CannTrust Looking Like a Zero After Crossing Health Canada

Bottom Line: CannTrust will likely follow Bonify, another producer caught breaking the law, into obscurity. We estimate CannTrust’s net assets are worth only $0.64/sh excluding cash they may lose in lawsuits. The bottom is not yet in.

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Canada Will Have A Limited Edibles Menu Come December

Bottom Line: Canada producers are rolling out a limited menu of edibles. This may be prudent from a capital spending point of view but it ensures revenue growth from edibles will be slower than if many different products were available on day 1. Slow and steady seems to be the playbook for legal cannabis in Canada. Cannabis / Marijuana products / Edibles - mj

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Black Market Prices Half of Legal and Falling

Bottom Line: The latest Health Canada survey shows black market cannabis is 44% cheaper than legal options, a bigger discount than six months ago. Only 40% of Canadians surveyed by Health Canada said they would pay $4 extra for legal cannabis, not a good look for legal conversion.

Source: Health Canada

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Cannabinoid “CBG” Could be the Next Big Thing 

Bottom Line: Anecdotal use by consumers has shown CBG may work even better than CBD for treating anxiety and chronic pain. The cannabinoid has shown antidepressant qualities as well as relaxing muscles. The CBG rush could follow the CBD rush once more human research is released.

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A Novel New Use for CBD

Bottom Line: Pure Green, a Michigan marijuana company, developed a pure CBD pill to help consumers recover from being too high. This is a novel new product, it dissolves under the tongue and starts to work in 5 minutes. 

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A Solid Report on the State of the Cannabis Market in Uruguay

Bottom Line: Uruguay looks to be moving ahead slowly considering cannabis is technically legal for recreational consumption in the country. Tourists can’t buy cannabis and only 16 of 1,000 pharmacies sell the drug, and only in cash. Like Colombia, South American demand is growing much more slowly than in parts of Europe and the U.S.  Read more»

Weekly Marijuana Stock Performance

It was a bloodbath for cannabis stocks this week. The index was down 9% driven by revelations that CannTrust, a billion-dollar producer, was breaking the law. Even bellwether Canopy Growth ended the week down 14%. Canadian stocks were down 8.3%, outperforming U.S. peers who were down 10.5%. We are still waiting for U.S. MSOs to begin outperforming their Canadian peers. Legislative change in Congress could be the catalyst.

From the peak in March, cannabis stocks are down 27%, but still 25% above the lows in December 2018. We expect U.S. stocks to outperform Canadian names the rest of the year with better regulatory catalysts and growth prospects. MSOs are now flat for the year while Canadian growers are up 14%, but this trend should reverse as we move through the rest of the year.

The overall marijuana index underperformed the S&P and TSX by 9.8% and 8.7% respectively.

Source: New Cannabis Ventures

Market Outlook

Stocks will remain seasonally weak as we go into the fall, but U.S. stocks have the benefit of some big regulatory catalysts potentially on the horizon this year.

Canadian LPs are still stuck in a stagnating legal market, making it hard to show the revenue growth investors are expecting. LPs are showing zero 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.

Longer-term, with the Canadian market legalized, we expect retail and wholesale price compression from a legal oversupply by the end of 2019. Falling cannabis prices will pressure producer stocks later in 2019 or early 2020. After a shakeout, the remaining stocks will be better positioned as long-term buying opportunities.

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