Category: INO.com Contributors

Will Cresco Labs (CRLBF) See Higher Highs?

Posted on by Ian Cooper

Markets continue to be volatile, with inflation and fears of a potential recession still making the rounds. Despite wild swings in the market, the S&P 500 was flat, while the cannabis sector (as measured by the AdvisorShares Pure US Cannabis ETF) moved slightly higher from a low of $10.08 to a recent high of $11.26 over the last week.

Sure, over the long term, the marijuana sector has been hammered. However, I still believe now is an excellent time for investors to increase their exposure with many marijuana stocks severely oversold and solid catalysts on the horizon.

Marijuana is finding more support throughout the U.S. Rhode Island, for example, recently legalized recreational use, with the market expected to launch by December 1. Mississippi legalized its medical use and is on track for sales to start later this year or early 2023.

In addition, according to The Baltimore Sun, “Legalization of recreational cannabis in Maryland is a done deal. The referendum scheduled on the issue this November will pass.”

Americans believe that marijuana should be legalized. In fact, according to Pew Research, 91% of U.S. adults say it should be legal for medical and recreational use. About 60% say it should be legalized for medical use. Around 8% disagree with legalization altogether.

With that in mind, I am taking a closer look at Cresco Labs (CRLBF).

Cresco Labs is one of the largest vertically-integrated multi-state cannabis operators (MSOs) in the United States. With a consumer-packaged goods approach to cannabis, Cresco’s house of brands is designed to meet the needs of all consumer segments. The company boasts some of the most recognized and trusted national brands, including Cresco, Remedi, and Mindy’s, a line of edibles created by James Beard Award-winning chef Mindy Segal.

This post will discuss the company’s background, critical catalysts for growth, risks, and a quick takeaway on why investors may want to consider CRLBF as a long-term play.

Business Overview

Cresco Labs is one of the largest vertically-integrated multi-state cannabis operators in the U.S. The company has been actively acquiring businesses to expand its market share across the U.S., including a deal with Columbia Care for $2B that could close by Q4 2022.

Cresco operates in 10 U.S. states, runs 21 production facilities, holds 51 retail licenses, and owns 50 dispensaries. Based on its strong revenue growth, shares of Cresco could see higher highs. First-quarter revenue of $214 million was up 20% year-over-year. Retail revenue also jumped 44%.

Moving forward, Cresco holds immense potential.

By 2025, the company could have access to 12 states, with more than $1 billion in sales potential. As noted in the company's investor deck, it could have access to 180 million U.S. adults or more than 70% of the addressable cannabis market.

Even better, the company carries some of the most popular cannabis brands in the U.S.

Cresco Brands

Source: Cresco Labs

In addition, according to Cresco Labs:

“With a portfolio consisting of approximately 350 products and over 5,000 SKUs, Cresco Labs’ products are sold in over 1000 dispensaries across the country. The CPG and wholesale strategy enable us to maximize its points of distribution and drive revenue growth independent of the expansion of its retail presence. We prioritize wholesale in order to reach as many consumers as possible, accessing the scaled benefits of a national footprint.”

Growth Drivers

One of the top catalysts for Cresco Labs is its partnerships, especially its latest one with Columbia Care.

  1. The acquisition will give Cresco Labs one of the largest pro forma revenue in the cannabis industry at over $1.4 billion, says the company.
  2. Columbia Care now gives Cresco access to over 130 retail stores across 18 markets.
  3. The deal will increase Cresco’s market share in key states, “bringing the combined company to a material market position in seven of the top 10 markets by revenue in 2025,” added Cresco Labs.

“This acquisition brings together two of the leading operators in the industry, pairing a leading footprint with proven operational, brand, and competitive excellence. The combination is highly complementary and provides unmatched scale, depth, diversification, and long-term growth.

On a proforma basis, the combined company will be the largest cannabis company by revenue, the number one wholesaler of branded cannabis products, and the largest nationwide retail footprint outside of Florida,” added Charles Bachtell, CEO of Cresco Labs.

