SSIC - Cannabis Investing Masterclass With Julian Lin + Jerry Derevyanny

2024-05-21 14:30:00 ET

Summary

• Are some cannabis companies massaging earnings results, using metrics like cash flow from operations and free cash flow to present a positive financial picture?
• Jerry Derevyanny and Julian Lin on why investors should be cautious and look deeper into financial metrics.
• Green Thumb Industries is highlighted as a company with solid growth and margins.
• Thoughts on Verano and Goodness Growth.
• NewLake Capital, cannabis REITs and dividend yields.

Listen here or on the go via Apple Podcasts and Spotify

Jerry Derevyanny and Julian Lin break down the current state of the cannabis sector (1:00). How companies are massaging their earnings results (3:30). Proper metrics to use as the market develops (7:45). Green Thumb's growth mode and solid margins (16:05). Institutional capital and what will really make the industry soar (21:15). Thoughts on Verano and Goodness Growth (47:25). New states coming online - worthy of excitement? (57:35) NewLake Capital, cannabis REITs and dividend yields (1:08:40).

Transcript

Rena Sherbill: Jerry Derevyanny and Julian Lin, welcome back to The Cannabis Investing Podcast. It’s great to have you both on at the same time. Always great to talk to you individually. Excited about this conjoining effort, conversation.

I appreciate you both making the time, not just for this podcast, but the insight you share for the sector, which is hard to understand at most times, I think.

So, we're fresh off an earnings season in the cannabis sector. Julian, if you want to get started, how you're thinking about things, looking at things, what names you most paid attention to, surprises, excitements, disappointments, have at it?

Julian Lin: Yes, I think after - ever since perhaps that 2021, 2022 burst of the bubble, a lot of the earnings have become very, a big narrative about price compression, and how that's impacted both top line growth as well as margins. Recent quarters have seen a lot of these companies start to lap easier comparables, not too dissimilar to what a lot of tech companies are saying.

So, a lot of these companies are beginning to see some easing of some price compression, even some gross margin expansion, which just led to some expansion of adjusted EBITDA. So, I mean, the other quarters are get a lot better than maybe what they looked at, what they looked like one-year ago, but of course, the risk of price compression long-term, especially for the operators in these adult use markets with these limited license models, it still remains.

RS : Jerry, want to jump in?

Jerry Derevyanny: Yeah, sure. I think it's interesting because I agree with Julian, but I have a somewhat a little bit of a different take in that. I don't think price compression is really easing.

I think what is going on underneath is that the business mix has changed somewhat with certain, with a lot of operators where it very much depends on the state that you're in. So, for example, if you have outsized exposure to New Jersey, you are going to show better and price compression will look like it's getting better, but really it's just, you're in New Jersey.

As Jersey price compression starts, you're going to revert to the same pattern that you saw before. So, I frankly don't think we learned a ton from Q1s, although that did not stop MSOs from trying to massage their results quite a bit.

RS : We love a good massage in the sector, do we not? Go on Julian, go on.

JL : Just to clarify, yeah, I definitely, sorry if I wasn't clear, I didn't mean to imply there's an easing of price compression. To the contrary, it's more, it's definitely a drain.

So there's, it might appear like there's an easing of price compression, but I think a lot of that is just due to them lapping some easier comparables, but investors need to realize that a lot of these margin gains are probably unsustainable, just because long-term that price compression risk still remains....

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