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Capitalize On Cannabis Report - 06/02/18

|Includes: ACB, Aphria Inc. (APHA), CANN, CGC, CVSI, EMMBF, ITHUF, KSHB, LHSIF, MEDFF, MPXEF, NWKRF, NXTTF
Summary

Cannabis stocks contracted for the second consecutive week.

The MedMen debut was a disaster for investors in its last financing round.

420 Investor model portfolios continue to maintain a large advantage over the performance of the Global Cannabis Stock Index in 2018.

Review

The big story of the week was the epic failure of the debut of MedMen, which initially traded as high as $5.73, more than 9% above its financing round at $5.25, before trading as low as $3.82 and ending the week at $4.26. Another big story is that it appears as if Colorado will be loosening restrictions against public company ownership of cannabis licenses.

Here are some of this week's highlights for Focus List names:

  • ACBFF introduced a branded product for the German market, CannabisKlenk. It also introduced the first kief product in Canada, Aurora Frost, with 35% THC
  • APHQF established a JV that acquired 60% of an LP in Lesotho, Africa, Verve
  • CANN saw some insider selling from a director, Peter Boockvar
  • CGC named Mark Ware as its Chief Medical Officer. The company bought 100% of an LP in Lesotho, Africa, Highlands. It is taking Canopy Rivers public following a large capital raise. The company won 5 of the 51 retail licenses in Saskatchewan
  • CNNRF reported Q1 and suggested that once its acquistions close it will be on track to exit the year with a C$100 million revenue run-rate
  • CVSI settled with the SEC and promoted its CFO to CEO after its CEO was forced to step down
  • ITHUF reported a small amount of cannabis revenue in Q1, its first
  • KSHB is opening in Nevada its fifth distribution facility
  • LHSIF opened its fourth dispensary in Florida and announced a distribution deal with Isodiol
  • MEDFF is collaborating with a contract research organization to develop products
  • MPXEF raised $40mm selling convertible notes
  • NXTTF announced a distribution and collaboration agreement with Shatterizer

The Global Cannabis Stock Index fell again, decreasing 2.4% to 104.56 

global cannabis stock index

The index, down 3.1 in Q2 and down 26.4% so far in 2018, was up 91.8% in 2017 after gaining 88.8% in 2016. The index currently includes 68 stocks and ended 2017 at 142.10.

Cannabis Stock Index

420 Opportunity ended the week valued at $112,079, down 2.8%. The model portfolio has gained 22.6% year-to-date after increasing 103.5% compared to the 91.8% increase in the index in 2017. 420 Quality ended the week at $139,652, down 2.0%, and has increased 27.6% year-to-date. This model portfolio was launched in March 2017 targeting long-term investors seeking to invest in leading cannabis stocks with low portfolio turnover and has gained 179.3% since inception compared to the 29.3% increase in the index. Flying High ended the week valued at $155,094, down 3.8%. The year-to-date gain has been 37.4%, while the return since inception in late 2013 has been 1451%.

Outlook

The cannabis sector is seeing improving quality due to new entrants and some of the older names executing. Valuations generally remain cautionary, and fundamentals are questionable for most of the over 600 companies in the sector. The market has been in bull mode since late October and remains healthy despite the "Sessions Storm" that hit on January 4th. There are some catalysts ahead, including progress in the Canadian legalization and in German MMJ as well as the roll-out of the California implementation and Massachusetts in July. The demise of the Cole Memo had left a big overhang in the U.S. market, but I believe this is now behind us and advocate a more aggressive approach for investors with respect to legitimate U.S. companies.

The big themes ahead are likely to be insight into the President's plans regarding the federal view on state-legal cannabis (especially in light of the apparent deal with Senator Cory Gardner), hopeful approval of the Hemp Farming Act of 2018, introduced by Senate Majority Leader Mitch McConnell with bi-partisan support and intended to legalize industrial hemp, hopeful extension later this year of the Rohrabacher-Blumenauer Amendment in the House and the Leahy Amendment in the Senate (which are now set to sunset on September 30th) to insulate state-legal medical cannabis businesses from DOJ intervention, better clarity from the federal government for banks and cannabis research (both part of the proposed CARERS Act and other proposed legislation), DEA pushback towards the CBD from industrial hemp industry, the inclusion of a broader range of extracts in Health Canada's ACMPR program and its continued growth in patient enrollment, likely legalization in Canada, the rollout of MMJ in Denmark, Germany, Mexico and in Australia as well as continued advances in South America, progress with respect to the new legal cannabis implementations in CA and MA, and the new MMJ implementations in Arkansas, Florida, Maryland, Ohio, Pennsylvania and Texas, the implementation of the new medical program in California and the possible legalization via the legislatures in CT, NH, NJ, NM, and RI and implementation of potential commercial programs in ME and VT. Finally, the November elections will be another potential catalyst, with Michigan voters already set to decide on adult-access in that state.

Here are some of the most interesting stories we published on New Cannabis Ventures this week:

Aphria Joint Venture to Acquire 60% of Licensed African Cannabis Extracts Producer Verve

Aurora Cannabis Introduces Novel Product Line with 35% THC Potency

Canadian Cannabis Producer Stocks See Extreme Variances in Performance in May

Canopy Growth Enters 5th Continent with $29 Million African Cannabis Producer Acquisition

Canopy Rivers to Raise up to $60 Million Ahead of Going Public

Emblem Q1 Sales Jump 41%

Global Cannabis Stocks Suffer Slight Decline in May

iAnthus Capital Generates Initial Cannabis Sales in Q1

Kush Bottles to Open 5th Cannabis Packaging Distribution Facility

MPX Raises $40 Million to Fund Expansion and Acquisitions in the U.S. and Canada

Newstrike Books $10.5 Million in Sales without Selling a Single Gram of Cannabis 

Vanguard Mutual Fund Surprisingly Owns $47 Million of Cannabis Stocks

 

Resources:

 

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: At New Cannabis Ventures, we work with several publicly-traded companies, including ABcann, Aurora Cannabis, Canopy Growth, Emblem, Harvest One, Hiku Brands, iAnthus Capital, Khiron Life Sciences, Kush Bottles, Liberty Health Sciences, MariCann, MPX Bioceutical, RavenQuest, Supreme Cannabis and TerrAscend, providing each of them with Investor Dashboards. We also provide Organigram with advertising on our Cannabis Careers page.