Wholesale CBD Prices Still in Freefall

Bottom Line: Falling CBD prices in the wholesale market mean retail prices are next. There is so much competition in CBD no one has any pricing power. Market leader Charlotte’s Web refused to lower prices in 2019 and their revenue has flatlined as a result. Expect lower retail CBD prices in 2020.

Source: Hemp Benchmarks

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Israel Begins Exporting Cannabis to the UK

Bottom Line: This is an important milestone for the cannabis market. Canada has a real competitor for the first time in the race to supply Europe. The volumes are minimal to start but it signals competition is heating up.

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Scotts Miracle-Gro Q1 2020 Earnings Beats Estimates – The Way To Play Marijuana Legalization

Bottom Line: Scotts Miracle-Gro’s (NYSE: SMG) latest earnings crushed expectations. The company’s investment into the hydroponic business is paying dividends. This is a must-own stock as part of a diversified U.S. MSO basket in our opinion.

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Sundial Growers Cleans House – Is This the Beginning of Something Real or the End of an Era?

Bottom Line: Sundial Growers (NASDAQ:SNDL) announced a mass exodus of its executive team including its CEO, COO, and Executive Chairman who are all stepping down. The company is burning cash like crazy and will run out of cash by the end of March if it does not issue new shares or find some other way to stop the cash burn. We’ve provided our take on how to play this stock in 2020.

image source: newswire.ca

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New Mexico Marijuana Legalization Bill Passes First Test

Bottom Line: A Democrat-backed bill to legalize adult-use marijuana in New Mexico overcame its first obstacle when the Senate Public Affairs Committee voted 4-3 in favour of advancing it. Polls suggest that three-quarters of New Mexicans back legalization.

cannabis / marijuana supply / greenhouses - mj

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Michigan Recalls Vape Cartridges Containing Deadly Cutting Agent

Bottom Line: Certain legal producers were able to bring medical products produced prior to legalization into the legal rec market this year, many of which contained vitamin E acetate, the chemical shown to cause serious breathing problems. The industry continues to fall down when it comes to protecting consumers’ health and legal cannabis remains buyer beware in many states.

Marijuana products - vape - mj

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C21 Investments (CXXI) – A Fresh Perspective

Bottom Line: An excellent guide looking at one of the most polarizing pot stocks of 2019. The CEO is still owed more money than the company has in its bank account so understanding his motivations and how the debt may be converted or paid off is key to understanding where this stock goes next.

cannabis / marijuana supply / greenhouses - mj

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Liberty Health Sciences Releases Q3 Earnings and Crushes Expectations

Bottom Line: Liberty Health Sciences (CNSX: LHS) released Q3 results and it crushed expectations. Liberty Health grew revenues an impressive 52% to $16.2 million. With their marijuana extract sales increasing only 9%, this growth was largely driven by flower sales and substantially outpaces the broader marker.

marijuana bud mj

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New Study Shows Certain Cannabinoids Exhibit Anti-Tumour Properties

Bottom Line:  This study only reinforces our view that the cannabis plant has the potential to create many multi-billion-dollar drugs. Big Pharma is no doubt starting to take notice and will be buying up cannabis research firms as soon as the drug is legalized in the U.S.

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Colorado’s Average Price of Wholesale Marijuana Hits 3-Year High After Record Spike

Bottom Line: Interestingly, flower prices in Colorado look to have bottomed. Colorado also saw an increase in users this year without dropping prices, another positive sign. Colorado is the most mature cannabis market in the world and is definitely one to keep an eye on.

marijuana / cannabis / weed / pot / dagga - mj

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Medical Cannabis Flower Imported into Germany Doubles in 2019

Bottom Line: German demand growth is still relatively modest compared to Canadian supply of cannabis. 3,000 kg of annual growth against 600,000 kg of Canadian harvest won’t make much of a difference in clearing the Canadian oversupply. Still a positive sign for long-term demand in Europe.

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Weekly Stock Performance

Overall, it’s been a rough week for the cannabis sector. Globally, cannabis stocks were down 4.99%. The U.S. cannabis market was down 4.15% and the Canadian sector was down 5.93% since the end of last week.

We’ve been watching the performance of U.S. and Canadian stocks closely and U.S. stocks are still where you want to be invested.

Since the end of September 2019, U.S. cannabis stocks are down 22.5% while the Canadian LPs are down 35.2%. Investors should begin building a long-term position in a basket of the top five U.S. operators, but save some extra cash to buy on any weakness in 2020.

An upcoming catalyst to watch is a UN meeting in March 2020 to potentially deschedule cannabis as a schedule 1 drug. If this goes through with America’s blessing it could set the wheels in motion for federal legalization sooner than later. Once the recent vaping crisis is resolved we should also see a bounceback in the U.S. MSOs.

YTD in 2020 the Global cannabis sector is underperforming the S&P 500 by 5.1% and the TSX by 6.7%.

GLOBAL CANNABIS INDEX PERFORMANCE THIS WEEK

Market Outlook

There are now question marks on whether increased sales from cannabis 2.0 products will lift the stocks. Capital markets are largely shut to cannabis companies right now, which is a problem when the business models are built on rapid expansion and big deficits. Canadian cannabis investors should not be putting more money into the sector until retail prices find a bottom.

Price compression has arrived and will drive cannabis stocks lower over the next 6-12 months in our view without a new regulatory catalyst.

U.S. stocks will continue to outperform Canadian LPs from here in our view with more catalysts potentially on the horizon. At the first whiff of nationwide U.S. legalization, investors should pile into the largest MSOs and hold for the long term.

Canadian LPs are still stuck in a legal market growing slower than investors expected, making it hard to show the revenue growth embedded in their trading multiples. LPs are showing slow growth in 2019 and even with the 2020 rollout of edibles, vapes, and topicals growth is unlikely to exceed 150% in 2020. U.S. operators in comparison are growing revenue 150%-300% in 2019 and at similar rates or better in 2020. With analyst consensus wildly too high for Canada LPs in 2020, there may still be downside in the sector.

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