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Capitalize On Cannabis Report - 06/16/18

|Includes: ACB, APHA, CGC, DJACF, GRWG, IIPR, ITHUF, KHRNF, MPXEF, NCNNF, NXTTF, ORHOF, Surna Inc. (SRNA), TGODF
Summary

Cannabis stocks reversed out most of last week's gains.

Hemp legalization in the U.S. continued to advance, while C-45 in Canada remains not yet finalized, with 13 of 40 Senate amendments being contested.

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

Review

Hemp is moving closer to legalization, with Senate Majority Leader McConnell successfully inserting hemp provisions into the Farm Bill. Senator Grassley was unsuccessful in an attempt to derail it. The big story of the week was the very successful debut of Green Thumb Industries on the CSE. The company, which operates vertically-integrated businesses in multiple states, posted sales in excess of $10 million in Q1.

In Canada, the House of Commons and Senate are still in the process of reconciling the final language for C-45, with the Liberals pushing to allow home cultivation and to not prohibit certain promotional items (swag). In all, there are 13 of 40 total amendments that are in dispute, with a final vote expected in the week ahead, with Parliament scheduled to go into recess at the end of the week. LP Tilray is rumored to be going public. Two LPs debuted this week, 48North and James E. Wagner. A filing from the Government of Jamaica indicated that "as at March 31, 2018, eleven licenses have been issued to eight applicants and 102 applications from 42 applicants are at the conditional approval stage for growing, processing and retailing medical marijuana products, and the Cannabis Licensing Authority is processing numerous other applications."

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

  • ACBFF signed a big supply agreement with LP Agrima Botanicals for up to 20 million grams per year. It is paying $115 million in stock to buy Anandia Labs.It also bought 8% of ACMPR applicant Choom Holdings for $7 million in a private placement of the publicly-traded company
  • APHQF named a seasoned alcohol industry executive as its VP of Sales
  • CGC issued guidance that suggests Q4 revenue will fall about 8% short of expectations. It also will be shutting down its Bedrocan Cannabis line following its inability to resolve differences with Bedrocan International and will write down $28 million in intangibles related to the licensing agreement. The company priced a $500 million convertible note deal, the largest financing in the sector to date, with Constellation Brands indicating it will participate.
  • CNNRF added a new independent director
  • DJACF announced that WeedMD holders will now vote on the pending merger on July 11th
  • GRWG announced another acquisition, buying a California store with $1.7 million per year in revenue
  • IIPR declared its normal $0.25
  • ITHUF announced Lowell as the location of its second Massachusetts dispensary
  • MPXEF closed its purchase of LP Canveda for $18.12 million, mainly in stock
  • NXTTF finalized its intent to buy 15% of delivery platform Pineapple Express for $1 million, mainly in cash
  • SRNA completed a $1.2 million private placement, with insiders participating

The Global Cannabis Stock Index gave up almost all of last week's gains, decreasing 4.1% to 104.78. 

cannabis stocks chart

The index, down 2.9% in Q2 and down 26.3% 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 stocks

420 Opportunity ended the week valued at $116,214, up 0.3%. The model portfolio has gained 27.1% year-to-date after increasing 103.5% compared to the 91.8% increase in the index in 2017. 420 Quality ended the week at $144,767, up 1.1%, and has increased 30.8% 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 189.5% since inception compared to the 29.6% increase in the index. Flying High ended the week valued at $157,825, down 1.5%. The year-to-date gain has been 39.8%, while the return since inception in late 2013 has been 1478%.

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 and the introduction in the Senate of Strengthening the Tenth Amendment Entrusting States (STATES) Act ), 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: 

Aurora Cannabis to Pay $115 Million in Stock to Acquire Anandia Labs

Cannabis Customer Loyalty Platform springbig Surpasses 1 Million Consumer Mark

Cannabis Media Company PRØHBTD Raises $8 Million 

Canopy Growth Prices $500 Million Convertible Note Offering

High Times Parent Q1 Sales Plunge 65% Leading to $12.3 Million Net Loss

iAnthus Capital Names Lowell as 2nd Massachusetts Dispensary Location

Khiron Alliance Adds 100,000 Potential Latin American Medical Cannabis Patients

MPX Acquires Canadian Cannabis Producer Canveda for C$18.12 Million in Cash and Stock

Surna Raises $1.2 Million Selling Units in Private Placement

TGOD to Acquire 49% of Jamaica’s Epican

Two New Canadian Cannabis Producers to Debut on the Public Markets This Week

U.S. Multi-State Cannabis Operator GTI to Debut on the CSE on June 13

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.