Key Risks

As with any industry, there are risks, especially in today’s volatile environment. For one, we must consider that the cannabis industry is highly regulated, fragmented state-by-state structures, and hiccups with federal legalization.

That makes the industry far more volatile, even with more states legalizing the use of cannabis and even with 91% of Americans saying it should be legal for recreational and medicinal use.

We also have to consider fears of recession, and inflation, which could lead to a potential increase in raw materials, supplies, and other equipment. However, don’t let these risks chase you from the cannabis sector or growing stocks like Cresco Labs.

Once more states legalize its use and the federal government gets around to legalization, stocks like Cresco Labs may never be this inexpensive again.

Key Takeaways

To review, Cresco Labs is one of the largest vertically-integrated multi-state cannabis operators in the United States. The company has been actively acquiring businesses to expand its market share across the U.S. Cresco is also acquiring multi-state operator (MSO) Columbia Care for $2 billion in a deal that could close by the fourth quarter of the year.

Cresco (CRLBF) Chart

Source: Stockcharts.com

That acquisition will give Cresco Labs one of the largest pro forma revenue in the cannabis industry at over $1.4 billion, says the company. In addition, Columbia Care now gives Cresco access to over 130 retail stores across 18 markets.

Finally, the deal will increase Cresco’s market share in key states, “bringing the combined company to a material market position in seven of the top 10 markets by revenue in 2025,” added Cresco Labs.

Even with potential risks, Cresco Labs (CRLBF) looks like an attractive buy opportunity.

Ian Cooper
INO.com Contributor

Disclosure: This contributor did not hold a position in any investment mentioned above at the time this blog post was published. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.

Copper Fears Recession

Posted on by Aibek Burabayev

The copper futures hit an all-time high this spring. This is not a surprise to many readers who suspected it would - see the poll from late August.

The price has topped at $5.04, missing the preset target area between $5.36-$5.41. After that, copper futures collapsed below the valley of the last summer ($3.96) in the area of $3.60.

See the latest stats for the copper market in the table below.

World Refined Copper Usage and Supply Trends

Source: The International Copper Study Group (ICSG)

According to the table above, the world refined copper production has increased to 8.44 million metric tons in the first four months this year, compared to 8.16 million metric tons for the same period last year.

At the same time, the world usage or demand has grown up either to 8.35 million metric tons in January-April this year from 8.17 million metric tons last year.

As a result, this year the copper balance turned into a surplus of 95 thousand metric tons compared to a deficit of 3 thousand metric tons last year. Moreover, if we take the last line of the table that shows the refined balance of the market adjusted for the Chinese bonded stock change is in even bigger oversupply of 213 thousand metric tons.

As we can see, the market fundamentals could have undermined the uptrend in the copper price in the first place. The following speed up of the futures collapse was fueled by the hawkish Fed, Chinese lockdowns and a new scaring mantra that has been circulating recently in the media about upcoming recession.

One could call it a self-fulfilling prophecy as last Friday the Atlanta Fed posted a second quarterly decline of a real GDP in a row on its GDPNow tracker. The second quarter reading is minus 2.1%, the first quarter reading was minus 1.6%. Technically speaking, this could mean that the forecasted recession is already here.

The auxiliary economic data from the graphs below also confirms the economic headwinds for the copper market.

US PMI vs Copper

Source: tradingeconomics.com

United States ISM Purchasing Managers Index (PMI) (blue) fell to 53 in June of 2022 from 56.1 in May, demonstrating the slowest growth in factory activity since June of 2020, and below market forecasts of 54.9.

The robust uptrend of copper futures (black) in 2020 was in an accord with U.S. PMI until the start of 2021 where the factory activity has peaked and then started to collapse. The copper price firstly continued further up on the market inertia and then dropped huge to finally catch up with the current fundamentals.

