MSOS: 2nd Quarter 2022 Portfolio Review

Performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than original cost. Returns less than one year are not annualized. For the fund’s most recent standardized and month-end performance, please click www.advisorshares.com/etfs/msos.

Performance

​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.

Portfolio

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

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.

New Positions

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%.

Cannabis Landscape

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.

Top Holdings

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.

Cheers,

Dan Ahrens
AdvisorShares
AdvisorShares Pure US Cannabis ETF (MSOS) Portfolio Manager

 

Past Manager Commentary

Before investing you should carefully consider the Fund’s investment objectives, risks, charges and expenses. This and other information is in the prospectus, a copy of which may be obtained by visiting www.advisorshares.com. Please read the prospectus carefully before you invest. Foreside Fund Services, LLC, distributor.

The Fund is subject to a number of risks that may affect the value of its shares. This section provides additional information about the Fund’s principal risks. The degree to which a risk applies to the Fund varies according to its investment allocation. Each investor should review the complete description of the principal risks before investing in the Fund. As with investing in other securities whose prices increase and decrease in market value, you may lose money by investing in the Fund.

Cannabis-Related Company Risk. Cannabis-related companies are subject to various laws and regulations that may differ at the state/local and federal level. These laws and regulations may (i) significantly affect a cannabis-related company’s ability to secure financing, (ii) impact the market for marijuana industry sales and services, and (iii) set limitations on marijuana use, production, transportation, and storage. Cannabis-related companies may also be required to secure permits and authorizations from government agencies to cultivate or research marijuana. In addition, cannabis-related companies are subject to the risks associated with the greater agricultural industry, including changes to or trends that affect commodity prices, labor costs, weather conditions, and laws and regulations related to environmental protection, health and safety. Cannabis-related companies may also be subject to risks associated with the biotechnology and pharmaceutical industries. These risks include increased government regulation, the use and enforcement of intellectual property rights and patents, technological change and obsolescence, product liability lawsuits, and the risk that research and development may not necessarily lead to commercially successful products.

Shares are bought and sold at market price (closing price) not NAV and are not individually redeemed from the Fund. Market price returns are based on the midpoint of the bid/ask spread at 4:00 pm Eastern Time (when NAV is normally determined), and do not represent the return you would receive if you traded at other times.

Holdings and allocations are subject to risks and to change.

The views in this commentary are those of the portfolio manager and may not reflect his views on the date this material is distributed or any time thereafter. These views are intended to assist shareholders in understanding their investments and do not constitute investment advice.