MSOS: 1st Quarter 2021 Portfolio Manager 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.

Commentary

AdvisorShares Pure US Cannabis ETF (NYSE: MSOS) launched on September 2, 2020 with $2.5 million in assets but ended March with over $1 billion. It remains the only U.S. listed ETF focused solely on the U.S. cannabis market and has enjoyed tremendous investor interest.

For the three month period that this commentary covers from January 1 through March 31, 2021, MSOS gained 17.25% on its net asset value (NAV) and 16.40% on its market price. The Fund has existed for just under six months as of March 31, but its cumulative return since inception is 70.30% on NAV and 69.76% on market price. While these high returns may not be sustainable all the time, we are optimistic for future growth in the space.

The 1st quarter of 2021 was a rather wild ride. Strong enthusiasm for U.S. cannabis reform carried over from late 2020 and into January. Perhaps too much enthusiasm. The bulk of cannabis stocks hit highs in the first part of February and suffered an overall downtrend since. Although it’s hard to explain why, U.S. cannabis stocks underperformed versus their Canadian counterparts.  We don’t expect it to continue. Some theories are that U.S. stocks just “got out in front of themselves” with a huge run up in late 2020 and the start of 2021. I believe it is that combined with the fact that federal reform is moving much slower than expected. Also, the fact that most of U.S. cannabis is still thinly traded in the Over-the-Counter market simply makes market moves “exaggerated.”

From current cannabis stock prices, I’m once again expecting a scenario we’ve seen before. As we head through 2021, I think there will be a separation in price performance between companies with strong balance sheets and those without, companies with growing revenues and profits vs. those without, and particularly a separation between U.S. MSOs and Canadian LPs.

New Positions:

During the quarter, MSOS added new securities Hydrofarm Holdings Group, Inc. (NASDAQ: HYFM) and Hempfusion Wellness Inc. (TSX: CBD.u). We also increased U.S. multi-state operator names by adding Verano Holdings (OTC VRNOF – swap), Bluma Wellness (OTC BMWLF – swap), and The Parent Company (OTC GRAMF – swap), although we previously held GRAMF’s predecessor Subversive Capital SPAC. Bluma is simply a price arbitrage play as they have a previously announced deal to be acquired by Cresco Labs.

Winners and Losers:

During the 1st quarter, most of the fund’s largest holdings were solidly positive, but most of the gains came in January, followed by a swoon in February & March.

Some non-MSO holdings were among top performers for the quarter. Power REIT (NYSE American: PW) was up 69%. GrowGeneration (NASDAQ: GRWG) was up 23% and GreenLane Holdings (NASDAQ: GNLN) gained 33%. CBD focused companies Charlotte’s Web (TSX: CWEB) gained 36%, and cbdMD (NYSE American: YCBD) was up 40%.

Actual multi-state operators were a mixed bag in the quarter. The “Big Four” (or big 5 or 6) didn’t lead the way, but they weren’t bad either. In our top four holdings, Curaleaf (OTC CURLF – swap) gained 26%, Trulieve (OTC TCNNF – swap) gained over 43%, and Green Thumb Industries (OTC GTBIF – swap) gained over 20%, and Cresco Labs (OTC CRLBF – swap) gained 26%.

On the other hand, Terrascend (OTC TRSSF – swap) was only up 1.29% total for the 3-month period. Others like Planet 13, Jushi, and Columbia Care also had just single digit returns.

Winners definitely outnumbered the losers, but there were losers. A number of the main losers were also new positions to the Fund, so we feel we may have had a good entry point. Hydrofarm Holdings Group, Inc. (NASDAQ: HYFM) and Hempfusion Wellness Inc. (TSX: CBD.u were both negative for the quarter. Verano Holdings (OTC VRNOF – swap) lost over 23% for the full quarter and The Parent Company (OTC GRAMF – swap) was down over 26% for the full quarter. Existing positions in C21 Investments (OTC CXXIF – swap) at -4.96% and Vext Science (OTC VEXTF– swap)  at -6.43% were also a drag to the Fund.

Top Holdings

Ticker Security Description Portfolio Weight %
TCNNF TRULIEVE CANNABIS SWAP REC 9.09%
CURLF CURALEAF HOLDINGS INC SWAP REC 8.59%
GTBIF GREEN THUMB INDUSTRIES SWAP REC 8.39%
CRLBF CRESCO LABS INC SWAP REC 6.79%
AYRWF REC AYR WELLNESS INC 5.72%
GRWG GROWGENERATION CORP 5.00%
IIPR INNOVATIVE INDUSTRIAL PROPER 4.99%
TRSSF TERRASCEND CORP SWAP REC 4.58%
HRVSF HARVESTHEALTH SWAP R 3.64%
CCHWF COLUMBIA CARE INC SWAP REC 3.49%

As of 03.12.31.2021. Cash is not included.

Please see our complete Fund holdings at advisorshares.com/etfs/msos. The holdings details are updated each market day.

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.