China Industrial Production vs Copper

Source: tradingeconomics.com

The similar situation has been seen in the chart above of Chinese industrial production (blue). The “World’s factory” performance has also peaked last year, ahead of the top in copper futures (black).

We could see here that the metal has more room to the downside into the $3 area to reach the corresponding level of Chinese data. It is worth to note that the industrial production in China has grown up by 0.7% recently after a relaxation in COVID-19 curbs in some major Chinese cities.

US Consumer Sentiment vs Copper

Source: tradingeconomics.com

To complete the picture, we should look at the chart above that shows the U.S. consumer confidence (blue) as a main indicator of the initial demand.

The situation is even more depressed here as we can see no progress since the pandemic outbreak. The indicator just made a small rebound within the consolidation in 2020 and then continued to the downside to hit the record low of 50.0 in June 2022.

Let’s look at the updated chart of copper futures below.

Copper Futures Monthly

Source: TradingView

The copper futures price goes well with the plan posted almost a year ago. It didn’t advance too much to the upside to fit with the extended consolidation pattern. We entered the red leg 2 down.

The latter could unfold either like the first straight leg down with a panic selling amid financial crisis of 2008 or it could build a zigzag with a corrective phase in the middle of the drop. More often than not, two legs are not alike.

Two possible downward targets could be set. The closest one is computed using the distance of the first red leg down subtracted from the new all-time high; it is aimed at $2.02. This area coincides with the valley of 2016 and 2020.

The next target is an old one as it Is located at the minimum of the first red leg down at $1.25.

The RSI sank below the so-called “waterline” beneath the crucial 50 level. If it closes this month there than the bearish trend is confirmed.

How deep could the copper futures collapse?

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Intelligent trades!

Aibek Burabayev
INO.com Contributor

Disclosure: This contributor has no positions in any stocks mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.

Ride the Crypto Dip with this Bitcoin ETF

Posted on by Matt Thalman

In late June, the ProShares Short Bitcoin Strategy ETF (BITI) began trading. BITI is the first inverse or ‘short’ Bitcoin exchange-traded fund in the US. The purpose of this ETF is to give investors a way to profit if the price of Bitcoin falls.

The fund didn’t seem to be well received the first day it was available to investors, but in just its first nine days of trading, it grew its assets enough to make it the second-largest Bitcoin-focused ETF listed in the US. The largest is ProShares Bitcoin Strategy ETF (BITO), which has over $680 million in assets while BITI has just around $59 million in assets under management.

There is really nothing super special about BITI other than the fact that it is the first time investors can short Bitcoin with an exchange-traded product specifically designed to do just that task. However, the timing of BITI being released on the market is interesting, to say the least.

First, Bitcoin just wrapped up its worst month in the 12 years that it has been traded on exchanges. Yes, you read that correctly. June 2022 was the worst month Bitcoin has had in 12 years. Bitcoin lost 38% of its value in June. Let that sink in.

Since Bitcoin peaked in November of 2021 at $69,000, the cryptocurrency is now down around 71%. (This is not the worst decline Bitcoin has had; in 2018 during the last ‘crypto winter’ Bitcoin lost more than 80% of its value.

Furthermore, a recent report about Bank of America’s internal customer data shows that the number of active crypto users has dropped by 50%, from 1 million in November 2021, to below 500,000 in May 2022.

The price of Bitcoin and other major cryptocurrencies has been crushed lately, but so has the number of active users. These two numbers are likely interconnected, but also show that the public's interest in Bitcoin, and perhaps even other cryptocurrencies, is waning.

And lastly, the SEC just denied the application to convert the Grayscale Bitcoin Trust (GBTC) into a spot bitcoin ETF. Many believe that if and when the SEC allows a spot Bitcoin ETF, new investors will flood the markets since many believe the structure of a spot ETF is much better than a futures-based ETF.

