PSDN: 3rd Quarter 2022 Portfolio Review
Performance
Holdings
Uniquely, PSDN is able to dynamically employ leverage to its portfolio of up to 1.5x net assets. Our goal as of now is to maintain leverage in the 1.15x – 1.25x range. Although it may add additional risk to the equation, use of leverage allows an investor to potentially realize outsized returns on the upside. However, in a draw-down market for cannabis, PSDN will underperform its unleveraged peers.
Top Holdings
| Ticker | Security Description | Portfolio Weight % |
| GTBIF | GREEN THUMB INDUSTRIES SWAP REC | 23.83% |
| CURLF | CURALEAF HOLDINGS INC SWAP REC | 19.72% |
| TCNNF | TRULIEVE CANNABIS SWAP REC | 13.88% |
| VRNOF | VERANO HOLDINGS CORP SWAP REC | 10.85% |
| AAWH | ASCEND WELLNESS HOLDINGS SWAP REC | 9.05% |
| SNDL | SNDL INC | 8.84% |
| CRLBF | CRESCO LABS INC SWAP REC | 6.27% |
| CCHWF | COLUMBIA CARE INC SWAP REC | 5.31% |
| INCR | INTERCURE LTD | 3.87% |
| TRSSF | TERRASCEND CORP SWAP REC | 2.32% |
As of 09.30.2022. Cash is not included. Subject to change.
Cannabis Sector Review
As elections are approaching in November, they will be watched carefully by those following the sector. Republican control of either chamber of Congress could put a damper on hopes for any sort of legislation. However, the lame-duck session (between November and 2022 year-end) could represent an opportunity for some legislation to pass.
Outlook
We believe the U.S. cannabis market currently represents the single best jurisdictional opportunity to invest in the ongoing legalization of cannabis throughout the world.
Second, we believe that valuations of companies focused on the U.S. cannabis market are at a material discount to their intrinsic value for several reasons. An inability for the MSOs to list on major U.S. exchanges, leading to a lack of institutional investment, material price volatility on a daily basis – lack of liquidity in the stocks, unfair Federal taxation, and a lack of clear banking regulations all justify discounted valuations to other industries, but we see MSO stock prices as trading below those levels.
Third, we believe that the upside in the U.S. cannabis sector is approaching 70-80% “Beta” and 20-30% “Alpha.” The Beta upside will come from both Federal and ongoing State legalization – any State legalization benefits all major players in the given State (the MSOs) and any Federal legislation that passes benefits the major players in the country (the MSOs). The Alpha, although important to the equation, will not be the primary driver to value over the medium-term. So, portfolio allocation within the MSOs matters to ultimate returns, but only to a certain extent.
For investors who agree with the above three points, we believe a long-oriented, intelligently leveraged and focused portfolio of the largest and highest quality U.S. MSOs have the potential to achieve the best risk-adjusted returns.
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Alpha is a measure of performance on a risk-adjusted basis. Alpha takes the volatility (price risk) of a fund and compares its risk-adjusted performance to a benchmark index. The excess return of the fund relative to the return of the benchmark is a fund’s alpha.
Beta measures the sensitivity of an investment to the movement of its benchmark. A beta higher than 1.0 indicates the investment has been more volatile than the benchmark and a beta of less than 1.0 indicates that the investment has been less volatile than the benchmark.
Emily Paxhia
Poseidon Investment Management
AdvisorShares Poseidon Dynamic Cannabis ETF (PSDN) Portfolio Manager
Morgan Paxhia
Poseidon Investment Management
AdvisorShares Poseidon Dynamic Cannabis ETF (PSDN) Portfolio Manager
Tyler Greif
Poseidon Investment Management
AdvisorShares Poseidon Dynamic Cannabis ETF (PSDN) Portfolio Manager
Cannabis-Related Company Risk – Cannabis-related 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 health care sector and 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. In addition, rising costs of medical products and services, pricing pressure (including price discounting), limited product lines, and an increased emphasis on the delivery of health care through outpatient services may affect the healthcare sector
Leverage Risk – Leverage is investment exposure that exceeds the initial amount invested. The loss on a leveraged investment may far exceed the Fund’s principal amount invested. Leverage may magnify the Fund’s gains and losses and, therefore, increase volatility. The use of leverage may result in the Fund having to liquidate holdings when it may not be advantageous to do so.
IPO Risk – The Fund may invest in securities offered in IPOs or in companies that have recently completed an IPO. The market value of IPO shares can have significant volatility due to factors such as the absence of a prior public market, unseasoned trading, a small number of shares available for trading and limited information about the issuer.
Shares are bought and sold at market price not net asset value (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.
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.