Cannabis Is Moving From Brown To Green

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Includes: ACB, APHA, CGC, CRON, CTST, HEXO, TGODF, TLRY
by: WMA, LLC
Summary

Cannabis market valuations not yet in-line with reality.

Inflated sales numbers belie the reality of recent softer sales in the industry.

Big cannabis deals on the horizon.

The cannabis industry would have us all believe that the only color is green, and most of the early investors saw it that way too. But today, the picture has changed. Too much brown bud that can't be sold and not enough green in their financial summaries or ours either.

A week ago, I reviewed sixteen cannabis companies for which I had detailed reports from Thomson Reuters.

Cannabis Stocks: The Massive Gap between Fact and Fantasy

This week, I am reviewing 37 companies. As more broker-dealer analysts provide coverage to the smaller industry companies, I will expand my reviews as well.

Readers and clients know my views on the industry, which are mostly negative at this point, but with an understanding, there are strong prospects of success in some cases.

Obviously, market valuations must come into line with reality. In the market today, there are favorite stocks of investors - let's call them speculators - that are scoffed at by independent business valuators and rightly so.

From my perspective as a professional investor and portfolio manager, I too have an independent approach to studying the information provided by these companies and, accordingly, have decided to not invest personally or for clients yet. The good news is that corporate earnings and not production capacity is the new focus, not only for investors but for the management teams of these companies.

For this article, I will try to drill down on some of the cannabis companies that I feel may be positioned for future earnings of the kind that would attract me as an investor. You see, I am looking for the real green and not the kind that underlies the hype.

In each case, investors should be thinking what must happen to these companies for this full-on green scenario to come true. That's a discussion all of us must have because so far there are no earnings to speak of.

At the end of the article, I will be inserting comments about the industry and some of these companies that you may or may not find informative. I will also include Reuters information for each of the companies.

For our purposes today, we ranked each of the 37 cannabis companies on earnings, balance sheet, and risk to come up with a fundamental score and on relative valuation and price momentum to come up with a quantitative score. This is a bit of a switch from last week's article. Again, there are no recommendations, just a review of the data from Thomson Reuters, which is mostly historical data and, for this industry, quickly dated.

Our Fundamental scores, using both consensus market estimates and company financials, are available to readers for over 5,000 companies we track (free sign-up for our Stock Screener tool).

Let's examine the data more deeply.

Clearly, cannabis is a new and rapidly evolving industry that does not yet measure up to the basic requirements of institutional investors. However, institutional investors are definitely investing as this first table shows, although mostly only in the few stocks that have met NYSE and NASDAQ listing requirements and have the largest market caps.

Ticker in Canada

Ticker in USA

Company Name

Institutions own %

APHA.TO

APHA

Aphria Inc.

15,3

ACB.TO

ACB

Aurora Cannabis

12,2

TRST.TO

CTST

CannTrust Holdings

11,4

WEED.TO

CGC

Canopy Growth Corp.

10,3

TLRY

Tilray

10,1

CRON.TO

CRON

Cronos Group

9,4

TGOD.TO

OTCQX:TGODF

Green Organic Dutchman

9,2

HEXO.TO

HEXO

Hexo Corp

9,1

EMH.V

OTCQX:EMHTF

Emerald Health Therapeutics

7,6

OGI.V

OTCQX:OGRMF

Organigram Holdings

6,6

VIVO.V

OTCQB:VVCIF

Vivo Cannabis Inc.

6,6

GENE.V

OTCQX:IVITF

Invictus MD Strategies Corp.

6,2

FIRE.TO

OTCQX:SPRWF

Supreme Cannabis Company Inc.

5,1

XLY.V

OTCQX:CBWTF

Auxly Cannabis

5,0

HIP.V

OTCPK:NWKRF

Newstrike Brands

4,5

RIV.V

OTCPK:CNPOF

Canopy Rivers Inc.

3,4

EVE.V

OTCPK:EEVVF

Eve & Co Inc.

3,3

WMD.V

OTCPK:WDDMF

WeedMD Inc.

3,1

NDVA.V

OTCQX:NDVAF

Indiva Ltd.

