Bottom Line: Aurora Cannabis borrowed more secured debt than any other potstock to fund its breakneck growth. That was a mistake. With big writedowns on deck, $ACB is at risk of a technical default. Read on to see why the bottom is not yet in…
Bottom Line: Cannabis vape sales plunged 26% in the two months following the first public cases of vaping related lung disease. Vaping used to be the hot new trend so investors should watch ongoing sales numbers closely to make sure this category is still popular with consumers.
Another Cannabis Deal Bites the Dust as Harvest Puts the Brakes on Planned Acquisition of Falcon International
Bottom Line: Harvest is smart to get out of the deal to buy Falcon. The business environment for cannabis is looking challenged in California. It’s prudent for Harvest to revisit the state and buy someone for a discount down the road. The market is rewarding profits over growth right now anyway.
Bottom Line: With Cresco officially closing the purchase of Origin House, investors who bought Origin House on our recommendation would be up 30% since we published Nov 13th. Merger arbitrage is a risky game, but if you put in the work to understand the incentives of both sides, the strategy can pay dividends.
Bottom Line: The news media is talking about how successful Illinois’ rec rollout has been but Massachusetts did far better considering the state had only 2 dispensaries in the first week compared to 37 in Illinois. Illinois has twice the population of Massachusetts and should become an attractive cannabis market longer term in our view.
Bottom Line: An excellent report looking at CBD prices in the U.S. The first of its kind that we’ve seen, shedding some much-needed light on how your favorite CBD brand is priced vs peers.
Bottom Line: The Governor was more reserves about legalization in 2019 so maybe this is a sign a legalization bill has more support in 2020. If New York and New Jersey legalize the drug this year, an additional 9% of the U.S. population would have access to legal marijuana.
Bottom Line: Congressman Joe Kennedy III (D-MA) has agreed to co-sponsor a bill that seeks to federally legalize marijuana in the US. Kennedy has previously (and unsuccessfully) campaigned against legalization in his home state of Massachusetts. One by one politicians are coming around to Federal legalization. It will take time, but we think its possible countrywide legalization could arrive as early as 2021.
Bottom Line: Shortages of cannabis have continued in Israel as the government created high hurdles for legacy growers to participate in the medical market. Export limits also are making it hard for the Israeli cannabis industry to compete. This is good news for Canadian exports to Europe as they face less competition for the moment.
Bottom Line: New greenhouse projects continue even with an acute oversupply. 2020 will be the year of supply rationalization.
Bottom Line: South Dakota will vote on whether or not to legalize adult recreational use of marijuana when they go to the polls this November. It is unlikely that marijuana will be legalized on a federal level in the US but this referendum is a further signal of the changing attitudes towards marijuana in the US.
Bottom Line: The Thai government opened its first medical marijuana clinic in Bangkok, which is now one of 25 clinics in operation in the country. Thailand continues to lead Asia in relaxing cannabis restrictions.
Bottom Line: The Cincinnati Bengals had their worst record in the NFL ever after losing 14 out 16 games, and fans have submitted a petition to the State Board for “being a Bengals fan” to be included in the list of conditions that qualify to be treated by medical marijuana. Although this petition is unlikely to be approved, it raises some questions as to whether or not the state should expand the list of approved conditions which currently excludes anxiety and depression.
The cannabis sector was mixed this week. Globally, cannabis stocks were up 1.3% while in the U.S. the stocks traded relatively flat and were down only by 0.7%. The Canadian cannabis sector suffered the biggest losses, down 4.3% since last week.
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. This is reaffirmed by troubles we’ve seen brewing at major Canadian cannabis companies like Aurora and Canopy Growth. Since the end of September, U.S. stocks are down 20.8% while the Canadian LPs are down 37.0%. 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&P500 by 7.0% and the TSX by 6.9%.
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. Canadian 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.
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- Illinois Recreational Cannabis Sales Break $10m Barrier in 5 Days
- South Dakota Recreational Marijuana Referendum Qualifies for November Ballot
- Should Bengals Fans Qualify for Medical Marijuana?
- New York Governor Pledges to Legalize Marijuana in 2020
- Cannabis vape sales slid 26% in two months following health crisis
- Long-Time Cannabis Legalization Opponent in Congress Changes His Stance
- Cresco Labs Completes its Acquisition of Origin House
- Saskatchewan First Nation Planning Major Cannabis Cultivation Facility
- Another Cannabis Deal Bites the Dust as Harvest Puts the Brakes on Planned Acquisition of Falcon International
- Is Aurora Cannabis Headed for a Technical Bankruptcy?