Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Capitalize On Cannabis Report - 09/07/19

|Includes: ACB, FFLWF, GRWG, MDCL, MMNFF, Neptune Wellness Solutions Inc. (NEPT), TGODF
Summary

Post-Labor Day news flow was very light but the market managed big gains nonetheless.

Health Canada added three new licenses, bringing the total to 223.

The three 420 Investor model portfolios are up 15-31% in 2019.

Review

News flow was light as we entered the final third of 2019. Health Canada added another 3 license holders, bringing the total, excluding revoked licenses, to 223.

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

  • ACB received $86.5 million for its equity stake in Green Organic Dutchman, solidifying its balance sheet liquidity
  • FFLWF will be acquiring 8 retail locations in Alberta for $5.65 million
  • GRWG announced an acquisition in Michigan and indicated that it expects Q3 revenue to exceed $20 million
  • MDCL announced several additional pending Colorado acquisitions, including $31 million for five Starbuds dispensaries, $12.5 million for Colorado Harvest Company (three dispensaries), $37 million for an additional four dispensaries and $15 million for six dispensaries in the mountains operating under the Roots Rx banner.
  • MMNFF closed its Long Beach acquisition

The Global Cannabis Stock Index soared this week after posting 2019 lows during the last week of August, increasing 7.4% to 68.07:

The index, up 6.3% so far in 2019, lost 54.9% in 2018 after gaining 91.8% in 2017 and 88.8% in 2016. It currently includes 52 stocks and ended 2018 at 64.02:

Model Portfolios

420 Opportunity ended the week valued at $109,079, up 8.2%. The model portfolio has gained 15.3% year-to-date and has increased 118% since April 2014. 420 Quality ended the week at $147,106 up 8.0%, and has increased 23.6% 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 194.2% since inception compared to the 15.8% decrease in the index. Flying High ended the week valued at $211,177, up 7.5%. The year-to-date gain has been 30.9%, while the return since inception in late 2013 has been 2012%.

Outlook

The cannabis sector is seeing rapidly improving quality due to well-capitalized new entrants with solid revenue generation and some of the older names executing. Valuations for many of the companies have become easier to justify. 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 in late 2018, progress in the Canadian legalization that commenced in October 2018 and is set to include a broader set of products later this year 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. is likely to continue.

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, IL, MA and MI, and the new MMJ implementations in Arkansas, Florida, Maryland, Michigan, Ohio, North Dakota, Oklahoma, Pennsylvania, Texas and Utah possible legalization via the legislatures in CT, MD, MN, NH, NJ, NM, NY and RI and implementation of potential commercial programs in ME and VT. The 2020 elections could start to get a lot of attention later this year and in early 2020 as well.

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

American Cannabis Operators Index Stumbles Again in August

Aurora Cannabis Sells Its Remaining Green Organic Dutchman Shares for $86.5 Million

BDS Analytics Details Cannabis Market Trends in 5 Key Western States During July

Biotechnology Company Demetrix Works Toward Cannabinoid Biosynthesis Commercialization Following $50M Series A

Canadian LP Index Tests December Lows in August

Global Cannabis Stock Index Wipes Out 57% Gains in Q1 as Sell-Off Extends into August

Medicine Man Technologies to Buy Colorado Cannabis Retailer Starbuds for $31 Million

New Neptune Wellness CEO Leverages Intellectual Property and Capital to Scale Cannabis Extraction Operations in North America

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, Charlotte's Web, Cresco Labs, DionyMed Brands, Fire & Flower, GABY Inc., 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, TILT Holdings, Vireo Health and VIVO Cannabis, providing each of them with Investor Dashboards. Please see our disclaimer for more detail:
www.newcannabisventures.com/disclaimer/