CRB Monitor Securities Update | December 2024

There’s not much we can say about December’s performance of publicly traded cannabis equities that we have not said about nearly every month in 2024. As has been the case for much of the last four years, most of the CRB market failed its investors in the final month of 2024. The chart below continues to tell the story. And while many Americans were singing about their favorite character on screen-defying gravity, cannabis equities were once again surrendering to it.

The familiar headwinds — the slow walk toward federal legislative reforms, an uncontrollable illicit market, and crippling taxation — have made this industry effectively intolerable for investors. At this point, these companies, by virtue of their decimated market caps and low prices, have shrunk to the point where they are impractical, if not ineligible, for most institutional investment strategies. The cannabis-themed ETF market, once a bastion of hope, is a shadow of its former self with only about $12 billion representing the total market cap of pure play cannabis investments.

But there is still hope. Really.

At the state level, cannabis-related revenues continue to fill the coffers of the treasuries of the now 39 states with some form of legalization on the books. And while the U.S. government seems to be operating more like a circus than a government, the reforms that have been in the works for the last few years — DEA re-scheduling (or even de-scheduling), SAFER Banking and even federal legalization — have bipartisan support and are wildly popular across the U.S.

Furthermore, the CRB Monitor database tracks more than 90,000 cannabis-related business records and more than 64,000 cannabis licenses. And according to an April 2024 report by NORML, the cannabis industry employs more than 440,000 people. The main reason why this multi-billion dollar industry that employs a half million people can’t quite get it together at the corporate level is regulatory friction, plain and simple. If these companies were afforded the same conveniences as their counterparts in alcohol and tobacco (conventional banking and payment systems, interstate and international commerce, normal taxation, employee protections, etc.) and not treated by the federal government like illicit drug dealers, then this market would explode.

Cannabis-Linked Equity Performance

The Nasdaq CRB Monitor Global Cannabis Index (HERBAL), a mix of pure play Tier 1 and Tier 2 CRBs weighted by both investability and strength of theme (SOT), outperformed its peers in December (-10.3%), largely due to its security weightings following its semiannual reconstitution in September. A full description of HERBAL’s strengths and benefits can be found in Introducing: The Nasdaq CRB Monitor Global Cannabis Index.

The two largest U.S. plant-touching cannabis-themed ETFs, the Amplify Alternative Harvest ETF (NYSE Arca: MJ) (-13.3%) and the actively managed, MSO-heavy Advisorshares Pure US Cannabis ETF (NYSE: MSOS) (-15.9%), continued their downward slide following the November elections. Both of these funds are benchmarked to CRB-themed indexes, and while they use different construction methodologies, their returns will generally be directionally close to each other. Unlike HERBAL, which is an index designed to be Controlled Substances Act (CSA)-friendly, these two funds with U.S. plant-touching MJ exposure tend to be more sensitive than HERBAL to the U.S. regulatory rollercoaster.

MJ’s performance has a high potential to deviate from HERBAL’s (and other cannabis-themed ETPs) due to its current unconventional composition. Since its origin in 2017, MJ has held a significant percentage of non-pure play (and in a few cases, non-CRB) holdings, more specifically tobacco stocks and Tier 3 companies with either very small or no cannabis exposure at all. Additionally in 2022, MJ added and still maintains close to a 50% U.S. plant-touching component via a holding in its sister fund, MJUS. The plant-touching component also has the potential to impact MJ’s eligibility on investment platforms that restrict U.S. cannabis exposure.

 The performance of the recently expanded CRB Monitor equally-weighted basket of top Pure Play Tier 1 CRBs by market cap was negative in December, returning -9.5%. This basket, which is an equally weighted portfolio of the 21 largest pure play CRBs (including both U.S. plant-touching and non-U.S. plant-touching MJ companies), had a return that was a reflection of the wide range of performance across the entire Tier 1 pure play space. We will take a closer look at some of these below.