This leads us back to the idea that the timing for the Bitcoin Short ETF was interesting, or just even straight bad. Now granted, ProShares filed with the Securities and Exchange Commission to offer this Bitcoin short ETF back in February 2022, but that doesn’t help the fact that it didn’t hit the market until after a lot of bad news and low prices have hit Bitcoin and the rest of the cryptocurrency industry.

If ProShares had come to market with the Bitcoin short ETF just a few months or even weeks prior, investors could have caught a wave of bad industry-wide news, like the collapse of a stablecoin and a number of crypto firms falling into financial troubles, needing cash infusions or announcing layoffs.

With Bitcoin down 71% from its peak, or 38% in just June alone, investors have to be asking themselves if the world's largest cryptocurrency has fallen too fast and/or too far.

How much more room does Bitcoin have to go? From $20k a coin to $10k? Maybe even $5k? Or have we seen the bottom at $17k?

It is hard to say where Bitcoin goes from here, especially in the short term. But it isn’t very easy to get short or go long an investment after it has already made a big move in that direction, such as getting short after it's already down 38% in a month and 71% since November.

With that all said, beggars can’t be choosers. We didn’t have a short Bitcoin ETF before, and now we do. So, while the timing may not have been ideal, it is good to know that some investors are already taking advantage of this opportunity.

But, more importantly for me, I like knowing that I now have a viable option to short Bitcoin if and/or when I may find the opportunity to do so.

Matt Thalman
INO.com Contributor
Follow me on Twitter @mthalman5513

Disclosure: This contributor did not hold a position in any investment mentioned above at the time this blog post was published. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.

'Anti' Markets

Posted on by Gary Tanashian

These daily charts are flipped over to a view that is ‘anti’ their normal selves.

I have often referred to the improbably bullish (to many; NFTRH has tracked and respected the bullish dollar for a year now) US dollar as an anti-market, the liquidity collector from the global liquidity-driven and speculative mess created by the Fed and its fellows.

But here is a look at some markets (ETFs & indexes) in their opposite or ‘anti’ suit. In other words, here are some charts flipped over. If the chart is bullish the underlying asset/market is technically not.

The major risk in my opinion is in the over-hyped inflation trades as inflation signals fade. That means commodities, mainly. But also Materials, Financials and other areas thought to be ‘reflation’ sensitive and highly cyclical.

While the environment that is developing should be positive for gold and especially its miners, reality is often a different matter in the short-term. As noted in the previous post and in the recent interview with the Daily Gold, that reality, if past is prologue, is that some significant number of gold mining investors are wrongheadedly in it for inflation. If the inflation trades do fail then gold stocks tend to be vulnerable at first.

The hope against the crash scenario would be that the post-2020 correction has mitigated the damage the inflation herds will do when they give up the inflated ship. But hope is not an investing strategy.

Personally, with all of this in motion I am staying balanced and open minded. No dogma or robot thinking. Just day to day, week to week and letting it play out (with the odd minor mental whipsaw here and there). Continue reading "'Anti' Markets" →

Stocks are NOT Out of the Woods

Posted on by Wayne Burritt

I get the distinct feeling that a lot of investors are feeling like the action last week in the equity markets may be a harbinger of good things to come. In other words, we might be out of the woods.

As much as I’d like to believe that I can’t jump on board. I still feel there’s more downside pain to come for stocks, tech, and other risky assets like Bitcoin (BTC) and crypto. But before I tell you why, let’s take a win, no matter how ugly it is.

Fact is, across the board last week equity markets were up. See for yourself…

Weekly Charts

Source

As you can see from this collection of multiple weekly charts, stocks booked a win last week. The Dow was up 5.4% and the S&P 500 - a good proxy for the broader stock market - was up 6.4%. Meanwhile, the Russell 2000 - a good gauge of all stocks - was up 6%. And probably most surprising of all, the tech-heavy Nasdaq was up 7.5%.

In addition, last week’s action in all four the indexes reversed multi-week slides. It was the first positive week in four weeks for the Dow, the S&P, and the Nasdaq. For the Russell 2000 it was the first up week in the last three weeks.

