You’re reading a copy of this week’s edition of the New Cannabis Ventures weekly newsletter, which we have been publishing since October 2015.
It’s unrealistic to expect cannabis stocks won’t struggle further if the overall market continues to sell off aggressively, but we believe that some cannabis companies will fare better than others, if so.
We also think that ancillary companies that trade on the NASDAQ are more sensitive to the changes in the overall market, as they are held by funds and other institutional investors.
Investors should pay close attention to the amount of debt cannabis operators have taken on, when it is due, how it compares to its cash position and what the company’s operating cash flow and capital expenditures are expected to be.
We have seen in recent months several companies access debt at historically low interest rates for the sector, including Trulieve borrowing an additional $75 million just this week at 8%.
We have long suggested that the largest source of merger activity will be public companies buying private companies rather than public ones, and this has generally been the case.
Over time, private operators looking to sell may have to settle for a lower price, but the steep decline in public equity prices can lead to a period of reluctance to sell for a lower amount.
For now, we suggest that investors pay attention to the financial strength of the companies in which they invest as well as their access to capital, as some companies are better positioned to weather the storm than others.
Learn how to differentiate between the stronger and weaker cannabis companies with a subscription to Alan Brochstein’s 420 Investor.
To get real-time updates download our free mobile app for Android or Apple devices, like our Facebook page, or follow Alan on Twitter.
Get ahead of the crowd! If you are a cannabis investor and find value in our Sunday newsletters, subscribe to 420 Investor, Alan’s comprehensive stock due diligence platform since 2013.
Use the suite of professionally managed NCV Cannabis Stock Indices to monitor the performance of publicly-traded cannabis companies within the day or over longer time-frames.