Feb 3, 2023
The cannabis sector has been trending higher during the last week and we attribute the move to the introduction of favorable legislation in the United States (US) Congress.
Earlier this week, GOP Congressman Greg Steube introduced a bill entitled “Marijuana 1-to-3 Act” which would move cannabis from Schedule I to Schedule III under the federal law. The development was a catalyst for the cannabis sector and we will monitor the progress of the legislation.
Cannabis legalization is coming in the US and it is only a matter of time until there is legislative reform at the Federal level. We believe this is the biggest potential catalyst for the cannabis sector and have worked to identify companies that would benefit from this.
Today, we want to highlight 3 operators that would benefit from legislative reform in the US and want our readers to be aware of these companies.
We consider Body and Mind Inc. (CSE: BAMM) (OTCQB: BMMJ) to be an undervalued multi-state operator (MSO) due to the significant potential catalysts that it has for growth. The company has active retail operations in Ohio, Arkansas, Michigan and California. The MSO also has pending retail operations in Illinois and New Jersey, and craft cultivation and/or processing operations in Nevada, Ohio, and Arkansas. We are bullish on the markets that Body and Mind is levered to and want our readers to be aware of the business.
Earlier this year, we highlighted Heritage Cannabis Holdings Corp. (CSE: CANN) (OTCQX: HERTF) as a North American cannabis operator that is flying under the radar. Currently, the company is capitalizing on Missouri and West Virginia in the US and we are favorable on this part of the business. Although Missouri and West Virginia are not considered to be high-profile markets in the US, we expect Heritage to use the markets to gain early-mover advantage as well as a launchpad to expand into other states in the US. The management team has already proven its ability to execute on a large-scale in Canada and we expect its expertise to play a key role in the growth in the US. We believe the business has significant potential catalysts for growth and are of the opinion that the market is discounting the growth prospects that are associated with the business.
Cresco Labs Inc. (OTCQX: CRLBF) (CSE: CL) is a larger scale US MSO which has lost more than 70% of its market cap from its 52-week high. During the most recent quarter, the company generated $210 million of revenue and reported to have $130 million of cash on hand. We like Cresco due to the markets it is levered to and its leadership positions in Illinois, Pennsylvania, and Massachusetts (according to BDSA). The states that Cresco Labs is levered to include Arizona, California, Utah, Colorado, Missouri, Illinois, Michigan, Ohio, Pennsylvania, New York, Connecticut, Florida, West Virginia, New Jersey, Virginia, Delaware, Maryland, and Washington DC. With a market cap that is close to $600 million, we find the valuation to be attractive after the current decline. Due to the growth prospects that are associated with the business, we plan to create a small position in both portfolios. The position we will create is equal to approx. 15% of our total planned investment and we will monitor how the stock continues to perform.
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