With cannabis stock valuations at rock-bottom, it’s obviously opportunistic for these bankers to be buying into the cannabis industry at this particular time. It may also convince some investors sitting on the fence that now is the time to start to do their own buying.
Supporting, that thinking Scott Gordon, the CEO of Silver Spike Capital made this observation:
“You can structure really interesting loans to very viable borrowers at juicy returns,” he said.
Why can Silver Spike generate such “juicy returns”? Because at current price levels, cannabis companies would rather take on debt at (relatively) high rates than engage in equity financing.
It’s a clear indication that the companies themselves see their assets as being grossly undervalued in the marketplace at present.
There is another indication of such sentiments. Insider buying.
Cannabis investors may be interested in seeing where insider buying (or selling is occurring at the moment). A recent article surveyed (net) insider buying since April 1, 2019 among leading U.S.-based cannabis companies.
Which companies have seen the greatest internal accumulations?
At the top of the list is 4Front Ventures (CAN:FFNT / US:FFNTF), with $606,000 of net buying. 4Front is a diversified MSO, currently operating dispensaries in 7 states. Its current focus is California, Massachusetts, Illinois and Michigan.
4Front has efficient cultivation operations (yielding 400+ g/sq.ft.). On the retail end, the company has a portfolio of over 20 brands and 300+ SKU’s. 4Front also has extraction and wholesale distribution operations.
Also seeing significant buying is MedMen Enterprises (CAN:MMEN / US: MTTPF). MedMen has been one of the highest profile MSO’s, with aggressive marketing and high social media visibility. However, in terms of share price, it has been one of the more disappointing performers among U.S. market leaders.
The question investors will be asking is: does this represent real internal conviction in the prospects of this company? Or, was this internal buying more cynically motivated? It was reported in July that MedMen President (and co-founder) Andrew Modlin had just purchased an $11 million home in Hollywood.
Another major player in the U.S. cannabis industry that has seen significant net accumulation since April is Acreage Holdings (CAN:ACRG / US:ACRGF), $176,000.
Anyone familiar with the cannabis space knows that Canadian industry leader Canopy Growth (US:CGC / CAN:WEED) has a deal in place to acquire Acreage. However, the trigger for this deal is circumstances that are outside the control of either Canopy or Acreage: the national legalization of cannabis in the U.S. or other similar market/regulatory triggers.
Consequently, there is currently a game of arbitrage taking place in terms of the share price of Acreage versus the share price of Canopy itself. Such insider buying could be part of that game. Or, it could reflect genuine conviction that Acreage is being generally undervalued in the marketplace.
Other U.S. cannabis leaders that have modest accumulations by insiders are Cresco Labs (CAN:CL / US:CRLBF ) ($29,000) and iAnthus Capital (CAN:IAN / US:ITHUF) ($15,000). The Seed Investor recently published an article suggesting that iAnthus may currently represent one of the best values among U.S. MSO’s.
On the other side of the fence, some major U.S.-based companies have seen some insider liquidation over the past 6 months.
Trulieve Cannabis (CAN:TRUL / US:TCNNF) has reported just over $1 million in insider selling. This comes as the stock has fallen by close to 50%.
Green Thumb Industries (CAN:GTII / US:GTBIF) has seen just under $1 million in insider selling. It’s share price has performed similarly to that of Trulieve.
Perhaps of more concern to shareholders, however, is the even $500,000 in selling by insiders of KushCo Holdings (US:KSHB). KushCo did better than many U.S.-based companies through much of 2019 in holding onto its value.
[charts courtesy of Stockharts.com]
Recently, however, the stock has fallen off a cliff. This corresponds with a recent, dilutive financing that torpedoed the stock price. If much of this insider selling occurred proximate to this financing, then KushCo shareholders may not be the only ones asking questions here.
Reporting minimal insider selling was Planet 13 Holdings (CAN:PLTH / US:PLNHF) ($28,000). Origin House also reported $3,000 in insider selling, tied into its acquisition by Cresco Labs.
Perhaps more interesting (in some ways) is that many U.S. cannabis leaders reported no insider activity over the past 6 months.
Columbia Care (CAN:CCHW / US:CCHWF), Curaleaf Holdings (CAN:CURA / US:CURLF), Harvest Health & Recreation (CAN:HARV / US:HRVSF), and Vireo Health (CAN:VREO / US:VREOF) have seen no net buying or selling.
Translation? With the possible exception of a couple of the hardest-hit U.S.-based companies, no one is panicking here.
The cannabis industry is still just in the first inning – of what will ultimately prove to be a $1+ trillion game. Cannabis companies have (mostly) struck out in 2019. But there are many innings remaining for investors.