2,9

NINE.V

OTCQX:VRNDF

Delta 9 Cannabis Inc.

2,7

SCYB.V

Scythian Biosciences Corp.

2,6

META.V

OTCPK:NACNF

National Access Cannabis Corp.

2,5

HVT.V

OTCPK:HRVOF

Harvest One Cannabis Inc.

2,4

GTEC.V

OTCQB:GGTTF

GTEC Holdings

1,9

N.V

OTCQB:NXTTF

Namaste Technologies Inc.

1,8

TBP.V

OTCQB:TBPMF

Tetra Bio-Pharma Inc.

1,8

IN.TO

OTCQX:IMLFF

InMed Pharmaceuticals

1,7

LABS.V

OTCQX:MEDIF

Medipharm Labs Corp.

1,6

ALEF.TO

OTCQX:ALEAF

Aleafia Health Inc.

1,5

KHRN.V

OTCQB:KHRNF

Khiron Life Sciences Corp.

1,5

NRTH.V

OTCPK:NCNNF

48North Cannabis Corp.

0,1

PCLO.V

PharmaCielo Ltd.

0,1

FLWR.V

OTCPK:FLWPF

Flowr Corp.

0,0

SOW.V

OTCPK:QILFF

Organic Flower Investments Group

0,0

SUGR.V

OTC:RLLRF

SugarBud Craft Growers Corp.

0,0

WL.V

OTCQB:WSLFF

Westleaf Inc.

0,0

ZENA.V

OTCPK:ZBISF

Zenabis Global Inc.

0,0

It would not be a surprise one day to see The Green Organic Dutchman (TGOD.TO and OTCQX:TGODF) be listed in New York.

Earnings Ratings do not correspond to absolute earnings but are based on Earnings Surprises, Estimate Revisions, and Analyst upgrades and downgrades of earnings in the past four months. What investors most want to see here are analyst upgrades based on earnings surprises.

Relative to Earnings across the broad market, only Organigram (10), Aphria (9), Aurora (8), and Hexo (4) received scores and only the first three were deemed by Reuters acceptable on that basis.

Ticker in Canada

Ticker in USA

Company Name

Earnings

OGI.V

Organigram Holdings

10

APHA.TO

[APHA]

Aphria Inc

9

ACB.TO

[ACB]

Aurora Cannabis

8

HEXO.TO

[HEXO]

Hexo Corp

4

TRST.TO

[CTST]

CannTrust Holdings

1

WEED.TO

[CGC]

Canopy Growth Corp TSX

1

TLRY

Tilray

1

CRON.TO

[CRON]

Cronos Group

1

TGOD.TO

Green Organic Dutchman

1

EMH.V

Emerald Health Therapeutics

1

VIVO.V

Vivo Cannabis Inc

1

GENE.V

Invictus MD Strategies Corp

1

FIRE.TO

Supreme Cannabis Company Inc

1

XLY.V

Auxly Cannabis

1

HIP.V

Newstrike Brands

1

RIV.V

Canopy Rivers Inc

1

EVE.V

Eve & Co Inc

1

WMD.V

WeedMD Inc

1

NDVA.V

Indiva Ltd

1

NINE.V

Delta 9 Cannabis Inc

1

SCYB.V

Scythian Biosciences Corp

1

META.V

National Access Cannabis Corp

1

HVT.V

Harvest One Cannabis Inc

1

GTEC.V

GTEC Holdings

1

N.V

Namaste Technologies Inc

1

TBP.V

Tetra Bio Pharma Inc

1

IN.TO

InMed Pharmaceuticals

1

LABS.V

Medipharm Labs Corp

1

ALEF.TO

Aleafia Health Inc

1

KHRN.V

Khiron Life Sciences Corp

1

NRTH.V

48North Cannabis Corp

1

PCLO.V

Pharmacielo Ltd

1

FLWR.V

Flowr Corp

1

SOW.V

Organic Flower Investments Grp

1

SUGR.V

SugarBud Craft Growers Corp

1

WL.V

Westleaf Inc

1

ZENA.V

Zenabis Global Inc

1

The Fundamental Rating is based on profitability (rev growth, gross and net margin, and return on equity), debt and earnings quality (free cash flow, and days of sales in inventory and receivables), relative to the broad market.

