The Stansberry folks have their very own marijuana-focused newsletter now, too, joining pretty much every other publisher with a service dedicated to these niche stocks that have, with waves of state legalization, been through several bubble-and-bust cycles in just a few years as the industry has begun to mature. It’s called Cannabis Capitalist, helmed by Tom Carroll and introduced in these recent ads, so I guess it’s something they’ve launched within the past few months (the ad is new, it’s dated October 2020).

The pitch they’re making is for nonrefundable subscriptions at the “50% off” price of $2,000 a year, and this is how they describe the newsletter:

“We want to recommend that readers position themselves to own the kind of cannabis companies that are on track to go from small operators to the blue-chip companies that dominate the market at scale.

“We’re going to look to invest in takeout targets, where smaller companies are likely to be bought out at huge premiums in the coming months.

“And we are going to be patient in recommending when to get into these companies at reasonable prices. That’s going to be a key part of success. We always include buy-up-to prices for the smaller, more volatile cannabis stocks… They can rise quickly, but you don’t want to chase them on the latest rumors.”

The ad that readers have been sending my way is headlined, “A Monumental Moment for Cannabis,” and it starts out with this emphasis on a upcoming “catalyst” that will boost cannabis stocks…

“This is what we call a ‘frontier market’ – and new markets like this can offer as much risk as they do reward.

“But if you can time your entry right… ahead of a critical catalyst, the returns you can generate are simply extraordinary….

“With the country’s eyes glued to the news, focused on everything from COVID-19, to the presidential election, and racial tensions in America, you have a unique opportunity today to capitalize on an approaching policy change that is all but passing unnoticed by the mainstream media.”

So… what’s the catalyst? It has something to do with the election… from the ad:

“… we’re not predicting federal legalization or anything like that…

“Not yet, that is.

“Instead, as we’ll share over the next half hour or so, a much more subtle policy change that few people are paying attention to is about to open this market to 45 million Americans, virtually overnight.”

“Subtle Catalyst” has a nice ring to it… I’m thinking it would make a good name for a smooth jazz band. But what is that catalyst being hinted at?

Essentially, it’s “more states are legalizing” — with the kicker that he sees the snowball rolling for the legalization across the heavily-populated Northeast as a result of this year’s elections:

“2020 will be the biggest year in cannabis since 2016 when nine states legalized medical or recreational cannabis….

“Six states have some type of reform on the ballot in November. And in all, eleven could legalize in early 2021.

“And the one state I’m paying very close attention to is New Jersey, which could start the dominoes falling toward a new, multi-billion-dollar recreational cannabis market on the East coast….

“Currently, New York, Rhode Island, Pennsylvania, and Delaware all have legislation pending for recreational use.

“And when a huge neighboring state like New Jersey moves forward with legalization, the rest will follow. It will be like marijuana dominoes falling.”

I guess that makes sense, and it’s similar to the legalization wave we see from legalized sports gambling — nobody wants to see their own residents crossing over the state line to spend their money, whether it’s on a wager or a toke… that extra tax revenue looks awfully appealing to every state right about now, with state and municipal budgets in most places decimated by the coronavirus pandemic and associated shutdowns.

In marijuana right now, my little Massachusetts town is on the interstate, just a couple hours from New York City and within a few minutes of Connecticut, and because our local dispensary was the first big one to open in New England, almost exactly two years ago, we still see a steady stream of out-of-state license plates pulling in and creating a line at that dispensary, almost every day of the year. To some degree, then, our little downtown is being subsidized by visitors from New York City… and that probably won’t last very long. States don’t like to lose tax revenue to neighboring states, especially now when sales taxes are collapsing in most areas, and unemployment is driving income tax receipts down.

And this “betting on the next state to legalize” pitch is not a new thing, of course, marijuana speculators have been betting on state legalization votes for 20 years or so… starting with the slow wave of medical marijuana legalization and then really catching fire with recreational “adult use” legalization in Colorado and Washington in 2012, and exploding with the federal legalization in Canada in 2018, with lots of other votes and legislative and regulatory fights along the way. You can find examples of both 1,000% gains and 99% losses through those “catalyst” moments without having to look very far, though the industry does seem to have been settling down as some of the wildly bubblicious stocks have come down to more rational-sounding valuations, and as a few larger multi-state operators have been established and some of the high-flying names that were so well-marketed and appealingly brand-focused in the early days have fallen apart (I’m looking at you, MedMen).

The ad talks about the huge size of the market — with a graph indicating US cannabis sales were between $50-55 billion last year (including black-market sales, presumably), more than is spent on video games or donuts and about half of the total spent on beer, and with annual growth of something like 20%… the point being to emphasize that it’s still pretty early days here, the newsletter doesn’t want you think that you’ve “missed out.”

And they offer some huge projections if you add in nutraceuticals and pharmaceutical products…

“medical and recreational cannabis in the US alone will disrupt markets where current spending is over $500 billion. That is half a trillion dollars. These numbers are almost incomprehensible.”

And apparently the coronavirus has had a big positive impact…

“As all this cash transitions from the black market move to the legal cannabis market, it’s not difficult to see that investors will have the opportunity to make huge gains.

