press-releases/ 18 ttps://www.idfpr.com/Forms/AUC/IDFPR%20monthly%20adult%20use%20 h press-release-details/2021/Green-Thumb-Industries-to-Open-Rise- cannabis%20sales.pdf Meadville-in-Pennsylvania-Its-56th-Retail-Location-in-the-Nation-on- 19 h ttps://investors.gtigrows.com/investors/news-and-events/press-releases/ March-31/default.aspx press-release-details/2021/Green-Thumb-Industries-to-Open-Rise-Lake-in- 17 https://www.illinoispolicy.org/what-you-need-to-know-about-marijuana- the-Hills-in-Illinois-Its-55th-Store-in-the-Nation-and-McHenry-Countys-First- legalization-in-illinois/ Cannabis-Store-on-March-31/default.aspx midasletter.com 6
3 TOP CANNABIS STOCKS retailers. This way, Green Thumb can benefit from the sales acquisitions and have kept dilution to shareholders to growth within states without having to build new stores. a minimum. Green Thumb’s wholesale revenue actually grew more than its retail revenue last quarter, 150% vs 130% growth CEO Ben Kovler says he is excited to start 2021 with the respectively.20 first sale of SEC-registered shares to U.S. investors.23 The CEO has 26% stake in Green Thumb with nearly 59% of the As the company completed its U.S. initial public offering voting power.24 With such significant ownership of the (IPO), raising US$56 million by selling approximately 1.6 company, any future shareholder will be pleased to know million shares of the company21, U.S. investors will now be that he has an incentive to maximize the company’s growth keen to see how robust Green Thumb’s Financial into the future. As the founder of the company and its Statements are. The company’s Q4 financial report a fourth stellar growth, Kovler is so far proving his thumbs are consecutive quarter of positive cash flow from operations sufficiently green. supported by a 157.2% yearly increase in revenue, and a balance sheet current asset position of $183.9 million to support further growth across the U.S.22 Green Thumb’s growth strategy involves organic growth through licence applications. Unlike other MSOs, the company has avoided state-by-state expansion through 20 https://investors.gtigrows.com/investors/news-and-events/press-releases/ press-release-details/2021/Green-Thumb-Industries-Reports-Record- Resultsfor-the-Fourth-Quarter-and-Full-Year-2020/default.aspx 21 h ttps://investors.gtigrows.com/investors/news-and-events/press-releases/ press-release-details/2021/Green-Thumb-Industries-Raises-US56000000- 23 https://investors.gtigrows.com/investors/news-and-events/press-releases/ Selling-Approximately-1.6-Million-Shares-in-the-U.S/default.aspx press-release-details/2021/Green-Thumb-Industries-Reports-Record- 22 h ttps://investors.gtigrows.com/investors/news-and-events/press-releases/ Resultsfor-the-Fourth-Quarter-and-Full-Year-2020/default.aspx press-release-details/2021/Green-Thumb-Industries-Reports-Record- 24 h ttps://www.morningstar.ca/ca/news/211008/stock-of-the-week-green- Resultsfor-the-Fourth-Quarter-and-Full-Year-2020/default.aspx thumb-industries.aspx midasletter.com 7
3 TOP CANNABIS STOCKS TRULIEVE CANNABIS CORP. (OTCMKTS: TCNNF CNSX: TRUL) Website: https://www.trulieve.com Investor Relations: https://investors.trulieve.com Its vertically integrated, seed-to-sale operation boasts a Shares Issued and Outstanding: 113.6M 51% market share stranglehold across the whole state.25 Currently, Trulieve has 79 out of the total 325 dispensing Fully Diluted: 118.3M locations in Florida - which over half of the state’s medicinal Market Capitalization (At market close March 31, 2019): cannabis patients frequent.26 US$5.61B Cash & Cash Equivalents: US$146.7M The total number of qualified Florida medical marijuana patients is just over half a million people with estimated 2020 Revenue: US$521.5M annual sales of around $1 billion.27 Even though Florida Y/Y Rev. Growth: 106% doesn’t permit recreational marijuana use and sales, Q4 Revenue: US$168.4M Trulieve’s widespread dispensary network and extensive delivery services have still made the company $177.2 Q/Q Rev. Growth: 24% million in December quarterly revenue. Florida patients are *as of December 31, 2020 unless otherwise stated expected to boost cannabis sales to $2.6B by 2025 - a CAGR of 25.3% from 2019.28 Speaking of growth, Trulieve has doubled its sales every year for three years and said they expect sales to continue to grow by at least 60% in 2021.29 Florida is the home of Disney World, oranges, humidity and Trulieve. Trulieve was the first and now the leading medical cannabis company in the sunshine state. The norm within the corporate cannabis industry has been to expand operations into as many legal states as possible - with the hope to capture the largest population of cannabis patients/users. Trulieve has used a different tactic that has seemingly paid off. Trulieve has used its first-mover advantage to focus almost exclusively on the medical market in Florida. 25 https://investors.trulieve.com 28 ttps://investors.trulieve.com/static-files/ed820945-78a9-44b5-8a11- h 26 https://s27415.pcdn.co/wp-content/uploads/ommu_updates/2021/032621- bfe539ef420c OMMU-Update.pdf 29 h ttps://investors.trulieve.com/events/event-details/trulieve-cannabis-corp- 27 Ibid. fourth-quarter-2020-results midasletter.com 8