Ticker in Canada

Ticker in USA

Company Name

Fundamentals

NDVA.V

Indiva Ltd

10

N.V

Namaste Technologies Inc

10

LABS.V

Medipharm Labs Corp

10

SUGR.V

SugarBud Craft Growers Corp

10

TRST.TO

[CTST]

CannTrust Holdings

9

WMD.V

WeedMD Inc

9

ZENA.V

Zenabis Global Inc

9

APHA.TO

[APHA]

Aphria Inc

8

WEED.TO

[CGC]

Canopy Growth Corp TSX

8

NINE.V

Delta 9 Cannabis Inc

8

NRTH.V

48North Cannabis Corp

8

OGI.V

Organigram Holdings

7

HIP.V

Newstrike Brands

6

META.V

National Access Cannabis Corp

6

ALEF.TO

Aleafia Health Inc

6

ACB.TO

[ACB]

Aurora Cannabis

5

HEXO.TO

[HEXO]

Hexo Corp

5

CRON.TO

[CRON]

Cronos Group

5

VIVO.V

Vivo Cannabis Inc

5

IN.TO

InMed Pharmaceuticals

5

SOW.V

Organic Flower Investments Grp

5

EMH.V

Emerald Health Therapeutics

4

FIRE.TO

Supreme Cannabis Company Inc

4

XLY.V

Auxly Cannabis

4

EVE.V

Eve & Co Inc

4

HVT.V

Harvest One Cannabis Inc

4

TGOD.TO

Green Organic Dutchman

3

GENE.V

Invictus MD Strategies Corp

3

TLRY

Tilray

2

TBP.V

Tetra Bio Pharma Inc

2

KHRN.V

Khiron Life Sciences Corp

2

FLWR.V

Flowr Corp

2

RIV.V

Canopy Rivers Inc

1

SCYB.V

Scythian Biosciences Corp

1

GTEC.V

GTEC Holdings

1

PCLO.V

Pharmacielo Ltd

1

WL.V

Westleaf Inc

1

Based on the Fundamentals strength, there were 12 of the 37 companies that apparently Reuters deemed acceptable: Indiva, Namaste, Medipharm and SugarBud (each with the highest possible 10 score); CannTrust, WeedMD, and Zenabis (each scoring 9); Aphria, Canopy Growth, Delta 9, and 48North (each with a 7); and Organigram at 6.

What conservative investors want to see are high profit margins, low debt levels, and (if possible) dividends. As noted previously, for cannabis companies, there is a competition to survive and grow. Most companies are keen to seek an investment or buy-out by a larger company, so dividends are unlikely. Their high gross margins are nowhere close to their low and often extremely negative net margins in terms of what investors want to see. Investors are demanding earnings!

The Relative Valuation Rating is based on (most importantly) price to sales, plus (equally) trailing PE and forward PE.

Ticker in Canada

Ticker in USA

Company Name

Relative Valuation

RIV.V

Canopy Rivers Inc

6

SUGR.V

SugarBud Craft Growers Corp

3

TRST.TO

[CTST]

CannTrust Holdings

3

FIRE.TO

Supreme Cannabis Company Inc

3

HVT.V

Harvest One Cannabis Inc

3

GENE.V

Invictus MD Strategies Corp

3

WEED.TO

[CGC]

Canopy Growth Corp TSX

2

HEXO.TO

[HEXO]

Hexo Corp

2

CRON.TO

[CRON]

Cronos Group

2

EMH.V

Emerald Health Therapeutics

2

XLY.V

Auxly Cannabis

2

TGOD.TO

Green Organic Dutchman

2

TBP.V

Tetra Bio Pharma Inc

2

FLWR.V

Flowr Corp

2

NDVA.V

Indiva Ltd

1

N.V

Namaste Technologies Inc

1

LABS.V

Medipharm Labs Corp

1

WMD.V

WeedMD Inc

1

ZENA.V

Zenabis Global Inc

1

APHA.TO

[APHA]

