Report Shows its Buyer Beware in the CBD Market

Bottom Line: A new independent test of online CBD products shows us its still the wild wild west in CBD land. 50% of products wildly mislabeled with one missing CBD entirely. The industry is failing on gaining the trust of consumers and reports like this certainly don’t help.

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U.S. Banking System Now Open to Hemp Businesses

Bottom Line: There doesn’t look to be any more hurdles to a normal banking relationship for most hemp businesses. Full access to the financial system is crucial and will allow this exploding industry to continue its rapid pace of growth.

Source: Tom Sydow

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Will Potstocks Frenzy Land on Europe’s Shore in 2020?

Bottom Line: We know the pot stock frenzy we witnessed in North America will happen again in Europe, the question is when. Investment bank Bryan Garnier thinks capital markets activity will show signs of life in 2020. We feel like regulations in Europe are at a similar stage to where Canada was in 2014. If we see many new cannabis companies going public in Europe it could be a sign capital flows are starting to pick up with stock performance to follow. marijuana - mj law 2

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Aphria Building a Gold Plated Balance Sheet with $80m Financing

Bottom Line: Cash is king and after Monday’s C$80M raise Aphria has more than most. It would have seemed impossible 12 months ago, but this company could likely be the new industry bellwether. Here is why the outperformance is set to continue…

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Unique Analysis on the Florida Marijuana Market

Bottom Line: Some interesting analysis on the market share of license holders in one of the largest medical marijuana markets. Surprisingly store count may not be the best predictor of market share after all.

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Why is Florida Operator Liberty Health Sciences Doing So Well?

Bottom Line: Exploring the possible drivers behind an 80% stock price increase in two months.

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The Cannabis 2.0 Rollout Will Take Time

Bottom Line: Even though edibles and vapes were legalized on October 17th, no products should hit shelves until the second week of January at the earliest. Both Canopy Growth and the province of Alberta confirmed the staggered timeline. Cannabis / Marijuana products / Edibles - mj

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Brazil Setting up to be The Second Largest Import Market Behind Germany

Bottom Line: Brazil’s draft cannabis rules are great news for Canadian and European LP’s. No domestic cultivation means the country will need to import from other countries. The rollout will be slow however, with strict rules on prescribing that won’t be reviewed for 3 years. Brazil has 2.5x the population of Germany and could become a massive market for cannabis. Canopy Growth should be a leader in Brazil with its LATAM subsidiary run by someone with deep ties to the business elite of Brazil.

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State of the Jamaican Cannabis Market

Bottom Line: A great overview of the current licensing situation in Jamaica including why not one license-holder has been able to open a bank account. Read more»

Major Democratic Candidate Flips to Supporting Cannabis Decriminalization 

Bottom Line: We think it’s clearer than ever cannabis decriminalization is a given if a democratic candidate is elected. Demonstrating the political clout the cannabis lobby now holds, Bloomberg was forced to completely flip his stance on cannabis only two weeks after announcing a run for president. 

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Weekly Marijuana Stock Performance

The cannabis sector was down this week, falling by 6.2%.  U.S. names underperformed Canadian peers falling by 10% vs 4% for the Canadian index. Even with the big fall for U.S. names they now are underperforming by only 3% year to date.

We’ve been watching the performance of the U.S. and Canadian stocks closely and U.S. stocks are definitely where you want to be invested. Since the end of September, U.S. stocks are down 21% while the Canadian LPs are down 34%. 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.

The overall marijuana index underperformed the S&P by 6.3% and the TSX by 5.9% this week but has underperformed by 64% and 58% YTD.

Source: New Cannabis Ventures

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.

Price compression has arrived and will drive cannabis stocks lower over the next 6-12 months in our view without a new regulatory catalyst. Canada cannabis investors should not be putting more money into the sector until retail prices find a bottom.

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 LP’s in 2020, there may still be downside in the sector

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