What a train wreck! That's the best way to describe how marijuana stocks performed during the month of September. Though historically a rough month for the stock market anyway, it was a brutal month for the high-growth cannabis industry.
How bad, you ask? The Horizons Marijuana Life Sciences ETF, which contains more than five dozen pot stocks of various weightings, dipped 13.7% for the month, which included paying out a $0.202 quarterly dividend. The first exchange-traded fund focused on cannabis has lost 45% of its value over the trailing six months, inclusive of dividend payouts.
And it gets worse. Of the 59 pure-play and ancillary marijuana stocks that Yours Truly tracks, a mere six ended the month in the green. Comparatively, 41 out of the 59 ended the month lower by a double-digit percentage, not including rounding. To put this data into a different context, 1 out of 10 pot stocks rose in the month of September, while 7 out of 10 lost between 10% and 60% of their value. That's a train wreck!
While finding bright spots in the marijuana industry last month was clearly difficult, the following six pure-play and ancillary cannabis stocks managed to buck the industrywide weakness.
22nd Century Group: Up 15.3%
Although it's very loosely labeled a marijuana stock, plant biotechnology company 22nd Century Group (XXII -6.26%) was September's top performer, with a gain of 15%. In fact, it was the only double-digit gainer during a very poor month for any companies that have an association with the pot industry.
Despite its connection to the marijuana industry via its technology that could help growers control the levels of tetrahydrocannabinol (THC) and/or cannabidiol (CBD) in hemp or cannabis crops, 22nd Century Group's rally last month is entirely tied to the ongoing health scare surrounding vaping. The Centers for Disease Control and Prevention identified at least 805 certain and probable cases of vape-related lung illnesses as of last week, with 12 deaths. This has some states aggressively moving to ban flavored vapes and/or vape products altogether.
22nd Century Group is a beneficiary since it's in the process of developing a very-low-nicotine-content (VLNC) cigarette. These VLNC products have 95% less nicotine than traditional tobacco cigarettes and thus make for a product that consumers can buy without becoming addicted. In effect, it's an alternative to vaping and quitting traditional tobacco products.
Nevertheless, I have my share of concerns regarding just how popular VLNC cigarettes will be and, as such, would suggest that investors keep their distance, despite the strong month.
Namaste Technologies: Up 5%
Whereas 22nd Century Group had a clearly defined reason for heading higher in September, the same cannot be said for Namaste Technologies (NXTTF -10.53%). If I had to take a dart-throw guess as to why the company bucked the industrywide weakness and rose 5%, I'd say it's been the slow but steady advancement of online platform CannMart.
During the month of September, Namaste wound up signing a sales and marketing agreement with CannTx Life Sciences to launch and sell their Bower medical brand. A little more than two weeks ago, CannMart also received an order for prerolled cannabis product from the British Columbia Liquor Distribution Branch (LDB). The LDB is the only wholesale distributor of recreational marijuana in British Columbia. These are solid wins for CannMart and therefore for Namaste.
Still, Namaste has a long way to go to earn back the investor trust that was lost earlier this year. The company has found a permanent CEO solution, but it'll need to execute on its long-term strategy and move the sales and income needle in the right direction to really get investors' attention. For now, investors should continue to monitor Namaste from the safety of the sidelines.
Trulieve Cannabis: Up 4.5%
In the U.S., Florida-based vertically integrated multistate operator Trulieve Cannabis (TCNNF -1.79%) had a solid month, returning nearly 5% for its shareholders.
How did Trulieve do it, you wonder? About the only news events last month for the company appear to be the ongoing opening of new locations in the Sunshine State. On Oct. 1, Trulieve opened its 36th store in Florida. By focusing its efforts on building up its image and brands in the Sunshine State, the company has been able to keep its costs relatively low, all while gobbling up valuable early-stage market share in what could be the state with the third-highest annual weed revenue by 2024.
Trulieve Cannabis has also been able to one-up many of its peers by already turning a profit. Mind you, this isn't the one-time-aided profit that some other pot stocks have generated. We're talking a genuine operating profit in which revenue outpaces cost of goods sold and standard operating expenses. Trulieve remains one of the cheapest marijuana stocks in the entire industry.
Innovative Industrial Properties: Up 3.6%
No surprise here, but cannabis real estate investment trust (REIT) Innovative Industrial Properties (IIPR -0.57%) continued to kick bud and take names in September.
The big news from the company is its ongoing acquisition spree of medical cannabis grow farms and processing facilities. After ending 2018 with 11 properties in its portfolio, its newest round of buying has IIP up to 31 properties owned in 12 states. The average-weighted lease length on these properties is 15.9 years, with a current average yield on invested capital of 14.5%. In plain English, this means that Innovative Industrial Properties should have a complete payback of its invested capital in five years.
Further, Innovative Industrial Properties' business model is highly predictable, with the company able to pass along a 3.25% rental increase to its tenants each year. Suffice it to say that there's a reason its payout is up 420% in two years' time.
Constellation Brands: Up 1.5%
Corona and Modelo beer maker Constellation Brands (STZ -0.16%) also edged ever-so-slightly higher in September, with gains of 1.5%. Constellation gets its association with the pot industry via its 37% equity stake in Canopy Growth (CGC -1.95%), the largest marijuana stock in the world by market cap.
Ironically, the reason Constellation appears to be doing so well is because Canopy Growth finally had a month in which it didn't do too poorly (it lost about 2%). As a major stakeholder, Constellation has taken it on the chin as Canopy Growth has reported one monstrous quarterly loss after another. With Canopy's board showing former co-CEO Bruce Linton the door, the expectation is that a new CEO will soon tighten the belt in a big way at Canopy.
Constellation Brands has also seen plenty of strength in higher-end beer and spirit sales and could prove to be a beneficiary from the vaping health scare. In other words, consumers might consider infused beverage options, rather than vaping, as a means of consuming cannabis products. Things continue to look up for the established vice stock.
Acreage Holdings: Up 1.5%
Last but not least, vertically integrated multistate dispensary operator Acreage Holdings (ACRGF) crept higher by 1.5% as the rest of the industry went into a tailspin in September.
Similar to Constellation Brands, Acreage Holdings' modest increase last month had something to do with Canopy Growth not falling off a cliff. Don't forget that Canopy agreed to acquire Acreage on a contingent-rights basis in a cash-and-stock deal in mid-April, the contingency being that the U.S. federal government has to legalize cannabis. With Acreage's stock somewhat tied at the hip to Canopy Growth's share price, Canopy's very small drop helped to stabilize Acreage in September.
Additionally, the passage of the Secure and Fair Enforcement (SAFE) Banking Act in the House has investors excited about the potential for future cannabis reforms in the United States. While the SAFE Banking Act is liable to find plenty of resistance in the Senate, the fact that a stand-alone marijuana bill passed any house of Congress is viewed as one step closer to real reform.