The CRB Monitor equally-weighted basket of Tier 2 CRBs underperformed the Tier 1 CRB basket, posting a -12.0% return for December 2024. In February 2024, CRB Monitor published an update to our article on correlations of pure play Tier 1 and Tier 2 CRBs (among other tiers and baskets). What we have observed historically is these two groups tend to display high correlation (~0.75) in the long term, while their respective performance has a tendency to diverge in the short term. This can be due to (among other factors) the lag from the impact of market forces (like marijuana rescheduling) that affect their sources of revenue that are derived from the Tier 1 group. If this theory holds, investors would be expected to load up on Tier 2 CRBs in the short term, and we would witness this gap narrow over time. We update this data a couple of times per year.

U.S. equities ended 2024 on a sour note, falling on their final day of trading but still rewarding investors with an impressive return for the year. U.S. equities have been buoyed by favorable economic indicators and a relatively dovish stance from the Federal Reserve while being held back by concerns over the policies of the new administration. Consumer spending remained resilient, and corporate earnings exceeded expectations, while technology stocks, particularly those in AI, cloud computing, and electric vehicles, were standout performers, continuing their momentum from earlier in the year. The market also benefited from investor optimism about the economic outlook for 2025, with inflation appearing under control and unemployment remaining low. However, volatility spiked toward the end of the month, driven by concerns over global geopolitical tensions and the potential impact on supply chains. The S&P 500 (represented by the SPDR S&P 500 ETF Trust (NYSE Arca: SPY)) posted -2.9% return for the month, but +24.6% for the year.

Largest Tier 1 Pure Play & Tier 2 CRBs by Mkt Cap – December 2024 Returns

An equally weighted basket of the largest Tier 1 pure-play cannabis equities struggled in December with most of the constituents under water. Tier I CRBs were again outpaced by the Tier 2 basket (-%), which had a number of winners and appears to be de-coupling from Tier 1 at least in the short term.

CRB Monitor Tier 1

Publicly traded CRB performance was negative (in a few cases, breathtakingly so) in December across the universe of Tier 1 cannabis stocks. The MSO basket generally went into shock, with Tier 1B Cresco Labs Inc. (CSE: CL) (-20.0%), Tier 1B Verano Holdings Corp. (CSE: VRNO) (-11.7%), Tier 1A MSO Trulieve Cannabis Corp. (CSE: TRUL) (-11.6%), Tier 1B TerrAscend Corp. (TSX: TSND) (-14.8%), and Tier 1A Curaleaf Holdings, Inc. (CSE: CURA) (-16.7%) getting crushed for the second month in a row.  The largest CRB by market cap, Tier 1B MSO Green Thumb Industries Inc. (CSE: GTII) (-8.0%) performed slightly ahead of its peers in December, but it was little consolation for investors, who are seeing their cannabis holdings evaporate before their eyes.

The Canadian CRB basket performed better than the MSOs, most likely given their lower (but not complete lack of) exposure to the progress of U.S. cannabis legalization and reforms. As such, returns for Canadian CRBs were a bit less negative in December. And as we have stated periodically, historical performance has deviated between the CAD and the MSO baskets over short periods, but the two groups tend to mean revert over time. Tier 1B legend in the cannabis industry Canopy Growth Corporation (TSX: WEED) (-28.0%) fell into the abyss, while Tier 1B Cronos Group Inc. (TSX: CRON) (-2.9%), Tier 1B craft beverage giant Tilray Brands, Inc. (Nasdaq: TLRY) (-0.7%), Tier 1B High Tide Inc. (TSXV: HITI) (-5.2%), and Tier 1A SNDL, Inc. (Nasdaq: SNDL) (-7.2%) fared much better for the month.

CRB Monitor Tier 2

An equally weighted basket of the largest CRB Monitor Tier 2 companies underperformed the Tier 1 basket in December 2024, posting a return of 12.0% for the month. Historically these two portfolios are highly correlated (please see our February 2024 “Chart of the Month”), and we expect the returns of Tier 1 and Tier 2 CRBs to mean revert over time. When the two baskets deviate from one another (as they did in December) the deviation could be a signal for investors to rebalance their Tier 1 and Tier 2 baskets given their direct revenue relationship, as Tier 2 CRBs are direct suppliers of goods and services to Tier 1 CRBs.