Aphria Inc

1

NINE.V

Delta 9 Cannabis Inc

1

NRTH.V

48North Cannabis Corp

1

OGI.V

Organigram Holdings

1

HIP.V

Newstrike Brands

1

META.V

National Access Cannabis Corp

1

ALEF.TO

Aleafia Health Inc

1

ACB.TO

[ACB]

Aurora Cannabis

1

VIVO.V

Vivo Cannabis Inc

1

IN.TO

InMed Pharmaceuticals

1

SOW.V

Organic Flower Investments Grp

1

EVE.V

Eve & Co Inc

1

TLRY

Tilray

1

KHRN.V

Khiron Life Sciences Corp

1

SCYB.V

Scythian Biosciences Corp

1

GTEC.V

GTEC Holdings

1

PCLO.V

Pharmacielo Ltd

1

WL.V

Westleaf Inc

1

Based on relative valuation to the broad market, none were truly acceptable to conservative investors; however, Canopy Rivers (scoring a 6) came close for consideration. In the case of almost every cannabis company, the valuation multiples were awful.

As noted previously, when I hear or read about the grandiose promises of performance coming two or three years out, I tune out. But if the earnings and fundamentals ratings are acceptable and improving quarter by quarter, then on a trading basis, I think the interest level of any company in this industry is justified.

The risk rating looks at 5-year and 90-day stock performance measures including volatility, magnitude of returns, beta, and correlation of returns to the S&P 500 averages.

Ticker in Canada

Ticker in USA

Company Name

Risk

HEXO.TO

[HEXO]

Hexo Corp

8

TRST.TO

[CTST]

CannTrust Holdings

7

WEED.TO

[CGC]

Canopy Growth Corp TSX

7

OGI.V

Organigram Holdings

7

ACB.TO

[ACB]

Aurora Cannabis

7

TGOD.TO

Green Organic Dutchman

6

NDVA.V

Indiva Ltd

6

APHA.TO

[APHA]

Aphria Inc

6

HVT.V

Harvest One Cannabis Inc

5

CRON.TO

[CRON]

Cronos Group

5

EMH.V

Emerald Health Therapeutics

5

ZENA.V

Zenabis Global Inc

5

ALEF.TO

Aleafia Health Inc

5

VIVO.V

Vivo Cannabis Inc

5

GTEC.V

GTEC Holdings

5

RIV.V

Canopy Rivers Inc

4

FIRE.TO

Supreme Cannabis Company Inc

4

XLY.V

Auxly Cannabis

4

HIP.V

Newstrike Brands

4

META.V

National Access Cannabis Corp

4

IN.TO

InMed Pharmaceuticals

4

SUGR.V

SugarBud Craft Growers Corp

3

TBP.V

Tetra Bio Pharma Inc

3

FLWR.V

Flowr Corp

3

N.V

Namaste Technologies Inc

3

LABS.V

Medipharm Labs Corp

3

WMD.V

WeedMD Inc

3

NINE.V

Delta 9 Cannabis Inc

3

NRTH.V

48North Cannabis Corp

3

EVE.V

Eve & Co Inc

3

TLRY

Tilray

3

GENE.V

Invictus MD Strategies Corp

2

SOW.V

Organic Flower Investments Grp

2

KHRN.V

Khiron Life Sciences Corp

2

SCYB.V

Scythian Biosciences Corp

1

PCLO.V

Pharmacielo Ltd

1

WL.V

Westleaf Inc

1

Based on risk, the only acceptable companies were Hexo (8), which was the least risky, followed by CannTrust, Canopy Growth, Organigram, and Aurora Cannabis, each of which scored an acceptable 7 out of 10, and Green Organic Dutchman, Indiva, and Aphria, each of which scored a tolerable 6.

To create a Quantitative Rating, I combined Relative Valuation and Price Momentum scores as presented in recent Reuters reports.

As noted last week, volatility alone is going to rule out many cannabis companies for conservative investors although that is what short-term traders want to see.

Price has context here in terms of its market price relationship to earnings and to sales and also to relative strength of the stock price over the most recent 1-, 3-, and 6-month periods and in relation to its peer group over 1- and 2-month periods as calculated by Reuters.

