MSOS - MSOS Meltdown Is Hurting Cannabis Stocks

Summary

• The largest cannabis ETF, MSOS, is experiencing redemptions.
• MSOS is reducing its holdings of cannabis stocks.
• The ETF is down 3.9% so far in 2023.

I first warned the Seeking Alpha audience about AdvisorShares Pure US Cannabis ETF ( MSOS ) in November, and it has dropped substantially since then:

I followed up in January with an article about the share redemptions that began in mid-December, and they have continued. Since the end of the year, shares outstanding have declined by 4.9%, and they have plunged 12.8% since December 16th.

In this piece, I take a look at the most recently updated portfolio of the MSOS holdings and how it has changed since year-end. I also discuss how the ETF is overinvested still in the largest 5 MSOs, especially Green Thumb Industries ( OTCQX:GTBIF ), which I wrote about in early January suggesting why investors should be careful , and Curaleaf Holdings ( OTCPK:CURLF ), which I wrote about two weeks later suggesting that it is very overvalued relative to its peers, its two largest holdings at a combined 46.7% of the fund.

MSOS Owns These 26 Stocks

Here is the current portfolio as of 2/10:

MSOS Has Sold Holdings

Since year-end, as the number of shares outstanding at MSOS has declined by 4.9% to 59.89 million and as cash has been raised, the ETF has sold one position in entirety, Hydrofarm ( HYFM ). It has made large cuts to four other ancillary names, including GrowGeneration ( GRWG ), Innovative Industrial Properties ( IIPR ), AFC Gamma ( AFCG ) and Power REIT ( PW ). It has added to two names, TerrAscend ( OTCQX:TRSSF ) and Jushi Holdings ( OTCQX:JUSHF ). It has cut the five largest MSOs, with three, GTBIF, Verano Holdings ( OTCQX:VRNOF ) and Trulieve ( OTCQX:TCNNF ) all down about 8.5%. The other two, CURLF and Cresco Labs ( OTCQX:CRLBF ) are down a lot less than the decline in the number of shares outstanding.

Even with the moves it has made, the ETF remains extremely concentrated in the largest MSOs. At year-end, the Top 5 MSOs represented 81.3% of the holdings, which is now 77.1%, still a very large portion. The next 4 MSOs by revenue have moved from 9.3% at year-end to now 11.7%. The ETF still holds no Ascend Wellness ( OTCQX:AAWH ) from this group. Non-operators, mainly ancillary companies, have gone from 3.9% to just 1.5%. Cash has gone from -2.1% to +0.1%.

What Could Happen

I am not sure if the redemptions will continue, and I am finding some of the overly-owned positions to look attractive, but continued redemptions at MSOS could impact the largest holdings. I find Curaleaf to be still valued excessively relative to peers and perhaps at most risk, but the large position in Green Thumb Industries could impact that stock too. I had written about Planet 13 Holdings ( OTCQX:PLNHF ) in December and added it to my Beat the Global Cannabis Stock Index model portfolio at year-end. It's not in the index and rallied substantially, and I exited the name. MSOS owns about 3.5% of the PLNHF stock outstanding and could reduce its position if redemptions were to continue.

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