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Capitalize On Cannabis Report - 09/14/19

|Includes: ACB, GRWG, GTBIF, HRVSF, IIPR, KSHB, MDCL, MMNFF, Indiva Limited (NDVAF), OGI, TCNNF, TLRY, ZBISF
Summary

The FTC joined the FDA in warning CBD marketers not to make health claims.

The Senate will likely vote on cannabis banking reform.

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

The three 420 Investor model portfolios are up 11-35% in 2019.

Review

It appears that the Senate will voting on cannabis banking reform later this year, according to Politico. The FTC sent warning letters to CBD companies for making health claims. Cowen and Company initiated coverage on 5 MSOs. with favorable ratings on 3. Health Canada added another 3 license holders, bringing the total, excluding revoked licenses, to 226, two of which are suspended.

I published the first of three feature articles for the October edition of the 420 Investor Newsletter:

GTI Quietly Evolves into a Monster of the Midway

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

  • ACB expanded its credit facility to $360 million from $200 million. Its Q4 revenue fell a bit short of its pre-announced levels due to an issue in its small ancillary business, but the operating metrics in general stood out relative to those of its large globally-focused peers.
  • GRWG announced the doubling of its Oklahoma presence to 4 stores
  • GTBIF announced the opening of its 7th dispensary in Pennsylvania
  • HRVSF added a dispensary in Maryland through a management services agreement
  • IIPR boosted its dividend by 30% and cut deals to fund facilities for AWH in Illinois and Vertical in California
  • KSHB reaffirmed its FY19 guidance of revenue of $145-150 million
  • MDCL announced additional acquisitions in Colorado including four dispensaries ($51 million), Strawberry Fields, an operator in southern Colorado ($31 million) and edibles maker Canyon ($5.1 million)
  • MMNFF announced that its pending PharmaCann acquisition cleared Hart-Scott-Rodino
  • OGI received additional licensing from Health Canada, boosting its annualized production capacity to 76K kg with the addition of 17 new rooms
  • TCNNF announced the opening of its 32nd Florida dispensary
  • TLRY finalized its agreement to merge with investor Privateer Holdings and also filed a shelf for an at-the-market offering of $400 million to be conducted by Cowen and Company

The Global Cannabis Stock Index gave up about 40% of the prior week's gains, decreasing 2.8% to 66.17:

The index, up 3.4% 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 $105,068, down 3.7%. The model portfolio has gained 11.1% year-to-date and has increased 110% since April 2014. 420 Quality ended the week at $144,487 down 1.8%, and has increased 21.4% 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 189.0% since inception compared to the 18.2% decrease in the index. Flying High ended the week valued at $217,490, up 3.0%. The year-to-date gain has been 34.8%, while the return since inception in late 2013 has been 2075%.

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:

Aurora Cannabis Q4 Revenue Increases 52% to $98.9 Million

Cannabis Operator INDIVA Doubles Down on the Derivative Product Opportunity in Canada

Cannabis Operator Zenabis Global Scales Rapidly by Relying Upon Innovative Financing Techniques

Medicine Man Technologies Lines Up $31 Million Acquisition of Southern Colorado Cannabis Operator Strawberry Fields

MedMen Acquisition of PharmaCann Moves Towards Closing After Expiration of Hart-Scott-Rodino Waiting Period

New Cannabis Real Estate Company NewLake Raises $85.5 Million

Tilray Taps Cowen and Company to Sell up to $400 Million in Stock

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/