However, the precise moment when these two baskets mean revert is not easy to predict. Furthermore, the costs required to systematically rebalance these illiquid portfolios could eat up any expected material gains from even the best rebalance strategy. In other words, gaming these two baskets can lose money, so proceed with caution!

The largest CRB in the Tier 2 basket, well-known REIT Innovative Industrial Properties, Inc. (NYSE: IIPR) (CRBM Sector: Real Estate) (-32%) came crashing down in December and underperformed relative to the Tier 1 CRBs that lease property from them. IIPR’s stock was having a productive 2024 until November, then it lost essentially all of its positive performance over the last two months. This was a shame, considering that IIPR has maintained stable earnings throughout a challenging period for the cannabis industry. On November 6, IIPR issued its 3rd quarter 2024 earnings report, which featured the following highlights:

• “Generated total revenues of $76.5 million and net income attributable to common stockholders of $39.7 million, or $1.37 per share (all per share amounts in this press release are reported on a diluted basis unless otherwise noted).
• Recorded adjusted funds from operations (AFFO) and normalized funds from operations (Normalized FFO) of $64.3 million and $57.8 million, respectively.
• Paid a quarterly dividend of $1.90 per common share on December 15, 2024 to stockholders of record as of September 30, 2024 (an AFFO payout ratio of 84%), representing an annualized dividend of $7.60 per common share.
• Sold 402,673 shares of Series A Preferred Stock under IIP’s “at-the-market” equity offering program for $9.6 million in net proceeds.”

Tier 2 REIT Advanced Flower Capital, Inc. (formerly AFC Gamma, Inc.) (Nasdaq: AFCG) (CRBM Sector: Real Estate) (-0.85%) was close to flat in December, and over recent months it has also outperformed its Tier 1 CRB lending clients. On November 13, AFCG reported its 3rd Quarter 2024 earnings of $7.2 million which featured the following statement from CEO Daniel Neville:

“We are pleased with the strong quarter, driven by our continued focus on active portfolio management and origination. One of my top priorities when I joined AFC was to reinvigorate our origination engine, and I am proud to announce that we have surpassed our 2024 target of $100 million in new originations. This achievement highlights our ability to identify and support high-quality operators in key markets, and we look forward to continuing to build on this momentum as we close out the year.”

CRB Monitor Securities Database Updates

CRB Monitor’s research team monitors the information cycle daily and maintains securities’ profiles to reflect the current state of the cannabis ecosystem. Here is a summary of the updates for December 2024:

Cannabis Business Transaction News – December 2024

The cannabis business news cycle slowed a little in December, but there were a number of notable deals to report in spite of the fact that voters in Florida and the Dakotas rejected adult-use cannabis sales in their respective states. [For more, please see our coverage in the CRB Monitor November Securities Newsletter]. With that said, we remained plugged into the news cycle and have a number transactions to report this time around. Here are some of the highlights from December 2024:

Next we head north, where Canadian Tier 1B High Tide Inc. (TSXV: HITI) announced in a Dec. 10 press release that its “Canna Cabana retail cannabis store located at 5921 Perth Street, Richmond, Ontario will begin selling recreational cannabis products and consumption accessories for adult use on Saturday, December 14. This opening will mark High Tide’s 189th Canna Cabana branded retail cannabis location in Canada, the 75th in the province of Ontario, and the first location in Richmond… With low competitive density, this organic Canna Cabana provides the Company with attractive cannabis demographics.”

As we have been reporting, High Tide has been in expansion mode for much of the last 12 months, and now holds 201 active cannabis licenses in Canada and Australia.