3 TOP CANNABIS STOCKS vertical operations, cultivation permits, and dispensaries in West Virginia and a cultivation/processing facility in Massachusetts.31 We are still at the beginning of Trulieve’s MSO expansion, but future scaling opportunities across different states could make shareholders truly believe in the companies value proposition. We have spoken with CEO Kim Rivers a few times throughout the company’s history. Most recently, here where she discusses Trulieve’s profitability. The story hasn’t changed since then (in terms of business strategy), only grown. Trulieve’s command of Florida cannabis, in terms of Kim Rivers presently owns approximately 17M shares - footprint, brand recognition, and high-quality product equating her inside ownership to 13.82% of the company.32 reputation, has provided the company with solid With a significant equity position behind her and the fact profitability and positive free cash flow - a rarity in the Ms. Rivers is the founder of the company, there is a large cannabis industry. Trulieve’s cash-flow margins of 46%, incentive to keep pushing the company’s strong financial gross margin of 60%, and customer retention rate of 79% performance and commitments to grow, state by state. speak loudly to these points and the companies success in its dedicated market.30 Trulieve has been profitable since 2017! The legalization of recreational cannabis in Florida would be the largest valuation catalyst in the near-to-medium term - supposing Republican senators were to follow the lead of many other U.S. states. With Florida in Trulieve’s back pocket, the company has started to expand its successful business to new U.S. states. West Virginia, Massachusetts, California, Pennsylvania, and Connecticut are the first markets Trulieve aims to break into. Each of these states is expected to see a double-digit CAGR by 2025 without considering potential U.S. federal regulatory changes. Trulieve’s strategy for entering these new markets is through accretive acquisitions. Trulieve has the free cash flow from its Florida operations to acquire existing companies with proven operations in their respective states. Most recently, dispensaries, 2021, Trulieve acquired Mountaineer Holding LLC - positioning them to have 30 ttps://investors.trulieve.com/static-files/ed820945-78a9-44b5-8a11- h bfe539ef420c 31 h ttps://investors.trulieve.com/news-releases/news-release-details/ 32 https://simplywall.st/stocks/us/pharmaceuticals-biotech/otc-tcnn.f/ trulieves-national-expansion-momentum-continues-acquisition trulieve-cannabis#management midasletter.com 9
3 TOP CANNABIS STOCKS JAMES WEST PUBLISHER, EDITOR & HOST OF MIDAS LETTER RAW James West founded Midas Letter in 2008 and has since been covering the best of Canadian and US small cap companies. He covers global economics, monetary policy, geopolitical evolution, political corruption, commodities, cannabis and cryptocurrencies. As an active market participant, James is not a journalist and is invariably discussing markets and the world in the context of where his financial interests lay. Midas Letter is conceived as an educational and entertainment platform where visitors can learn what James is investing in and why. ALEXANDER ROBERTS, MSc MIDAS LETTER ANALYST & CONTRIBUTOR Alexander Roberts joined Midas Letter in 2018 after LATEST INTERVIEWS, Visit the Cannabis section of the website working in several investment service positions for leading VIDEO CONTENT & banks. He obtained a Master’s degree in Finance & STOCK INFORMATION LEARN MORE Investment from The University of Leeds in England. As an active market participant, Alexander provides in depth insights for educational and entertainment purposes but does not offer professional investment advise. MIDASLETTER FINANCIAL GROUP LTD. DISCLAIMER Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions. Unit 101 - 65 Front St E Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision. Toronto ON M5E 1M2 Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West Canada and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased. PHONE (905) 961-8789 WARRANTY Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. Neither James West, the author and publisher of the Midas Letter, nor any authors or contributors to Midas Letter, are authorized to provide MAIL midasletter@midasletter.com investor advice, and we provide this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions. WEB midasletter.com Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision. ©2019 MidasLetter.com All Rights Reserved. Unauthorized duplication or distribution of all content herein prohibited. This document is copyright protected and may not be copied, disseminated or distributed without the prior express consent of James West and / or Midas Publishing Group Ltd.
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