Bottom Line: New management at Aphria and a coming rebuttal to the QCM allegations will clear the way for investors to chip away at the 85% stock price discount to peers. Aphria is once again an enticing target for consumer packaged goods companies or another licensed grower.
Bottom Line: We applaud the government’s decision to allow anyone to open a cannabis retail store, however, the government is artificially constraining sales in 2019 by only allowing 25 stores to open in a province of 14 million. We now expect legal sales will disappoint expectations for all licensed producers at least in 2019 before edibles and vape pens are legalized.
Bottom Line: Canopy owns 27% of Canopy Rivers who owns 49% of Pharmhouse Inc, the owner and operator of the greenhouse. This greenhouse will add 80,000 kg of capacity to the market, or 12% of Canadian cannabis demand, thereby increasing the likelihood of an oversupply in 2020.
Bottom Line: Greece is emerging as the Colombia of Europe. A low-cost place to grow cannabis that can then be exported and sold for a big markup to the rest of Europe. Even U.S. growers are starting to buy licenses in the country. Greece and Israel are the two largest competitors to Canada at this stage in the evolution of the global cannabis market.
Bottom Line: With CBD now effectively legal in North America, consumer brands are going to rush to incorporate it into many new products. Demand and prices for hemp-grown CBD will be strong this year before farmers ramp up plantings and drive the price of CBD down longer term.
Bottom Line: Keep in mind this study was done by an alcohol industry trade group, but it confirms what marijuana analysts expected: beer sales decline after cannabis legalization. Interestingly, wine and liquor sales are still growing, even in states that fully legalized cannabis.
Bottom Line: The focus of marijuana lobbyists this year is on pushing the STATES ACT through congress, a bill to federally recognize each state’s right to legalize cannabis. This bill is the best hope the U.S. cannabis industry has at the moment of relaxing federal rules.
Weekly Marijuana Stock Performance
Positive sentiment continued to drive global marijuana stocks this week with the index up another 14%. U.S. operators performed in line with Canadian operators, both up 10%-11%. Stocks are still well off their October highs but this is another welcome positive week for cannabis investors.
Stocks are seeing a bounce back in the first quarter after selling off so heavily in November and December. Sentiment is so pessimistic it is hard to see stocks falling much further without additional negative earnings news or a global recession. A full buyout of a cannabis company by a consumer packaged goods company would be a strong positive catalyst for the entire industry.
From a fundamental perspective, be careful owning cannabis stocks into the next two-quarters of earnings. A supply shortage and a government monopoly do not bode well for licensed producers’ ability to meet or exceed earnings estimates.
Longer term, with the Canadian market legalized we expect retail and wholesale price compression from a legal oversupply by the second half of 2019. Falling cannabis prices will pressure producer stocks later in 2019. After a shakeout, the remaining stocks will be better positioned as long-term buying opportunities.