“The market is already there – and it is massive… it simply hasn’t shifted into legal channels yet.

“But the coronavirus changed everything….

“It’s accelerated the legal cannabis market at a pace we’ve never seen before. Taking a chunk out of the illegal market like we’ve never seen before.”

There’s also some chatter about the STATES Act and the MORE Act, which both have had pretty broad support in their goal of effectively decriminalizing marijuana at the federal level and pushing that decision down to the states, but haven’t yet passed — the MORE act would remove marijuana from the Controlled Substances Act and effectively legalize it, going a little further than the STATES Act (with some other clauses that are appealing to various groups, including the move to expunge past minor marijuana charges, open up the VA to using medical marijuana for veterans, etc.), and was expected to be pushed through the House before the election, but given the coronavirus relief efforts and the general lack of agreement on anything in Washington, it has been pushed back and will probably get a vote in the House, at least, in the lame duck session. Whether it will pass or not, I have no idea — that depends mostly on the Republicans and the President, I expect, since both the STATES Act and the MORE Act have had pretty strong Democratic support. More from the pitch:

“With the 2020 election upon us, I thought that with the MORE act up for a vote… legalization might just happen before November. However, there’s no way they could’ve moved to legalize marijuana before even deciding on the next stimulus bill. Rightfully so.

“So, the MORE act vote was postponed. But the House has promised it’ll happen this fall.

“And whether that happens or not, I’m confident that marijuana will be legal at the federal level in months, not years.

“Of course, the opportunity today is to get in BEFORE that happens.”

And then we get to the investments bit…

“If you get in today, I expect you’ll see shares of a handful of companies I have identified absolutely soar in in November. As news of New Jersey passing recreational marijuana likely hits headlines.

“And even better, these are companies you’ll want to hold onto… because if cannabis is legalized in 2021, as I expect it will be at the federal level, shares of those companies are going to soar even higher.”

And the clues about the first stock they’re dangling as bait for us…

“Amongst the companies I’m going to be telling you about today is one company that’s just three years old.

“In all honesty, at first, I was hesitant to talk about it today, because it’s so small and unknown. I’ve actually been watching it for over a year.

“It’s trading for about $2 right now.”

And apparently there’s some connection to this “northeast wave” of legalizations happening…

“In fact, this $2 company will instantly flood into Pennsylvania when they legalize with a $100 million-dollar expansion at their Scranton location. And in a small town like that, they’ll create thousands of quality jobs.

“They’re talking about a 250,000 square foot warehouse.

“And they have an interesting foothold in Virginia too.

“In fact, their founder told me he believes Virginia is a “sleeping giant”…

“Virginia has been historically slow on any marijuana legislation.

“However, they’ve taken it very seriously. And the state is set up into five sections only. And only one company can operate in each section.

“The $2 company I’m telling you about has the license for Zone 2 — which happens to include five of the 10 wealthiest suburbs in the state. Like Fairfax, Arlington, Dulles airport area, and Tyson’s Corner. And 30% of the state’s population.”

There are also some hints about the founders of this young company…

“But the four guys who started this company are straight off Wall Street, they have an impressive rolodex of big money contacts, and the management team contributed 24%, or $45 million, of their own money.

“And I recently had the pleasure of sitting down virtually with the co-president. He spent over 20 years at Deutsche Bank, first heading the Capital Markets & Treasury Solutions group, then serving as managing director and vice chairman of Corporate Finance North America.

“The guy is seriously competitive too… which is one important quality I like to see in management teams… probably because he was an Olympian before he got into finance.”

So that’s Erich Mauff, co-president of Jushi (JUSH.CX on the CSE in Canada, JUSHF OTC in the US)… and yes, that’s our teased stock here. Jushi is a bit above $2 now, the recent attention has helped bump it up from $2.40 to about $2.85 in the past week, and it has a market cap of about $300 million. That’s all in US$, though it’s stock market listing is on the Canadian Securities Exchange — home to most of the US marijuana companies, since neither the NY exchanges nor the big Toronto exchanges will allow a listing for a company in an illegal business, and marijuana is still illegal on the Federal level in the US.

Jushi preannounced their third quarter on October first, anticipating continued strong sequential growth to about $24 million in revenue for the quarter, which would be almost 200% growth from the year-ago quarter, and they also upgraded their forecasts — they now expect to have positive EBITDA by the end of this year, with 2021 revenues climbing to the $205-255 million range (also roughly 200% growth), and they think they’ll have “adjusted EBITDA” of $40-50 million next year. They go into more detail on this in their Investor Day presentation, which they held on October 1 and can still be accessed here (transcript is here if you prefer).

And yes, Pennsylvania is one of Jushi’s key states, their two revenue leaders are Pennsylvania and Illinois, and they clearly see Virginia as a core growth market for them as medical marijuana opens up in that state, with their license area covering the key Washington DC suburbs. They have three cultivation and manufacturing centers (PA, VA and NV), and their retail brand of dispensaries is called Beyond/Hello, which seems to generate most of their revenue (they sell their own brands, particularly one called Nira, as well as some from other producers).