One of Florida’s largest MSOs, Tier 1A Trulieve Cannabis Corp. (CSE: TRUL), apparently undeterred by November’s election results, announced Dec. 9 “the opening of a new medical cannabis dispensary in Tampa, Florida. The new dispensary will carry a wide variety of popular products including Trulieve’s portfolio of in-house brands such as Alchemy, Co2lors, Cultivar Collection, Modern Flower, Momenta, Muse, Roll One, Sweet Talk, and Trekkers. Customers will also have access to beloved partner brands such as Alien Labs, Bellamy Brothers, Binske, Black Tuna, Blue River, Connected Cannabis, DeLisioso, Khalifa Kush, Love’s Oven, Miami Mango, O.pen, Seed Junky, and Sunshine Cannabis, all available exclusively at Trulieve in Florida.”

With this purchase Trulieve’s footprint expands to 108 licensed retail cannabis operations in the state of Florida and holds, directly or through subsidiaries, 108 active licenses in the U.S.

Next, Canadian Tier 1B and household CRB name Canopy Growth Corporation (TSX: WEED) issued a Dec. 9 press release confirming that “Canopy USA, LLC has completed its acquisition of Acreage. Canopy USA now owns 100% of the issued and outstanding shares of Acreage. Together with the completed acquisition of 100% of Wana Wellness, LLC, The CIMA Group, LLC and Mountain High Products, LLC (collectively, “Wana”), as announced on October 9, 2024, and approximately 77% of the shares of Lemurian, Inc. (“Jetty”) as announced on June 4, 2024, Canopy USA is fulfilling its ambition of establishing a leading brand-focused cannabis company in the U.S.”

While this acquisition would make things appear that Canopy Growth now has U.S. marijuana touch points, in reality the company accomplished this transaction while remaining CSA-compliant. That’s because the parent company owns Canopy USA, LLC through a warrant that is exercisable only upon U.S. federal legalization of marijuana. In other words, unless and until marijuana is federally legal, Canopy Growth Corp. continues to have no direct ownership of a U.S. cannabis business.

The press release continues, “The completed acquisitions of Acreage and Wana, and approximately 77% of the shares of Jetty, are expected to enable Canopy USA to realize anticipated financial benefits, including revenue growth and cost synergies, marketing efficiencies, and joint sales advantages across key cannabis product categories such as vapes, edibles, and flower.”

Canopy Growth currently holds, through its subsidiaries, 58 active cannabis licenses to operate in Canada, Germany and Colombia.

Finally, Tier 1A Canadian CRB MediPharm Labs Corp. (TSX: LABS) and Kensana Health Inc. jointly issued a December press release announcing that they have “entered into a share purchase agreement for the purchase and sale of MediPharm’s facility in Napanee, Ontario through a disposition of all of the Company’s indirect equity interests in its wholly-owned subsidiary ABcann Medicinals Inc. to Kensana Health for $5.5 million in cash.”

What this amounts to is MediPharm is looking to scale back its operations and eliminate inefficiencies wherever possible. The announcement goes on to say, “Pursuant to the Purchase Agreement, Kensana Health has agreed to acquire all of the issued and outstanding shares in the capital of ABcann from the Company’s operating subsidiary MediPharm Labs Inc. If the Transaction is successfully completed, through its acquisition of ABcann, Kensana Health will acquire the license in respect of the Napanee Facility as well as the building, land, and equipment associated with the Napanee Facility. Current commercial agreements and activities of the Company will stay with MediPharm Labs… This strategic Transaction aligns with MediPharm’s focus on streamlining its operations and maximizing value for stakeholders. This Transaction is also expected to further complement the Company’s already strong cash position and combined with the materially debt-free balance sheet, allow the Company to invest in future growth opportunities.”

MediPharm Labs currently holds 11 active licenses in three Canadian provinces.

