MSOS: 2nd Quarter 2022 Portfolio Review
The cannabis space continues to be punishing — despite this past quarter, our belief in the long term opportunities in the sector remains strong. For the three-month period that this commentary covers (April 1 through June 30, 2022) MSOS dropped -50.74% on its net asset value (NAV).
The potential forces holding down the sector remain the same — lack of clear federal reform, thinner volume which leads to larger swings and higher sensitivity to short selling pressures, and simply the current macro environment. All these factors are currently working against cannabis but with some simple adjustments like removal of IRS Tax Code 280E could reverse that trend. While we don’t know what the market will do exactly in the next quarter, we believe this represents a good buying opportunity for us to buy when there’s blood on the streets in an attempt to deliver the most value to our shareholders in the long term.
We eat our own cooking, so I am right alongside other investors in feeling the pain of this long cannabis drawdown. I’m being patient and want to say thank you to those out there who are doing the same.
The portfolio continues to maintain a high concentration in its top holdings in the largest multi-state operators (MSOs). This is a trend that has only continued as the top five holdings represented 58.5% of the portfolio at the end of the 1st quarter 2022 and a 66.8% weighting by the end of the 2nd quarter 2022.
Assets have been driven substantially lower due to the painful contraction all over the cannabis world but total shares outstanding remain high. We continue to believe this shows the strength and opportunity in cannabis for the long term. While the performance is painful, we believe this is an opportunity to take advantage of what we believe to be extremely undervalued companies.
There were no new additions for this quarter, but we continued to shift and adjust weightings to manage the portfolio. The only full position change came from TerrAscend completing its acquisition of Gage Growth, so we no longer have shares of GAEGF, which converted over. In terms of shifting exposure, the largest increase was to the Curaleaf position, which grew by 5.65%. Verano grew by 2.46% and Trulieve grew by 2.08%.
Winners and Losers
During the quarter, most of the fund’s holdings had losses. The Fund’s returns were driven mostly by large concentrations in top holdings in the largest multi-state operators (MSOs). Trulieve was down -43.13%, Green Thumb lost -56.80%, Curaleaf lost -19.97%, and Verano -45.96%.
Despite the punishing stock prices as of late, there continues to be expansion and growth in terms of new states coming online and expanding their current cannabis laws. On a state level, commercial sales began in New Mexico on April 1st and in New Jersey on April 21st. While sales are scheduled to begin toward the end of 2022, Connecticut signed into law legislation that legalizes and safely regulates the adult-use of cannabis in the state. This growth and expansion into new and existing states continues to grow the footprint of cannabis companies while putting pressure on neighboring states to also adopt better cannabis laws.
At a federal level, the progress has so far been frustrating. While there have been many bills that have tried to address cannabis like the MORE, CAOA, SRA, and SAFE acts, none have been able to cross the threshold and be made into law. Despite this, the existence of so many bills is proof to us that reform is trying to be advanced and is a bi-partisan issue. Both sides of the aisle have proposals to get federal reform in place. We remain cautiously optimistic that we will see some form of either comprehensive or incremental legislation.
|Ticker||Security Description||Portfolio Weight %|
|TCNNF||TRULIEVE CANNABIS SWAP REC||16.91%|
|CURLF||CURALEAF HOLDINGS INC SWAP REC||16.30%|
|GTBIF||GREEN THUMB INDUSTRIES SWAP REC||14.11%|
|VRNOF||VERANO HOLDINGS CORP SWAP REC||12.59%|
|CRLBF||CRESCO LABS INC SWAP REC||6.85%|
|TRSSF||TERRASCEND CORP SWAP REC||4.85%|
|AYRWF||AYR WELLNESS INC REC||4.14%|
|CCHWF||COLUMBIA CARE INC SWAP REC||4.12%|
|IIPR||INNOVATIVE INDUSTRIAL PROPER||3.55%|
|JUSHF||JUSHI HOLDINGS INC SWAP REC||2.80%|
As of 06.30.2022. Cash is not included. Subject to change.
Please see our complete Fund holdings at advisorshares.com/etfs/msos. The holdings details are updated each market day.
To get updates on the funds, tune in to AdvisorShares’ AlphaNooner Show streaming live each regular weekday starting at 12:00 pm (East Coast time), where I am a guest almost every Tuesday. Other important guests from the cannabis world often join too. Find it on most major social media platforms or visit our the AdvisorShares “Events” webpage for more information.
Past Manager Commentary