Is MedMen Effectively Bankrupt?
Bottom Line: With a balance sheet that looks like MedMen ran out of cash in August, investors need to be asking themselves, is MedMen effectively bankrupt?
We went digging and discovered the truth. It’s not pretty….
Cresco Repricing of Select has Implications for All Pending Cannabis Mergers
Bottom Line: We think the terms of this deal are now a benchmark other companies will be looking at closely as they decide if deals signed earlier in 2019 will go through and at what price. 
Why Green Growth Brands May Not Survive Through May
Bottom Line: Similar to the precarious situation MedMen finds itself in, Green Growth has borrowed too much and is struggling to find the cash to pay back loans coming due Nov. 15 and May 17. We lay out the challenges ahead and why the stock is worth 75% less than where it trades today, at best.
Juul is Giving Vape Companies a Bad Name
Bottom Line: When the largest vape manufacturer in North America is allegedly willing to ship tainted products to consumers, should the industry be surprised customer trust is low. The industry has an image problem that needs fixing if it wants to see continued growth in higher margin cannabis oils.
Regulations Rarely Change Consumer Behaviour
Bottom Line: This article is a great example of how fluid consumer demand is. Regulations fail time and time again to change consumer’s behaviour (think prohibition). In the case of the black market, only free market forces will convert the majority of consumers to legal buyers. 
Mexicans Will Have to Wait a Bit Longer for Legalization
Bottom Line: Conflicting business and religious interests have pushed off the expected vote to legalize recreational cannabis in Mexico a bit longer. These delays are typical of what we will see in Europe and elsewhere as cannabis legalization marches forward.
AgraFlora Now a Major Supplier to Germany
Bottom Line: AgraFlora’s purchase of German distributor Farmako now make it a top 5 supplier to the German market. With the Canadian market oversupplied, having a distribution channel outside Canada is going to be crucial in 2020. The other major Canadian distributors are Aphria, Aurora, and Canopy Growth.
Source: AgraFlora
U.S. Public Opinion of Cannabis Legalization is at a Tipping Point
Bottom Line: Slightly less than 50% of Republicans support cannabis legalization. Once a majority of Republican voters join the rest of the country in supporting legalization we will see opposition to legalization in the Senate fall away. We still think legalization is likely in the first year of the next Presidential term (2021).
Source: Gallup
Aphria Receives Long Sought Cultivation License for Double Diamond Facility
Bottom Line: The Canadian cannabis market is about to get interesting. Aphria can now legally grow 255,000 kg a year at a cost below $2/gram all in putting it in the bottom 50% of cost structures across the industry. Growing costs are all important when judging potential profitability in the near term as wholesale prices adjust to compete with the black market.
Production Cost per Gram (as of October)
Source: SEDAR, Grizzle Estimates
Weekly Marijuana Stock Performance
The cannabis sector gave back gains from the last few weeks falling by 6.7%. The U.S. MSOs outperformed Canadian names again, falling 4.5% compared to the LPs down 6.1%.
We’ve been watching the performance of the U.S. and Canadian stocks closely and U.S. stocks are definitely beginning to outperform their Canadian peers. Since the end of September, U.S. stocks are down 6.1% while the Canadian LPs are down 18%. Investors should begin building a long-term position in a basket of the top five U.S. operators.
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. The recent vaping crisis will also turn out to be positive for the legal industry as it will scare consumers away from black market vaping products.
The overall marijuana index underperformed the S&P and TSX by 8% and 7.8% this week and has underperformed by 49% and 43% YTD.
Source: New Cannabis Ventures
Market Outlook
There are now question marks 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.
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.
United States
- Curaleaf Picks Up New Nevada Assets from Acres Cannabis
- Cresco Labs Moving Ahead with Tryke Acquisition
- Green Growth Brands is on the Ropes – Will it Survive?
- Pennsylvania Voters Favor Recreational Marijuana Legalization
- Wisconsin Lawmakers Make Renewed Marijuana Decriminalization Push
- Michigan Cuts Medical Marijuana Card Costs
- Why the Curaleaf Repricing of Select has Implications for all Pending Cannabis Mergers
- Green Growth Posts $64 Million Fiscal year Loss
- USDA Unveils Draft Framework for Hemp Production
- Is MedMen Effectively Bankrupt?
- Kraft Heinz Invests in Cannabis Sector
- More Americans Google CBD Than Exercise and Veganism
Canada
- Medipharm Granted Cannabis Research License for Sensory Evaluation
- Emerald Health Therapeutics Trims Workforce by 33%
- Hexo Posts $56 Million Loss, Cutting Cultivation Space
- Hexo Granted New Licenses, Culls 200 Employees
International
- London Mayor Urges Rethink of Cannabis Laws
- Jamaica Aims to Become Cannabis Tourism Hotspot
- Australian Capital Territory Accused of Breaching UN Treaty Statutes
About Author
The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Grizzle hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.