NEW Best Idea Long - MSOS
We are adding AdvisorShares Pure U.S. Cannabis ETF (MSOS) as a Hedgeye Cannabis Best Idea Long.
We are seeing an improvement in the rate of change in a couple of the largest and most mature states regarding pricing. Over the last year, inflation has flooded headlines worldwide, but the opposite has been true in cannabis. This space has seen 23% average YoY unit growth across the U.S. while sales have been flat, all due to the fact that prices have gotten crushed. States on the west coast are seeing improvement in terms of ROC for pricing, while states like Massachusetts (below) have started to see prices go green sequentially. MSOS has followed the path of that of average price per unit in the United States. We believe that we saw the bottom in the MSOS just days before President Biden made his remarks about looking into rescheduling/descheduling as well as issuing mass pardons to cannabis-related federal charges. Companies like GTI are printing better than expected results (see our note yesterday), while other cannabis names are trading at balance sheet value. Our CEO and Macro Sector Head, Keith McCullough, added MSOS to his investing ideas yesterday.
Massachusetts Cannabis Trends.
For only the third time in 20 months, Massachusetts saw sequential improvement in average unit price per item. Massachusetts brought in ~$126M in sales for October, representing a sequential decline of 1.2% and YoY growth of 3.1%. Unit volumes for the month were down 1.8% sequentially while up 22.1% YoY. Average unit volumes were up 0.5% sequentially and down 15.5% compared to last year. We are starting to see ROC improvements in the biggest headwind this industry has faced, pricing pressure. This is a core reason we are adding MSOS as a Best Idea Long.
DIDDY Has ENTERed the market.
Sean "Diddy" Combs, a U.S. rap artist, plans to pay up to $185 million for licensed cannabis companies in three states. The deal will create the largest African American-owned licensed cannabis business in the U.S. Diddy would acquire stores on the selling block due to the pending all-stock merger between Cresco Labs Inc. and Colombia Care. He said he decided to enter the market to help address long-running inequities. Black people have been disproportionately arrested for marijuana crimes; research has shown. They also comprise a tiny percentage of those making money from the legal cannabis market. "How do you lock up communities of people, break down their family structure, their futures, and then legalize it and make sure that those same people don't get a chance to benefit or resurrect their lives from it?" Under the deal, a new company controlled by Mr. Combs would acquire nine retail stores and three production facilities in New York, Massachusetts, and Illinois. His company would pay $110 million in cash and $45 million in debt financing, plus additional money based on certain market-growth milestones.
