Today's article looks at the 13 stocks in our (non-tradable) American Cannabis MSO Index  and analyzes each to ascertain the extent to which their performances correlate with the basic financial health and operational financial efficiencies of each. The findings are surprising and disturbing.

One would think that:

• how stable a company is financially (i.e. how likely it is to go - or not go - bankrupt within the next 2 years),
• whether, or not, it has a positive operational cash flow,
• the extent to which it is growing its operational cash flow margin,
• and how efficiently it is managing its:
  • earnings growth before interest, taxes, depreciation and amortization,
  • debt interest growth,
  • and its net income margin growth

would have a direct bearing on a stock's performance. Surprisingly, a comparative analysis of the performances of the largest pure-play and vertically integrated American multi-state operator (MSO) stocks over various periods of time does not bear that out ,as outlined below.

In my previous article, entitled "Only One Cannabis MSO Is Financially Stable And With Financially Efficient Operations" I grouped the 13 stocks in the American Cannabis MSO Index in 5 categories - best, marginal, mixed, poor and worst - as to their financial stability and efficiencies.  Here I have slightly refined the group contents based on giving a numerical score to each metric as follows:

• positive net operational cash flow (2);
• growth in net operational cash flow (1);
• low chance of experiencing financial distress in the next 2 years (2);
• increase in EBITDA margin in Q2 2022 (2);
• reduction in interest expense growth in Q2 2022 (1),
• and positive net income margin growth in Q2 2022 (2).

Greatest Financial Stability & Operational Efficiencies (Score of 5 or More Out of 10)

• Green Thumb (GTBIF): Score of 9 out of 10; Stock Performance YTD (-55.9%); -24.5% in the last 6 weeks; -26.2% since the beginning of October (2 weeks)
  • is the only MSO that currently has a positive net operational cash flow (i.e., money coming in through sales minus operating expenses) - and a company doesn't survive without it,
  • has the least probability (just 12%) of  experiencing financial distress in the next 2 years,
  • increased its Earnings Before Interest, Taxes, Depreciation and  Amortization (EBITDA) margin to a substantial level in Q2, 2022,
  • lowered its interest expense growth in Q2, 2022 (to only 10.3%) and
  • had positive growth in its net income margin in Q2, 2022
  • BUT 5 of the other stocks - with NEGATIVE operational cash flows and poorer operational financial efficiencies - have actually done better YTD with 7 of them doing better than Green Thumb in the last 6 weeks and 6 doing so in the most recent 2-week period.
• Despite the greatest financial stability and ongoing operating financial efficiencies, Green Thumb is currently only ranked 6th, 7th or 8th out of the 13 constituents, depending on the time period chosen. Might that suggest that Green Thumb's current stock price is undervalued?

Marginal Financial Stability & Operational Efficiencies (Score of 4)

1. Planet 13 (PLNHF): Stock Performance YTD (-59.8%); -15.6% in the last 6 weeks; +7.2% since the beginning of October (2 weeks)
2. Goodness Growth (GDNSF): Stock Performance YTD (-76.7%); -70.1% in the last 6 weeks; -57.4% since the beginning of October (2 weeks)

Mixed Financial Stability & Operational Efficiencies (Score of 3)

1. Ascend (AAWH): Stock Performance YTD (-72.9%); -29.6% in the last 6 weeks; -2.2% since the beginning of October (2 weeks)
2. Cresco (CRLBF): Stock Performance YTD (-54.0%); -24.0% in the last 6 weeks; +18.5% since the beginning of October (2 weeks)
3.  Jushi (JUSHF): Stock Performance YTD (-55.1%); -18.4% in the last 6 weeks; +18.7% since the beginning of October (2 weeks)
4. TerrAscend (TRSSF): Stock Performance YTD (%); % in the last 6 weeks; % since the beginning of October (2 weeks)

Poorest Financial Stability & Operational Efficiencies (Score of 2)

1. Acreage (ACRDF/ACRHF): Stock Performance YTD (-29.1%); +18.1% in the last 6 weeks; +3.8% since the beginning of October (2 weeks)
2. Ayr (AYRWF): Stock Performance YTD (-77.1%); -18.9% in the last 6 weeks; +46.8% since the beginning of October (2 weeks)
3. Trulieve (TCNNF): Stock Performance YTD (-62.6%); -32.6% in the last 6 weeks; +14.4% since the beginning of October (2 weeks)
4. Verano (VRNOF): Stock Performance YTD (-63.8%); -30.0% in the last 6 weeks; -2.2% since the beginning of October (2 weeks)

Worst Financial Stability & Operational Efficiencies (Score of 1 or less)

1. Columbia Care (CCHWF): Score of 0; Stock Performance YTD (-47.6%); -26.5% in the last 6 weeks; +21.0% since the beginning of October (2 weeks)
2. Curaleaf (CURLF): Score of 0; Stock Performance YTD (-43.3%); -21.1% in the last 6 weeks; +3.2% since the beginning of October (2 weeks)

Conclusion

As noted above, there is NO correlation in the American Cannabis MSO Index between the constituent stock price performances and their current financial health, ongoing operational financial efficiencies and future chances of encountering financial distress over the next 2 years.

It is clearly evident that "investors" (speculators, in fact) are not basing their purchase decisions on company fundamentals but, rather, on their emotions influenced by all the hype (often paid for) surrounding the stocks.

Hopefully today's article has shed some light on what is actually happening in the sector and will prove helpful to you in determining whether or not to buy one of the above stocks and, if so, which one(s), but please do your own due diligence and avail yourself of a wide array of further analyses and commentary here before doing so.

If you have any questions regarding the above article or comments to make on the topic you are encouraged to do so in the Comment section below.

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