MSOS Meltdown Is Hurting Cannabis Stocks

I first warned the Seeking Alpha audience about AdvisorShares Pure US Cannabis ETF (NYSEARCA:MSOS) in November, and it has dropped substantially since then:

I followed up in January with an article about the share redemptions that began in mid-December, and they have continued. Since the end of the year, shares outstanding have declined by 4.9%, and they have plunged 12.8% since December 16th.

In this piece, I take a look at the most recently updated portfolio of the MSOS holdings and how it has changed since year-end. I also discuss how the ETF is overinvested still in the largest 5 MSOs, especially Green Thumb Industries (OTCQX:GTBIF), which I wrote about in early January suggesting why investors should be careful, and Curaleaf Holdings (OTCPK:CURLF), which I wrote about two weeks later suggesting that it is very overvalued relative to its peers, its two largest holdings at a combined 46.7% of the fund.

MSOS Owns These 26 Stocks

Here is the current portfolio as of 2/10:

MSOS Has Sold Holdings

Since year-end, as the number of shares outstanding at MSOS has declined by 4.9% to 59.89 million and as cash has been raised, the ETF has sold one position in entirety, Hydrofarm (HYFM). It has made large cuts to four other ancillary names, including GrowGeneration (GRWG), Innovative Industrial Properties (IIPR), AFC Gamma (AFCG) and Power REIT (PW). It has added to two names, TerrAscend (OTCQX:TRSSF) and Jushi Holdings (OTCQX:JUSHF). It has cut the five largest MSOs, with three, GTBIF, Verano Holdings (OTCQX:VRNOF) and Trulieve (OTCQX:TCNNF) all down about 8.5%. The other two, CURLF and Cresco Labs (OTCQX:CRLBF) are down a lot less than the decline in the number of shares outstanding.

Even with the moves it has made, the ETF remains extremely concentrated in the largest MSOs. At year-end, the Top 5 MSOs represented 81.3% of the holdings, which is now 77.1%, still a very large portion. The next 4 MSOs by revenue have moved from 9.3% at year-end to now 11.7%. The ETF still holds no Ascend Wellness (OTCQX:AAWH) from this group. Non-operators, mainly ancillary companies, have gone from 3.9% to just 1.5%. Cash has gone from -2.1% to +0.1%.

What Could Happen

I am not sure if the redemptions will continue, and I am finding some of the overly-owned positions to look attractive, but continued redemptions at MSOS could impact the largest holdings. I find Curaleaf to be still valued excessively relative to peers and perhaps at most risk, but the large position in Green Thumb Industries could impact that stock too. I had written about Planet 13 Holdings (OTCQX:PLNHF) in December and added it to my Beat the Global Cannabis Stock Index model portfolio at year-end. It’s not in the index and rallied substantially, and I exited the name. MSOS owns about 3.5% of the PLNHF stock outstanding and could reduce its position if redemptions were to continue.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

420 Investor launched in 2013, just ahead of Colorado legalizing for adult-use. We are moving to Seeking Alpha and will let our followers know when that occurs. Historically, we have provided great coverage of the sector with model portfolios, videos and written material to help investors learn about cannabis stocks.