Ticker in Canada

Ticker in USA

Company Name

Quant Score

Quant Score rank

OGI.V

Organigram Holdings

8

1

NDVA.V

Indiva Ltd

7

T2

APHA.TO

[APHA]

Aphria Inc

7

T2

HIP.V

Newstrike Brands

7

T2

SUGR.V

SugarBud Craft Growers Corp

7

T2

NINE.V

Delta 9 Cannabis Inc

7

T2

NRTH.V

48North Cannabis Corp

7

T2

HEXO.TO

[HEXO]

Hexo Corp

6

T8

ALEF.TO

Aleafia Health Inc

6

T8

META.V

National Access Cannabis Corp

6

T8

LABS.V

Medipharm Labs Corp

6

T8

TRST.TO

[CTST]

CannTrust Holdings

5

T12

WEED.TO

[CGC]

Canopy Growth Corp TSX

5

T12

ACB.TO

[ACB]

Aurora Cannabis

5

T12

HVT.V

Harvest One Cannabis Inc

5

T12

EMH.V

Emerald Health Therapeutics

5

T12

WMD.V

WeedMD Inc

5

T12

EVE.V

Eve & Co Inc

5

T12

ZENA.V

Zenabis Global Inc

4

T19

RIV.V

Canopy Rivers Inc

4

T19

XLY.V

Auxly Cannabis

4

T19

IN.TO

InMed Pharmaceuticals

4

T19

FLWR.V

Flowr Corp

4

T19

N.V

Namaste Technologies Inc

4

T19

KHRN.V

Khiron Life Sciences Corp

4

T19

TGOD.TO

Green Organic Dutchman

3

T26

CRON.TO

[CRON]

Cronos Group

3

T26

VIVO.V

Vivo Cannabis Inc

3

T26

FIRE.TO

Supreme Cannabis Company Inc

3

T26

SOW.V

Organic Flower Investments Grp

3

T26

TBP.V

Tetra Bio Pharma Inc

2

31

GTEC.V

GTEC Holdings

1

T32

TLRY

Tilray

1

T32

GENE.V

Invictus MD Strategies Corp

1

T32

SCYB.V

Scythian Biosciences Corp

1

T32

PCLO.V

Pharmacielo Ltd

1

T32

WL.V

Westleaf Inc

1

T32

The best quantitative scores ranking happen to be Organigram with an 8 score, at number 1, followed by Indiva, Aphria, Newstrike, SugarBud, Delta 9, and 48North all tied for second with a 7 score, and Hexo, Aleafia, National Access, and Medipharm all tied for eighth best with a 6 score.

Surprisingly perhaps, CannTrust, Canopy Growth, and Aurora failed to meet the cut-off and Green Organic Dutchman wasn't even close. Tilray, in fact, came tied for last.

I find these numbers suspicious, but because they have been calculated uniformly, I decided to insert them in this article.

More important to me are the Composite Company Ratings I calculated from P&L and balance sheet-related scores plus relative risk in capital markets.

Ticker in Canada

Ticker in USA

Company Name

Company Score

Company score rank

OGI.V

Organigram Holdings

8,5

1

APHA.TO

[APHA]

Aphria Inc

8,2

2

ACB.TO

[ACB]

Aurora Cannabis

6,8

3

HEXO.TO

[HEXO]

Hexo Corp

5,0

4

NDVA.V

Indiva Ltd

4,8

5

TRST.TO

[CTST]

CannTrust Holdings

4,7

6

SUGR.V

SugarBud Craft Growers Corp

4,3

T7

LABS.V

Medipharm Labs Corp

4,3

T7

WEED.TO

[CGC]

Canopy Growth Corp TSX

4,3

T7

ZENA.V

Zenabis Global Inc

4,3

T7

N.V

Namaste Technologies Inc

4,3

T7

WMD.V

WeedMD Inc

4,0

12

NINE.V

Delta 9 Cannabis Inc

3,7

T13

NRTH.V

48North Cannabis Corp

3,7

T13

ALEF.TO

Aleafia Health Inc

3,3

15

HIP.V

Newstrike Brands

3,2

T16

META.V

National Access Cannabis Corp

3,2

T16

CRON.TO

[CRON]

