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Capitalize On Cannabis Report - 06/08/19

|Includes: ACB, Aleafia Health Inc. (ALEAF), APHA, CWBHF, DYMEF, ELLXF, FFLWF, GTBIF, HRVSF, ITHUF, LHSIF, MDCL, MMNFF, OGI, SPRWF
Summary

Illinois moved to greatly improve its medical cannabis program ahead of full legalization.

Equity offerings weighed on the sector.

The three 420 Investor model portfolios are up 29-38% in 2019.

Review

Good news continued out of Illinois, which saw further improvements to its medical cannabis program. Supply of stock continued to weigh on the sector. Health Canada added license #180.

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

  • ACB was one of four Canadian LPs to be names as a Pax Labs partner
  • APHA was one of four Canadian LPs to be names as a Pax Labs partner
  • CWBHF launched a new line of CBD gummies
  • ELLXF raised A$50 million at A$3.90
  • GTBIF closed its acquisition of Integral Associates (Essence), which also won a license in Pasadena
  • HRVSF will distribute CBD products in more than 10,000 retail stores through an agreement with the Asian American Trade Associations Council. It won one of six Pasadena retail licenses and opened three additional dispensaries in Florida
  • ITHUF opened two additional dispensaries in Florida
  • LHSIF is replacing Aphria and Solei brands with Zentient
  • MDCL will be buying Los Sueños, a very large outdoor cultivation operation in Colorado, and Purplebee's (Mesa Organics), a dispensary and infused products manufacturer, for a combined $18 million, mainly in stock. The company also sold 1.5 million units at $2.00 with $3.50 warrants to a new investor, Dye Capital, which will be buying a total of up to 7 million shares over time.
  • MMNFF is acquiring a Long Beach dispensary and won a license in Pasadena. It saw a lawsuit filed against it earlier this year by investors dismissed and moved to arbitration
  • OGI was one of four Canadian LPs to be names as a Pax Labs partner
  • SPRWF was one of four Canadian LPs to be names as a Pax Labs partner

The Global Cannabis Stock Index fell for the sixth consecutive week, losing 0.5% to 85.59:

The index, up 33.7% so far in 2019 after declining 13.3% in May, lost 54.9% in 2018 after gaining 91.8% in 2017 and 88.8% in 2016. It currently includes 64 stocks and ended 2018 at 64.02:

420 Opportunity ended the week valued at $122,364, down 0.9%. The model portfolio has gained 29.3% year-to-date and has increased 145% since April 2014. 420 Quality ended the week at $157,471, up 0.3%, and has increased 32.3% 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 214.9% since inception compared to the 5.9% increase in the index. Flying High ended the week valued at $221,811, up 1.8%. The year-to-date gain has been 37.5%, while the return since inception in late 2013 has been 2118%.

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 800 companies in the sector. While the sector has been volatile and has declined since early 2018, the longer-term trend since early 2016 has been bullish. 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 implementations in California and Massachusetts for adult-use as well as medical cannabis in several other states. 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. Consolidation within both Canada and the U.S. will continue, but the Canopy deal with Acreage paves the way for potentially more cross-border consolidation. 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 and more consolidation in Canada and in the U.S., 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, MD, MN, NH, NJ, NM, NY and RI and implementation of potential commercial programs in ME and VT. The 2020 elections will start to get a lot of attention later this year as well.

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

Aleafia Health Announces $35 Million Public Offering of 8.5% Convertible Debenture Units

American Cannabis Stocks Drop 13.1% in May

Cannabis Stocks Retreat in May

Cresco Capital Partners Raises $60M in Oversubscribed Cannabis Private Equity Fund

DionyMed Brands Lawsuit Alleges Eaze Defrauds Credit Card Companies

Elixinol Global Sells 12.8 Million Shares at A$3.90 to Fund CBD Growth

Fire & Flower to Issue $15 Million in Convertible Notes

Large LPs Lead Canadian Cannabis Producers Lower in May

Medicine Man Technologies Lines Up Two Colorado Cannabis Acquisitions

PharmaCielo to Acquire International Cannabis Company Creso Pharma for A$122 Million

Top 40 Revenue Generating Cannabis Stocks Ranked as of May 31st

Vinzan International is Using Agricultural Best Practices to Build a Global Cannabis Business

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, Canopy Growth, CB2 Insights, Charlotte's Web, Cresco Labs, Green Growth Brands, Harvest One, iAnthus Capital, INDIVA, KushCo Holdings, Liberty Health Sciences, Medicine Man Technologies, MediPharm Labs, MPX International, Organigram, Plus Products, Supreme Cannabis, TerrAscend, Vireo Health and VIVO Cannabis, providing each of them with Investor Dashboards.