Bottom Line: Aurora Cannabis has so far been building their business on hype rather than sound fundamentals. Now the chief architects of the hype, Booth and Battley, are both out of the company. At the same time, the company announced it was cutting 500 jobs. But is this too little too late, or can the new management actually save the sinking ship?
Bottom Line: This is an ugly transaction for shareholders if we ever saw one. Yes the company needs money so this is better than going bankrupt, but not by much. CEO Kevin Murphy is lending Acreage $20M but requires payment only four months later or he takes $20M of assets and sells them out from under shareholders. Another stock to avoid until they are done diluting shareholders to stay afloat.
Bottom Line: Recreational sales hit $39.2M in Illinois in January which is a good start but that pales in comparison to the first month in Massachusetts when sales hit $11M with only 2 dispensaries open compared to more than 40 open in Illinois on day 1. Tourists made up 20% of sales which shows Illinois has an excellent geographic location to drive sales from non-legalized states.
Bottom Line: According to research from Arcview and BDS Analytics, the global cannabis market is worth about $14.4B and will reach $42.7B by 2024. We estimate if the U.S legalizes Cannabis North America alone is worth $100 billion in sales ($10Bn Canada, $90Bn U.S).
Bottom Line: Some U.S. companies are trying to use the Canadian bankruptcy process to reorganize quickly and save on costs, but can they. A Canadian stock listing isn’t enough and only company’s with more than 50% of operations in Canada can likely use this avenue. Great details in this article.
Bottom Line: Small marijuana businesses typically face extra challenges with getting access to banking services due to the nature and stigma around cannabis. The governor of Colorado, Jared Polis, has unveiled a plan to help marijuana businesses get more stable and safe access to banking.
Bottom Line: CBG is the precursor to all other cannabinoids, including THC, CBD and CBC. Recently, studies on CBG has shown medical properties that could be useful in cancer treatment. Based on the preliminary research we’ve seen, cannabis has huge potential as a patented pharmaceutical.
Bottom Line: Hemp farmers have had problems keeping the THC content of their plants below the mandated 0.3% limit as a result of bad genetics. Now lobbying groups are trying to change the limit to 1% to avoid having to pay for new seeds and cultivars with lower THC levels. The 0.3% limit is creating all sorts of headaches and increasing operating costs for farmers.
Bottom Line: Last week we reported on Aphria receiving its EU GMP Certification. This week, news came out that Aurora Cannabis has also received the EU GMP as well as having reached an agreement to lift the sales suspension in Germany for some specific products. Not enough to move the needle for Aurora who needs a lot of help, but a positive piece of news nonetheless.
Bottom Line: The race for the Democratic Nomination for President is heating up. Current front-runner Bernie Sanders, a senator from Vermont, has pledged that if elected, he will enact through an executive order, to legalize marijuana on day 1 of his presidency.
Overall, it’s been a rough week for the cannabis sector. Globally, cannabis stocks were down 6.10%. The U.S. cannabis market was down 9.05% and the Canadian sector was down 5.39% 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 29.5% while the Canadian LPs are down 38.7%. 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 14.0% and the TSX by 14.5%.
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.
- Illinois Sold Almost $40M of Recreational Marijuana In January
- Colorado Governor Unveils Roadmap To Cannabis Banking
- Bernie Sanders Pledges to Legalize Weed on His First Day in Office
- North Carolina Farmers Urge a 1% THC Cap as Regulatory Confusion Settles on 2020 Growing Season
- U.S. Company’s Looking to Canada for Bankruptcy Relief
- With Terry Booth And Cam Battley Gone, Is Aurora Headed For A Turnaround?
- Acreage Raises $100 million at a High Cost