Capitalize On Cannabis Report - 09/05/20

Summary

• BDSA data suggested that cannabis sales surged across America in July.
• Ontario will double the pace of retail store openings.
• Health Canada added 10 new licenses.
• The three 420 Investor model portfolios have returned -10.6% to +6.5% in 2020, outpacing the market, which has lost 28.4% as measured by the Global Cannabis Stock Index.

​Review

Data from BDSA showed robust recoveries in Nevada and Massachusetts during July as well as continued strong growth in both mature and new markets across the country.

The Ontario regulator will double the pace of store openings, from 20 per month to 40. Health Canada added 3 new licenses this week, leaving the total, including the expired license of Toronto Research Chemicals, at 459, which excludes the revoked licenses of Agrima, Alberta Green Biotech, Bloomera, Hexo's 4th site, Medican Organic's 2nd site and a small processing facility that belonged to Canopy Growth, the expired license of Evergreen Medicinals and the voluntarily cancelled license of Avalite Sciences. It also includes, for now, licenses that were previously held by James Wagner that have been transferred, as well as the FV Pharma license, which is in the process of being surrendered, and the Maricann second site, which was revoked.

During the week, I shared these posts with subscribers at 420 Investor:

This ETF Could Move the Market

Cannabis Sub-Sector Review - 08/28/20

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

• CURLF opened its first dispensary in Utah. It reported $1 million of sales in less than a month on the market in Florida for its Select cartridges. The company opened a 15K sq. ft. dispensary in Skokie, IL. It opened its 31st Florida dispensary. The company settled with Maryland, paying a fine and giving up a processing license. Its ground flower products were restricted from sale in New York.
• CVSI launched its new website
• GTBIF announced the License Education Assistance Program (LEAP) incubator for social equity applicants, with loans of $1.2 million
• IIPR expanded its relationship with Holistic Industries, entering into a sale-leaseback for its Michigan cultivation facility with a $25 million investment. 3 insiders sold stock, including founder and Executive Chairman Alan Gold, who sold 20K shares ($2.5 million).
• KERN saw the founder of its recently acquired Ample Organics unit resign and publicly criticize management
• MEDIF entered the market in Denmark with two white-label customers and Latin America with a supply agreement with Cann Farm Peru.
• NDVAF generated net revenue of C$2.6 million in Q2 due primarily to its chocolates line
• SPRWF filed a prospectus for the September 9th issuance of 58.3 million of shares to convertible note holders
• TCNNF made its first sale of edibles in Florida. A director disclosed a mid-August sale of stock valued at $5.7 million

The Global Cannabis Stock Index had its worst week since early April, decreasing 7.9% to 30.22:

The index, which lost 34.1% in 2019 and lost 54.9% in 2018 after gaining 91.8% in 2017 and 88.8% in 2016, is down 28.4% thus far in 2020. It currently includes 37 stocks and ended 2018 at 42.20:

Model Portfolios

420 Opportunity ended the week valued at $69,503, down 5.6%. The model portfolio has lost 10.6% year-to-date and has increased 39.0% since April 2014. 420 Quality ended the week at $108,851, down 5.6 % for the week, and it has lost 3.8% in 2020. The model was launched in March 2017 targeting long-term investors seeking to invest in leading cannabis stocks with low portfolio turnover and has gained 117.7% since inception compared to the 62.6% decrease in the index. Flying High ended the week valued at $176,043, down 3.8%. The year-to-date gain has been 6.5%, while the return since inception in late 2013 has been 1660%.

Outlook

After a strong rally to begin 2019, the cannabis sector experienced a sharp decline over the next year to unprecedented levels due to several negative developments, including the CannTrust fraud, the surprise termination of Bruce Linton as CEO of Canopy Growth, a disappointing roll-out of legalization in Canada, regulatory confusion in the U.S. regarding CBD and a slow roll-out of legalization in California, the vaping crisis and then financial turmoil due to the COVID-19 pandemic, which could add additional cost burden to operators. The sector has seen capital available to fund expansion dry up, a situation that will leave companies operating with negative cash flow severely challenged.

I believe stocks overreacted and put in a bottom in March, and they are now poised to benefit from a perception that the industry will hold up better than most in a weak environment, something that wasn't clear then. A big change has been that the pandemic has caused many regulators to permit previously prohibited types of retail activities, like curbside pickup and delivery. The legal market is rapidly capitalizing on becoming even more convenient than the illicit market, with the ability to order online. High unemployment and large deficits will likely spur state legalization efforts as well as more favorable regulatory control at the local level. The rising tide, though, will not lift all boats.

There are some potential catalysts ahead, including the FDA providing clarity on CBD, progress in the Canadian legalization that commenced in October 2018 and is beginning to include a broader set of products and the continued growth in German MMJ. The implementations in California and Massachusetts for adult-use have been disappointing but are likely to show great improvement. Michigan legalized in December and Illinois legalized in January, and these markets are showing strong growth that could encourage other states to legalize. Voters in Arizona, Montana and New Jersey will vote on legalization in November. 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.

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., managing through the COVID-19 crisis, steps to enable cannabis research, FDA push-back towards the CBD from industrial hemp industry, the roll out of MMJ in 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 recent MMJ implementations in Arkansas, Michigan, Missouri, North Dakota, Ohio, Oklahoma, Pennsylvania, Texas and Utah, possible legalization via the legislatures in CT, FL, MD, MN, NH, NM, NY, PA 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, with Arizona and New Jersey at the top of the list that also includes Montana and South Dakota, and ballot initiatives are already approved in MS and SD for medical cannabis. At the federal level, investor sentiment could brighten if the Democrats are able to recapture control of the Senate.

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

Adult-Use Cannabis Sales Drive Strong Growth in Illinois and Massachusetts in July

Ample Organics Founder Departs Akerna Shortly After Acquisition Closes

Canadian LPs Continue to Lag American Cannabis Stocks in August with 7% Decline

Cannabis Stocks Extend Rally in August

Former CannaRegs Investors File Securities Fraud Lawsuit After $10 Million Acquisition

July Cannabis Sales Surge in 5 Western States

MSO Strength Drives American Cannabis Operator Index 16% Higher in August

Multi-State Cannabis Operator Calyx Peak Is Building Its Brands on Cultivation Prowess

Privately Held Cannabis Operator Holistic Industries Shifts Into Rapid Growth Mode

The Number of Cannabis Stocks Generating Substantial Revenue Expands in August

Resources:

• Stay on top of all of the NCV news on publicly-traded stocks
• Track cannabis stocks with the Global Cannabis Stock Index
• Follow Canadian Producers with the Canadian Cannabis LP Index
• Monitor the American Cannabis Operator Index
• Access free Canadian cannabis investor resources​​
• Learn about our featured companies
• Check out our "Revenue Tracker"
• Discover upcoming new issues and IPOs
• Stay on top of upcoming earnings calls
• Subscribe to the free Weekly Newsletter
• Follow all the NCV news real-time, by liking the Facebook page
• Get the NCV App (Apple)
• Get the NCV App (Google Play)
• Find a job with a leading cannabis company
• Read my articles on the Forbes Contributor site
• Read my articles on Leafly
• Subscribe to the 420 Investor Monthly Newsletter ($199 year)
• Become a 420 Investor VIP Member ($599 year)