Cronos Group

3,0

T18

VIVO.V

Vivo Cannabis Inc

3,0

T18

IN.TO

InMed Pharmaceuticals

2,8

20

HVT.V

Harvest One Cannabis Inc

2,7

T21

EMH.V

Emerald Health Therapeutics

2,7

T21

XLY.V

Auxly Cannabis

2,5

T23

TGOD.TO

Green Organic Dutchman

2,5

T23

FIRE.TO

Supreme Cannabis Company Inc

2,5

T23

SOW.V

Organic Flower Investments Grp

2,5

T23

EVE.V

Eve & Co Inc

2,3

27

GENE.V

Invictus MD Strategies Corp

1,8

28

FLWR.V

Flowr Corp

1,7

T29

TBP.V

Tetra Bio Pharma Inc

1,7

T29

GTEC.V

GTEC Holdings

1,7

T29

TLRY

Tilray

1,7

T29

RIV.V

Canopy Rivers Inc

1,5

T33

KHRN.V

Khiron Life Sciences Corp

1,5

T33

SCYB.V

Scythian Biosciences Corp

1,0

T35

PCLO.V

Pharmacielo Ltd

1,0

T35

WL.V

Westleaf Inc

1,0

T35

Organigram, Aphria, and Aurora received the highest ratings followed by Hexo, Indiva, and CannTrust.

So much for the review of data compiled by Reuters. Every week or so, Reuters reports on more companies and the data changes as well for many of these companies, week to week.

In subsequent articles, I may decide to include my one-month forward outlook for the stock price trend. Anything longer would be pure guesswork on my part.

In summary, gathering this information for public information and discussion is a learning experience for all of us. I am not yet ready to trade these stocks, but as I complete the development of a proprietary algorithm that meets my needs, I shall consider that.

Comments on the industry and some of the companies

All negatives aside and the industry has many, I have projected that sometime around 2025-2026, total sales of cannabis will exceed the annual production of gold. And for many companies in cannabis one way or another, there will be green, and millions of investors will be pleased with their results.

For thousands of years, cannabis the medicine and cannabis for getting stoned has been popular in society if not fully legal. Because of Canada's leadership under Prime Minister Justin Trudeau, however, societal forces are rapidly changing around the world. In fact, there are laws in place in more than 30 countries now in support of medical cannabis and legalized recreational use is becoming widely accepted as well.

There are many facets to any industry, and that is certainly the case with cannabis. Products are also being derived from the non-hallucinogenic CBD flower and oils and going into the making of consumer products like edibles, cannabis-infused beverages, concentrates used in vaping, and creams and lotions among so many others. The industry includes businesses that operate throughout the seed-to-consumption chain involving the making, marketing, and delivery of cannabis products.

Without a doubt, cannabis is becoming a global trillion-dollar sub-industry of many industries. So, we are right to be researching, writing, and discussing it here in 2019. We are also right to be constructively critical.

There have been so many published reports and articles that present inflated sales numbers that at times there will be periods of consolidation, which is a fact of life in any market. We are witnessing softer sales quite recently in fact. Health Canada, the regulatory arm of the federal government, reported that cannabis sales in Canada actually dropped in January and February this year, counter to what most readers of the industry hype had believed possible. After Aphria reported in their most recent report that sales had fallen, bewildered investors hammered the stock price.

More of that to come. Just not to worry.

As part of Canada's leadership in cannabis, the biggest companies in this industry have gained listings on the NYSE and NASDAQ. You may have noted that each of the seven large Canadian cannabis companies that are now listed there are presented to the public as in the medical cannabis space. True, they are; however, they are also in the retail cannabis space, although that is not what they want the US regulators to be seeing. Why build needless hurdles when running track?

When traveling south, these Canadian executives do not wish to be arrested by US Immigration and Customs Enforcement (ICE) officers for their promotion to the American public of a federally illegal drug, especially where the corporate taxes are paid in Canada. Yes, it's all about taxation. Isn't that the business of government?

