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Capitalize On Cannabis Report - 01/12/19

|Includes: ACB, APHA, CANN, CGC, Canopy Rivers Inc. (CNPOF), CNTTF, CVSI, GTBIF, ITHUF, KSHB, LHSIF, MDCL, MMNFF, ORHOF, SPRWF, TLRY
Summary

Cannabis stocks extended their rally with big gains.

Company news releases picked up following the holiday hiatus.

420 Investor model portfolios are all up more than 25% to begin the year.

The first full week of the year saw the rally extend. Health Canada added 3 more LPs, all processors, bringing the total licenses to 145. A new cannabis REIT that intends to go public, Treehouse REIT, raised $133 million.

During the week, I published the first of three articles for the February Newsletter:

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

  • ACB pre-announced Q2 revenue of $50-55 million, short of expectations, and indicated it will have positive EBITDA in its Q4.
  • APHA began shipping to Shoppers Drug Mart. It reported weaker than expected sales for its Q2 of $21.7 million, with margins declining. CEO Neufeld and Director Cacciavillani announced that they would be leaving the company. It closed the acquisition of a German distributor of pharmaceuticals.
  • CANN CEO Frichtel retired, with Executive Chairman Feinsod assuming the role on an interim basis
  • CGC entered the Peruvian medical cannabis market
  • CNTTF filed the Form 40-F to list on the NYSE
  • CVSI hired a Chief Accounting Officer
  • GTBIF entered Connecticut with an $80 million acquisition ($15 million cash and 7 million shares valued at $9.29. The company won a processing license in Ohio.
  • ITHUF opened its Brooklyn dispensary
  • KSHB generated Q1 sales of $25.3 million, ahead of expectations and up 186% from a year ago. It saw weak margins due to what it described as transitory issues. CEO Kovacevich sold 200K shares
  • LHSIF announced that Aphria's Vic Neufeld and John Cervini have departed the Board of Directors, effective January 31.
  • MDCL CEO Andy Williams sold about 10% of his holdings
  • MMNFF was sued by an investor who alleged breach of fiduciary duty. Cannabis REIT Treehouse, which raised $133 million, intends to use up to half the proceeds to buy MedMen real estate assets
  • ORHOF implemented voting support agreements to deter potential hostile bids after saying it has been approached by potential buyers
  • SPRWF will be uplisting to the TSX
  • TLRY parent Privateer Holdings said that it would not be selling any of its 75 million shares for in the first half of 2019

The Global Cannabis Stock Index rallied for the third consecutive week, gaining 13.7% to 81.58.

  The index, up 27.4% in 2019, lost 54.9% in 2018 after gaining 91.8% in 2017 and 88.8% in 2016. It currently includes 43 stocks and ended 2018 at 64.02. 

420 Opportunity ended the week valued at $119,332, up 9.0%. The model portfolio has gained 26.1% year-to-date and has increased 139% since April 2014. 420 Quality ended the week at $150,237, up 9.8%, and has increased 26.2% 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 200.5% since inception compared to the 0.9% increase in the index. Flying High ended the week valued at $202,193, up 9.0%. The year-to-date gain has been 25.3%, while the return since inception in late 2013 has been 1929%.

Outlook

The cannabis sector is seeing rapidly 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 750 companies in the sector. The market has almost completely retraced the rally that began in October 2017. There are some catalysts ahead, including the changes ahead due to hemp legalization, progress in the Canadian legalization that commenced October 17th and in German MMJ as well as the continued 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. A major change has been the stepped up pace at which higher quality U.S. operators are going public via the CSE in Canada. Finally, expect to see more of the Canadian LPs list on major U.S. exchanges.

The big themes ahead are likely to be continued cross-industry investment into the sector, 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 ), better clarity from the federal government for banks and cannabis research, FDA pushback towards the CBD from industrial hemp industry, the GW Pharma launch of Epidiolex, the inclusion of a broader range of extracts in Health Canada's ACMPR program and its continued growth in patient enrollment, 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, MA and soon MI, and the new MMJ implementations in Arkansas, Florida, Maryland, Michigan, Ohio, Oklahoma, Pennsylvania and Texas, possible legalization via the legislatures in CT, IL, NH, NJ, NM, NY and RI and implementation of potential commercial programs in ME and VT.

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

Aphria Posts Sales of $21.7 Million as CEO and Director Announce Departures

Aurora Cannabis Projects Q2 Sales of $50-55 Million

CannTrust Applies to List on NYSE

Canopy Growth Positions for CBD Market Leadership

Canopy Rivers Taps Major Canadian Banks for $80 Million Credit Facility for PharmHouse

Greenlane Announces Closing of $48.25 Million Convertible Note Financing

GTI Enters Connecticut Medical Cannabis Market with $80 Million Acquisition

Investors Sue MedMen for Alleged Breach of Fiduciary Duty

KushCo Holdings Q1 Revenue Increases 186% to $25.3 Million

Leading Cannabis Analytics Company Headset Closes $12.1 Million Series A

MedMen to Sell Some Real Estate Assets to Newly Formed $133 Million Cannabis REIT

Origin House Takes Action to Fend Off Potential Hostile Acquisition Bids

Privateer to Retain All 75 Million Tilray Shares for Now

Risk of Federal Enforcement Actions Against State-Legal Cannabis Businesses Declines

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 48North, Aurora Cannabis, Australis Capital, Canopy Growth, Canopy Rivers, Charlotte's Web, Cresco Labs, Emblem, Green Growth Brands, Harvest One, iAnthus Capital, INDIVA, KushCo Holdings, Liberty Health Sciences, Medicine Man Technologies, MediPharm Labs, MJardin, Group, MPX Bioceutical, Organigram, Plus Products, Supreme Cannabis, TerrAscend, VIVO Cannabis and Wayland, providing each of them with Investor Dashboards.