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- 🚀 Let The Fireworks Continue 🚀
🚀 Let The Fireworks Continue 🚀
William McNarland & Anthony Varrell
July 08, 2024
GM Everyone,
We hope everyone had a great holiday weekend, and we are hoping to see some fireworks of our own this week in the cannabis industry. We should see the first adult-use sales go live in the Ohio market as some retail locations will receive their CO and be able to kick things off. Emphasis on the "should." We will be watching for headlines out of the Buckeye State this week and will be sure to be the first to report if and when something kicks off.
Have a smooooooth Monday.
Today’s letter can be read in 8 minutes and 12 seconds.
What's Driving the Market Today?
Stock futures are flat and still holding to to record highs:
Wall St stocks start the week at new records.
French election results lead to a hung parliament.
U.S. June employment report shows cooling labor market.
China’s stock indexes fall for the fifth straight session.
Crude oil prices fall sharply to start the week.
💸 High Impact
Lets Talk About LEVERAGE
The What - In the last twelve months, we have noticed some very positive trends in US MSO Cannabis companies. For example, Free Cash Flow and EBITDA margins have been increasing significantly in the right direction. Many MSOs with excess Free Cash Flow can pay down debt. However, we have noticed a trend of US MSO cannabis companies increasing their debt and becoming more leveraged. This article will discuss how we measure this, which US MSOs have the most leverage, and which companies have been increasing their leverage the most.
How do we measure company leverage?
I like to use Total liabilities rather than Total Assets. This is similar to a loan to value a home. If you have a home worth $1M and a $500,000 mortgage, you have a 50% Total liability to Total asset ratio. The use of debt is not necessarily bad or good. If they work well, then management's decision to use leverage is good, but it does add risk, especially when there are challenges. If a company has lower leverage, we are not saying it is better; we are just saying the balance sheet is lower risk.
Why is the Total Liabilities to Total Assets Ratio Important?
Financial Leverage: It indicates the degree to which a company is using debt to finance its assets. Higher ratios suggest more leverage and potentially higher financial risk.
Risk Assessment: It helps in assessing the financial stability and risk profile of a company. Companies with lower ratios are generally considered less risky.
Comparability: It allows for straightforward comparisons between companies in the same industry by focusing on their leverage and financial health.
Creditworthiness: It provides an insight into the company’s ability to meet its obligations. A lower ratio indicates better creditworthiness and financial stability.
Let's examine and rank the US MSOs based on their ratio for the last quarter before we look at the trends over the last year.
When looking at this data, I remind readers that it does not necessarily reflect positively or negatively on the companies. However, it guides investors on which MSO to pick based on their view of leverage. Some investors may prefer higher risk and higher return opportunities. It does highlight, though, that the companies with a lower ratio are lower-risk companies regarding leverage. The key, is for investors to know what they are investing in.
Earlier in the article, I shared that companies have been increasing their leverage in the last twelve months overall. The next chart I share is how much each companies has been increasing or decreasing their leverage. This shows a trend to see if companies are increasing their risk/reward profile or are decreasing their risk/reward profile.
The Why - I will watch the overall trend for companies, but I will also watch each company to see in what direction it is trending and by how much. I will share this data as it becomes available after the company's earnings reports. Some companies do not share this information in their press releases and it takes us a couple of days to get our systems updated at Capital IQ / S&P.
📈 Dog Walkers
Arkansas Campaign Pushes for Medical Marijuana Amendment 2024
The Arkansans for Patient Access (APA) campaign has submitted 114,402 signatures to qualify the Medical Marijuana Amendment of 2024 for the November ballot. The proposed amendment aims to allow patients and caregivers over 21 to grow up to seven mature and seven young marijuana plants, extend the validity of medical marijuana cards to three years, and enable telemedicine consultations to improve accessibility, especially for rural residents. Despite strong support from voters, the amendment faces opposition from groups concerned about the potential expansion of marijuana use and the complexity of the ballot title.
SNDL Firing On All Cylinders
SNDL Inc. (NASDAQ: SNDL) has acquired the debt of Delta 9 Cannabis, elevating its position to senior secured creditor status. This strategic move aims to enhance SNDL’s financial leverage and influence within the cannabis industry.
SNDL has also entered into a stalking horse purchase agreement for the business and assets of Indiva Limited. This agreement sets a minimum bid for Indiva’s assets, potentially facilitating SNDL's expansion in the cannabis market.
Majority of Florida Voters Support Amendment 3
A poll conducted from June 26-29 by Florida Politics found that most Florida voters support Amendment 3, which would legalize recreational cannabis for those 21 and older. With more than 64% in favor, the poll suggests the amendment could easily reach the required 60% +1 threshold for passage.
🗞️ The News
📭 Research
Initiating Coverage: Green Thumb Industries - Download Here
Reconfirming Buy Rating: MariMed - Download Here
Initiating Coverage Of Verano Holdings Corp. - Download Here
Initiating Coverage: TerrAscend - Download Here
📺 YouTube
Would We Buy These 5 Small Cap Stocks? | TDR Small Cap Sunday
What we covered:
✅ Ames National (NASDAQ: ALTO) A community bank in Iowa that pays a dividend above 5%! We will learn how to analyze community banks, and what to watch for, and watch out for.
✅ American Well Corp (NYSE:AMWL) A telehealth company that came out during Covid and had a $100M investment in the company by Google Cloud. The stock is down 98%. Is this a great time to buy or a trap?
✅ Ampco Pittsburgh (NYSE:AP) A specialty steel manufacture in Pittsburgh that was established in 1929. The company's stock is down over 97%, but is this the time they are turning the corner?
✅ California’s Glass House Brands (QTCQX:GLASF) will be considered in six areas compared to its competitors to help us determine if we would buy the companies stock.