Jushi is not yet at scale to drive real earnings growth, but perhaps they’ll get there soon — maybe very soon, if their projections of huge growth for next year come true. The gross profit is pretty strong, at 50% (short of some big ones like Trulieve or Curaleaf, but still pretty good), so the scalability should be there… and the $300 million market cap seems awfully small for a fast-growing marijuana company that anticipates having $200+ million in revenue (and positive EBITDA, adjusted or not) next year.

So the valuation for this little player looks pretty enticing at first glance, I wouldn’t talk you out of looking further into this one, though I haven’t actually read their filings to see if there are any scary skeletons in there (or any hidden share classes that mean the company is actually far bigger than the $300 million reported — they did raise some of their capital via a convertible debt/warrant financing last year so things are probably a little more complex than they appear on that front). I don’t know that Jushi will have any immediate impact from the November elections, recreational marijuana in PA is not on the ballot and the state’s politicians have been fighting over it for years (medical marijuana was legalized in PA as part of the big wave of changes in 2016), and the Virginia legalization is new (legislation enabled medical use as of July 1), but moving pretty slowly still… but they say they’re not counting on any laws or rules changing when they make their revenue forecasts for next year, so maybe there’s something to this one.

And we get hints about a few other stocks as well…

“There’s one company in the US that’s about to be the first to hit $1 billion. And they’re looking to conquer the East Coast.

“They’ve risen 174% year-over-year to $96.5 million as of right now. And they’ve seen revenue growth of 28% at the same time.”

OK, so if they’re “about to hit $1 billion” then that $96.5 million must be a quarterly revenue number, not an annual one (we know they must be measuring by revenue, not by market cap, because there are a bunch of US marijuana companies with $1+ billion valuations already).

Any other clues?

“And just since March, and the pandemic, they’re experiencing rapid growth… rising as much as 170% in just a few months.

“Not to mention, they’ve got $176.4 million cash in hand to continue to scale the business.”

OK, so that puts a little more age on these teaser stocks — that’s all about Curaleaf (CURA.CX, CURLF), which along with Trulieve (TRUL.CX, TCNNF) has generally had one of the more appealing income statements in the US marijuana business (I don’t own any growers or marijuana brands, but those are the two I’ve usually been most attracted to when skimming over their filings in the past).

Those numbers are from the first quarter, though, at which point Curaleaf did have $96.5 million in revenue (which was 173.7% growth) and $176.4 million in cash on the balance sheet. Now those numbers have changed a bit for the second quarter (which ended in June), so revenue growth most recently was at 142.3%, second quarter revenue hit $117.5 million, and the cash balance is down to $122.8 million. Doesn’t change the story in any dramatic way, but it’s a reminder that the details of this recommendation were apparently put together before mid-August…. despite the October 2020 date on the presentation. They next report earnings in about a month, on November 17, if you’re curious.

But interestingly enough, the tease also drops in another one that is somewhat tied to Curaleaf, at least in the world of rumors…

“Rumor has it that two of the biggest companies in cannabis are talking about a merger. At the end of August, Barron’s broke the news: Two of the largest pot producers rumored to be merging.

“A merger could create a new behemoth in the U.S. cannabis industry. One of these companies has cranked out remarkable cash flows in its main market of Florida. And the second is currently working to expand its operations in the Northeast. It’s a win win for both companies.

“Between almost $1 billion in sales and free cash flow of around $200 million… as a merged enterprise, this could be the biggest enterprise the pot industry has ever seen.

“This combined business could be valued at more than $5 billion.

“And right now, the company I’m recommending you get in on is trading for around $18.

“Over the next 9-18 months… this company could easily go from $18 to $36 for a quick way to double your money.”

So that’s a reference to Trulieve, which has occasionally been rumored to be in takeover talks with Curaleaf… but more recently, in August, was talked up as a potential merger partner with Green Thumb in a Barron’s article, which would give that new company enough combined scale to overtake Curaleaf in the still-early-days battle for US market dominance.

These are all relatively big players, Curaleaf has a market cap of $4.6 billion and sales of $350 million, Trulieve $2.5 billion and $367 million, and Green Thumb (GTII.CX GTBIF) $3.25 billion and $366 million. Any combination of those three would be a big deal, but they’re also all growing fast on their own (each has revenue growth over 100% last quarter).

So far I’ve been sticking with the landlords in the US marijuana business, but I do have to admit that some of the survivors of the ups and downs of the past decade have begun to look much more reasonably valued than I expected when I started writing this morning — and the whole sector has gotten a little more rational, at least in the states where overproduction and overlicensing haven’t yet eaten too much into margins. And who knows, maybe we are early in the growth of a business that will become increasingly more legal, and will lead to some really strong national players… that’s certainly what all four of these companies are hoping for.

I don’t own any of these players and haven’t bought a grower in years, but Jushi is pretty appealing if their growth projections can be taken seriously, and Curaleaf, Trulieve and Green Thumb have all grown into somewhat rational valuations and have meaningful scale and the ability to rationally finance continued expansion, so if you’re looking to invest in the pot market those are probably four good names to start your research. If you follow the business, or have any favorites in the pot space, please do let us know your thoughts with a comment below… thanks for reading!