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Capitalize On Cannabis Report - 09/28/19

|Includes: BTTR, Cresco Labs Inc. (CRLBF), CVSI, CWBHF, GWPH, HRVSF, IIPR, ITHUF, KSHB, MEDIF, MMNFF, TCNNF, TRSSF
Summary

The House of Representatives overwhelmingly passed the SAFE Banking Act.

The vaping crisis escalated, with Massachusetts banning the sale of all vaping products, including cannabis products, for four months.

Health Canada added two new licenses, bringing the total, including three supsended licenses, to 232.

The three 420 Investor model portfolios have returned -13.5% to +9.7% in 2019.

Review

The House of Representatives overwhelmingly passed the SAFE Banking Act, which will be considered by the Senate later this year. This represented the first time ever that a body of Congress voted upon a stand-alone cannabis issue and is a clear sign of the potential for a more rational federal cannabis policy approach. The vaping crisis escalated, with Massachusetts banning the sale of all vaping products, including cannabis products, for four months. The state of Washington took a less aggressive approach. Ontario is apparently considering getting out of the wholesale cannabis business, which would open up the country's largest province to lower prices most likely as the middleman gets bypassed when LPs ship directly to retailers. Health Canada added two new licenses, bringing the total, including three supsended licenses, to 232.

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

Changes to the Global Cannabis Stock Index

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

  • CRLBF agreed to sell its Illinois cultivation properties to Innovative Industrial Properties for $46.3 million
  • CVSI launched 7 new body care products
  • CWBHF announced The Vitamin Shoppe is selling a new gummy line in 738 stores across 45 states
  • GWPH received approval for the sale of Epidyolex in Europe
  • HRVSF saw a board member and its President, Steve Gutterman, depart abruptly. It opened its 11th Arizona dispensary.It passed the waiting period for the DOJ 2nd request for its pending Falcon International acquisition in California. The company opened its second dispensary in Pennsylvania.
  • KSHB raised $30 million in a registered direct offering, selling units at $1.75 with warrants at $2.25 (50% coverage).
  • IIPR will be buying Cresco's Illinois properties for $46.3 million and entering into a triple-net lease with the company. It also expanded its commitment to PharmaCann in Massachusetts by $8 million to $26.5 million.
  • ITHUF will now have just a single class of stock
  • MMNFF opened three stores in Florida
  • TCNNF opened its 34th dispensary in Florida
  • TRSSF signed an extraction deal with MediPharm Labs valued at up to $192 million

The Global Cannabis Stock Index moved into the red for the six straight month after a nice first week of September, decreasing 11.2% to 55.42: 

The index, down 13.4% 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 $81,852, down 15.8%. The model portfolio has lsot 13.5% year-to-date and has increased 64% since April 2014. 420 Quality ended the week at $114,664 was launched in March 2017 targeting long-term investors seeking to invest in leading cannabis stocks with low portfolio turnover and has gained 129.3% since inception compared to the 31.5% decrease in the index. Flying High ended the week valued at $176,988, down 15.7%. The year-to-date gain has been 9.7%, while the return since inception in late 2013 has been 1670%.

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 (SAFE Banking Act, which is supposed to be voted upon by the Senate later this year) 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:

Bruce Linton Scores $10 Million in Discounted Warrants to Advise Obscure American Cannabis Company

Cresco Labs to Sell Illinois Facilities to Cannabis REIT for $46.3 Million

GW Pharma Approved to Sell Cannabis-Based Epilepsy Drug in Europe

KushCo Holdings Sells $30 Million in Stock and Warrants at $1.75

MediPharm Labs and TerrAscend Enter Major Private Label Concentrate Supply Agreement With Potential Value Up to $192 Million

MedMen Pursues Once in a Lifetime Opportunity to Become a Dominant National Cannabis Retailer

Multi-State Cannabis Operator Green Peak Innovations Raises $10 Million

U.S. House of Representatives Passes SAFE Banking Act

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/