But as you can see from the above charts, last week’s action was an anomaly compared to the action we’ve been seeing over the recent past. In fact, if you take the above charts and drill out to what’s been happening over the past year, it’s clear the overall trend in all these markets is bearish. No ifs, ands, or buts.

As I warned about in my article at the beginning of June, the scant positive weekly action in these markets is now confirmed as little more than a series of “dead cat bounces.”

If you remember, a dead cat bounce can masquerade as a reversal to the upside. But it’s only a temporary reprieve and quickly resumes its prior downtrend. Unfortunately, that’s what we’ve been seeing in all these stocks markets. And while I’d love to be wrong on this point, the numbers don’t lie.

Stubborn Inflation Means More Downside

But it’s not just these technical patterns that tell me the markets have more downside pain to come. The other huge factor pressuring stock prices: Inflation and what it will take to bring it under control. Here’s what I mean.

In general inflation can drive investors to sell stocks. And that because inflation wears away at the value of invested dollars. If your money is worth 8.6% less this year that it was last year, nobody is happy.

But the biggest reason inflation drives investors to sell stocks is that that the “medicine” that’s needed to bring inflation down - higher interest rates - can have unpleasant side effects.

Fact is if higher rates do their jobs and bring prices down, companies have less money to do the things that investors want, like sell more goods, expand operations, and develop new products. And if companies aren’t doing what investors want, those investors sell their shares.

Result: A bear market like we’re seeing right now.

But as unpleasant as that is, not bringing inflation down is much, much worse. In fact, inflation can decimate entire economies. The last thing we want is to look in the rear-view mirror and see the current inflation rate of 8.6% as “the good old days.”

That’s why as unpleasant as the side effects of higher interest rates can be, the Fed must do everything in its power to get inflation under control. But don’t take my word for it: Here’s what Fed chairman Jerome Powell told Congress last week in his testimony and semiannual monetary policy report:

I will begin with one overarching message. At the Fed, we understand the hardship high inflation is causing. We are strongly committed to bringing inflation back down, and we are moving expeditiously to do so. We have both the tools we need and the resolve it will take to restore price stability on behalf of American families and businesses. It is essential that we bring inflation down if we are to have a sustained period of strong labor market conditions that benefit all. Source

So far, so good. What exactly are they going to do about it?

Over coming months, we will be looking for compelling evidence that inflation is moving down, consistent with inflation returning to 2 percent. We anticipate that ongoing rate increases will be appropriate; the pace of those changes will continue to depend on the incoming data and the evolving outlook for the economy. We will make our decisions meeting by meeting, and we will continue to communicate our thinking as clearly as possible. Our overarching focus is using our tools to bring inflation back down to our 2 percent goal and to keep longer-term inflation expectations well anchored. Source

So, what does this tell me? With benchmark target fed funds rate now at a range of 1.5% to 1.75%, it’s clear that that’s just the beginning. More interest rate increases are coming. In fact, I think the Fed won’t slow down until it hits 3.5% and higher.

In addition, I now think the Fed is willing to take on a higher risk of recession in exchange for lower inflation. In fact, during his testimony Powell said that a recession could be in the cards: “It’s not our intended outcome at all, but it’s certainly a possibility … we are not trying to provoke and do not think we will need to provoke a recession, but we do think it’s absolutely essential” that prices come down. Source

Here's What to Do

There’s no doubt about it: Until inflation gets under control, rates will continue to go up. The Fed is making it clear that they’re going to do everything in their power to control rising prices.

And that means that there’s likely more downside to stocks as well as other risky assets like Bitcoin (BTC) and other cryptocurrencies. So, I wouldn’t be adding to any positions right now. And as always, don’t devote any more than 1% to 2% of your portfolio to crypto of any kind, including BTC.

Stay safe,
Wayne Burritt
INO.com Contributor

Disclosure: This contributor may own cryptocurrencies, stocks, or other assets mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.