There are some big deals happening and some almost happening, many of which are cross-border deals. A hostile take-over bid on Dec. 27 by US cannabis retailer Green Growth Brands (GGB.CA and GGBXF), which is financed by the Schottenstein family of Ohio, ultimately failed to acquire Canada's Aphria. The irony is that Green Growth Brands is listed on the Canadian Stock Exchange, now referred to as the Cannabis Stock Exchange because they now have 160 such listings and counting.

The original all-stock bid from Green Growth Brands valued Aphria at C$2.8 billion or C$11 per Aphria shares based on the share exchange ratio of 1.5714 Green Growth shares for each Aphria share. This bid was rejected. Then GGB made a second all-stock hostile bid for Aphria a couple months later, valuing it at C$2.35 billion based on the same exchange ratio of 1.5714 Green Growth shares for each Aphria share. This week, that proposed take-over died and Aphria should receive a break fee of C$89.0 million.

The lawyers and accountants are happy campers.

That proposed deal is the start of what I anticipate are a number of hostile take-over plays in this emerging industry. However, one friendly deal was consummated recently.

Aleafia Health Inc. (TSXV: ALEF, OTC: ALEAF, FRA: ARAH) and Emblem Corp. (TSXV: EMC, OTCQX: EMMBF) have amalgamated. Each Emblem shareholder is to receive 0.8377 of a common share in Aleafia. The company was pleased to state that the deal creates:

The leading Canadian medical cannabis clinic and education centre network with 60,000 patients seen to date. A high-value, highly differentiated product portfolio of oils, capsules, and sprays. Scaled production capacity and leading supply with three dedicated cultivation and product innovation facilities and the industry's largest LP to LP cannabis supply agreement. A national and global distribution platform with provincial supply agreements, retail partnerships, and a global expansion. Improved capital markets profile and liquidity, including up-listing to the TSX. A combined entity with a robust cash position.

One problem that investors have still is that most cannabis companies are too small to be followed by sufficient number of analysts to meet the minimal requirements of Big Data companies like Thomson Reuters to provide us detailed reports. Moreover, the industry is so new that as broker-dealer analysts initiate coverage some of their opinions are complete opposites. Analysts at Bank of America and Jefferies told us totally different stories about Quebec-based HEXO. Bank of America called Hexo its "top pick in the industry", with a price target of C$14.00 (US$10.48) whereas Jefferies called Hexo a "Sell" with a price target of just C$5.60 (US$4.25), which was bumped slightly after Hexo acquired the Newstrike Brands company.

While some analysts disagree, Jefferies has a "conviction buy" rating on CannTrust Holdings Inc. (TRST and CTST) with a price target at a healthy C$15 (US$11).

All these developments are interesting in that in the case of Hexo they have a joint venture with Molson Coors Brewing to produce non-alcoholic cannabis-infused beverages to come to market before the end of the year. MBA marketing students are drooling over the prospects of line extension in this emerging and rapidly evolving industry.

Not everything is going the way these companies have been selling their stories though. Cannabis packaging company KushCo Holdings Inc. (USOTC: KSHB) reported larger Q2 losses even on revenue that more than tripled. Moreover, the accounting systems of this company are somewhat dubious as the company now is to file new financial summaries for 2017 and 2018. This is not good for a company that is seeking a major exchange listing.

I suspect there will be more of that to come because many of these small companies appear to be run by the seat of the pants.

As I spend a few hours each week now looking into this industry, some associates have sent me some under-the-radar names to consider. You probably get the same smile and wink treatment too. In my case, I will follow up although certainly not to promote them or begin to trade them.

Two others on my radar are Charlotte's Web and MedMen. In fact, MedMen is a positive story of young guys, starting from nothing in the US and making it big. Not one story like it in Canada. I wish more analysts would follow companies like these.

Another such stock that came to my attention this weekend is General Cannabis Corp. I'm told it may possibly become a winner with its plan to become the specialist in distillate. The company may also become a cannabis cultivator, but their plan is to process hemp and cannabis into CBD, THC, CBC and CBG distillate. The play of being the "converter" with economies of scale and process is likely to be a good business for CBD.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.