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Cannabis News: Regulatory News Updates

In the aftermath of the November 2024 elections, owners and investors of CRBs licked their wounds and continued on their individual paths toward business survival. It goes without saying that the U.S. government will soldier on, and we will see the next wave of proposed cannabis-related reforms from the next Congress. Meanwhile, the DEA will continue, at a snail’s pace, to move forward with its plan for rescheduling (or perhaps descheduling) in the months to come. And there is no doubt that we will see progress toward the legalization of marijuana for adult use in new states, over and above the current count of 24. With that said, here are some of the December highlights from the cannabis-related regulatory news cycle:

We begin in the State of New York, where our very own CRB Monitor News Team reported Dec. 20 that a state judge has “once again ordered the Cannabis Control Board (CCB) to stop issuing retail licenses after the state agency lifted requirements that certain retail applicants secure locations prior to license approval.”

This ruling is clearly intended to stifle the proliferation of the black market, which can emerge when a lack of controls are in place. The article goes on to report, “’We are not recommending issuing any more cultivation licenses until we at least have a better sense of the outlook and state of production moving forward,” said OCM Policy Director John Kagia. ‘One of the things that we have learned from other jurisdictions is that when you have a hyper-saturated market of production, cultivators generally don’t reduce how much they produce, and then you start seeing products seeping out of the back of the barns and falling off the back of trucks into the illicit market.’”

The article continues: “Currently, the state estimates there are about 75,000 people per operating dispensary. If all of the roughly 800 approved licenses from the November cohort were to open, that ratio would drop to about 25,000 per store. Adding an additional 1,000 from the December cohort would bring the state’s total number of retail shops to about 2,000, which would lower the ratio to about 10,000 people per store.
The court ruling came one day before the Office of Cannabis Management’s Cannabis Advisory Board recommended limits on the number of retail licenses approved over the next 18 months.”

Next, to a national story that was reported by our CRB Monitor News Team entitled Rescheduling Testimony Scheduled for January. Although the hearing has since been canceled,  the subject of rescheduling (now more than two years old and counting) looms large among the CRB community. Stakeholders of all kinds wait with interest as the DEA gets its ducks in order. With that said, this could get complicated as a new, “no business as usual” administration heads into the White House with its own, unconventional agenda.

In the words of the article, “While the Drug Enforcement Administration’s lead attorney affirmed the agency is the “proponent” of the proposed rule, rescheduling supporters skeptical of the DEA’s position were told they could not cross-examine the DEA’s witnesses. Chief Administrative Law Judge John J. Mulrooney II, likewise, questioned the federal agency’s delay in filing documents and case strategy in his Dec. 4 order. DEA Administrator Anne Milgram has selected 25 ‘designated participants,’ representing both sides of the proposed rule, to provide evidence.”

The process will unquestionably get complicated with the arrival of the new administration, and as the article states, “Meanwhile, how the process will play out once President-Elect Donald Trump takes over in January remains to be seen, especially since his nominations for attorney general and DEA administrator are going through a revolving door.”

Now we head west to Wisconsin, where a December article in Marijuana Moment reported that Wisconsin’s Senate minority leader said that she plans to “introduce a medical marijuana legalization bill in the coming legislative session, building on past legalization efforts that have fallen short in the face of pushback from Republican lawmakers.”

Like most states’ battles over legalization, the dissent falls along party lines, and Wisconsin is no exception. A majority of Democrats are in favor while a majority of Republicans are opposed, plain and simple. And a major issue, which is also universal, is money. Legalization would likely be dead in the water if not for all the revenues that are being left on the table; or more accurately, escaping to neighboring states. And the fact that marijuana is still illegal for both medical and recreational use means that exactly no cannabis-related revenue is available to the people of Wisconsin. And this appears to go against the will of those people. In the words of the report, “…a survey of rural voters in Wisconsin that was released last week revealed that nearly 2 in 3 (65 percent) support legalizing marijuana broadly. The poll, from the conservative nonprofit Institute for Reforming Government and the State Policy Network, asked 541 voters from rural counties in Wisconsin about a range of policy issues.”

