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Capitalize On Cannabis Report - 07/21/18

Summary

Cannabis stocks continued to move lower, with the Global Cannabis Stock Index reaching levels not seen since November.

The Tilray IPO on the NASDAQ was extremely well received.

M&A activity in the U.S. remains torrid.

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 Tilray $17 IPO, which saw shares almost double in the two days of trading that followed the offering. Another story, under reported, is that public companies are piling into Las Vegas, with C21 Investments and Green Growth Brands (via reverse merger with Xanthic Biopharma) announcing big deals with leading license holders in the state. Florida cannabis producer Trulieve announced plans to go public in Canada. New Jersey is adding 6 medical cannabis supplier licenses.

A delay in the cultivation license tender process in Germany is a negative for the industry, especially the Canadian LPs that looked to be in line for those first licenses, but it will keep the export market running longer than had been expected. Another negative that has emerged for Canadian LPs is a proposed 2.3% excise tax to cover the costs of regulation by Health Canada. Health Canada issued license # 114. South Korea approved medical cannabis imports for patients with rare, incurable diseases.

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

  • ACBFF moved its e-commerce platform to Shopify and announced shareholder approval to spin off U.S. assets into Australis Capital and to merge with MedReleaf (expected on 7/25)
  • APHQF unveiled its Latin American and Caribbean strategy with the $193 million acquisition of LATAM Holdings from Scythian Biosciences, getting the company into Colombia, Argentina and Jamaica with an option to enter Brazil.
  • CVSI announced 11% growth in its presence in natural and organic health foods to 1968 from Q1 to Q2.
  • GBLX updated its Colorado hemp initiative, detailing the revenue potential of its first six proprietary CBD-rich strains
  • GRWG continued to build out its California business, adding its 6th store by acquiring Santa Rosa Hydroponics and Grower Supply. It also will be selling online at Amazon.
  • ITHUF forced conversion of the remaining C$2.7 million in convertible notes (C$3.10 conversion price) and announced the opening of its Boston dispensary
  • MDCL licensed its intellectual property and product lines into Canada for $4.65 million in cash and stock from Canada House Wellness Group
  • MEDFF shareholders voted to approve the merger with Aurora Cannabis, and the deal is expected to close on 7/25.
  • MMNFF announced the hire of a Chief Marketing Officer and opened its Las Vegas store
  • MPXEF announced final approval to open its first dispensary in Maryland and named its extraction partner in California, where it will be licensing its brand to Case Farms Collective (Oil Haus)
  • NXTTF received permission from the TSX Venture to repurchase up to 25 million shares and selected Canaccord to oversee its predefined plan. It unveiled its AI-driven App for strain recommendations, "Uppy Cannabis Journal". LP BlissCo partnered with the company and is adding CEO Dollinger to its Board of Directors
  • SNNVF announced a customer agreement for extraction services to be provided to Cannabis Strategic Ventures, which appears to be a penny stock scam
  • TLRY priced its 9 million share IPO at $17, above the expected $14-16 range it had provided, with shares rising as high as $31.80

The Global Cannabis Stock Index continued to move lower as it reached the lowest close since late November, decreasing 7.7% to 90.06. 

Global Cannabis Stock Index 072018

The index, down 7.2% in Q2 and down 10% so far in July, has now declined 36.6% so far in 2018, after gaining 91.8% in 2017 and 88.8% in 2016. The index currently includes 53 stocks and ended 2017 at 142.10.

Global CAnnabis Stock Index 1- Year 420 Opportunity ended the week valued at $98,315, down 7.6%. The model portfolio has gained 7.6% year-to-date after increasing 103.5% compared to the 91.8% gain in the index in 2017. 420 Quality ended the week at $123,353, down 7.4%, and has increased 12.7% 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 146.7% since inception compared to the 11.4% increase in the index. Flying High ended the week valued at $131,313, down 8.8%. The year-to-date gain has been 16.3%, while the return since inception in late 2013 has been 1213%.

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 almost 700 companies in the sector. The market has been in bull mode since late October but is mired in a broad correction. There are some catalysts ahead, including progress in the Canadian legalization slated to launch on October 17th and in German MMJ as well as the roll-out of the California implementation and Massachusetts. 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, Michigan, Ohio, Oklahoma, 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 Acquires Latin American and Caribbean Cannabis Assets for $193 million in Stock from Scythian Biosciences

Aurora Cannabis to Transition E-Commerce Platform to Shopify

Cannabis Lifestyle Company Green Growth Brands Announces $56.75 Million Nevada Deal

Cannabis Loyalty Programs Pay Off: A Close Look at Consumer Purchasing Habits

Cannabis Stock Potnetwork Holdings SEC Filing Raises Questions

Cronos to Build Massive Greenhouse Facility in Ontario

Emblem Inks Supply Agreement and Invests $3 Million for 5% Stake in Cannabis Cultivator Natura Naturals

Leading Nevada Cannabis Company Silver State Sells to Canadian Public Company C21 Investments

Maricann Gains Cannabis Manufacturing License in Malta

MPX Enters California Cannabis Extracts Market

Multi-State Cannabis Operator Cresco Labs Expands Into Several Western States

PharmaCann’s Scalable Platform is Poised for Major Growth Over the Next 12 Months

TGOD Announces Plans to Spin Out Company to Pursue Global Cannabis Opportunities

Tilray Prices $153 Million NASDAQ IPO at $17 per Share

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.