Next we head out west to Nebraska, where a December article on our CRB Monitor News website reported that on Dec. 12, Nebraska’s governor certified certain measures that will eventually lead to legalization in the state. According to the article, “Former Nebraska state senator John Kuehn is not giving up his fight to prevent state residents from using and purchasing medical cannabis. Despite overwhelming voter support for legalization initiatives, Kuehn has appealed one lawsuit he lost to the state Supreme Court and has filed another legal challenge to Measures 437 and 438. Gov. Jim Pillen signed proclamations certifying the enactment of the legalization measures Thursday, Dec. 12, after Lancaster County District Judge Susan Strong denied Kuehn’s request for an emergency injunction on Wednesday. However, Pillen and Attorney General Mike Hilgers said in a joint statement that the proclamations don’t express a judgement on the validity of the measures, noting that marijuana is still illegal under federal law.”

We reported last month on Nebraska’s ballot questions 437 and 438, which asked voters to either approve or reject legalized medical marijuana in the state and also provide for a commercial market for it. Both measures passed handily, with 71% and 67% majorities, respectively. With that said, legal cannabis still faces a battle in the courts.

The December article goes on to report, “In his first lawsuit filed before the election, Kuehn, who is also a former member of the State Board of Health, alleged that there were not enough valid signatures collected for the pair of initiatives after a signature gatherer and notary were arrested for alleged fraud and malfeasance. Secretary of State Bob Evnen joined the lawsuit, represented by the attorney general’s office. The charges against the notary were later dismissed by a Hall County judge. Judge Strong then ruled Nov. 26 that the evidence did not demonstrate pervasive fraud. While Strong said the ‘presumption of validity’ was lost on more than 700 signatures for the legalization petition and over 800 for the regulatory petition, the initiatives were still valid, the Nebraska Examiner reported.”

We will follow this battle closely, and if the voters prevail, medical marijuana is planned to hit Nebraska’s shelves in 2026.

Finally, we head to Minnesota, where our CRB Monitor News Team reported on the Minnesota Adult-Use Lottery Held Up In Appellate Court. The article states, “The Minnesota Office of Cannabis Management’s plan to award 217 social equity adult-use cannabis licenses through a lottery is stuck in state appellate court that must weigh the merits of lawsuits filed by applicants that were deemed ineligible just days before the scheduled lottery. The state announced Nov. 22 that only 648 of the original 1,807 applicants were eligible for the lottery. That same announcement included a set date for the anticipated lottery as four days later on Nov. 26. The day before that announcement, rejected applicants Cristina Aranguiz and Jodi Connolly sued OCM in state court, alleging they were not given an explanation about why they failed to qualify.”

The article goes on to report, “In court filings, the state alleged that Aranguiz and Connolly had entered into agreements with NXMN Partnership LLC, which is controlled by an individual who is not eligible for the lottery. As part of those agreements, the state says the plaintiffs planned to sell their businesses to NXMN for $100,000 if they were awarded licenses. The state claimed that this was part of a larger effort from NXMN to flood the lottery process. NXMN, a Delaware-registered company, is associated with Tate Kapple. Kapple and Aranguiz are owners of the Iowa Cannabis Company. He is also associated with multiple licenses in Washington, Oregon and Iowa. Kapple applied for a retail and a delivery license in Minnesota using an MNcanna.org email address, the state said. OCM general counsel Eric Taubel said the agency was able to identify 120 retail applications and 120 delivery applications from Iowa that are linked to Kapple’s business and had the same $100,000 sale arrangement, according to a 60-page affidavit Taubel filed with the court.”

Needless to say, we will continue to monitor all of this activity in Minnesota as they make their way in this brave new world of adult-use cannabis.

CRBs In the News

The following is a sampling of highlights from the December 2024 cannabis news cycle, as tracked by CRB Monitor. Included are CRB Monitor’s proprietary Risk Tiers.

Wondering what a Tier 1, Tier 2 or Tier 3 CRB is?

See our seminal ACAMS Today white paper Defining “Marijuana-Related Business” and its update Defining “Cannabis-Related Business”.)