Bruce Linton Out at Canopy Growth

Bottom Line: With Linton’s track record of overpaying for assets that support the promotional story he wanted to tell, we expect the new management team will be quick to write off legacy assets to make sure they have a low bar to jump over to please investors going forward.

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CannTrust Cuts Outdoor Yield Forecast for 2019

Bottom Line: We expect other producers with outdoor licenses will also fail to grow the amount of cannabis they originally planned for. Next year capacity from outdoor grows should be substantial and will likely hurt the profitability and demand for large scale, but low-quality, greenhouse-grown cannabis.

commercial scale marijuana outdoor grows

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Oklahoma Medical Cannabis Market is Killing It

Bottom Line: One year into medical legalization, Oklahoma already has more medical patients as a percentage of the population than Canada has today. The lack of a medical condition qualifier to gain access to the market is driving extremely fast growth. Oklahoma is looking like one of the most attractive medical cannabis states in America.

Source: Wikipedia

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Lawsuit Filed by Scientists Against the DEA

Bottom Line: If this lawsuit leads to faster cultivation approvals for cannabis research it will definitely speed up the pace of research. More research to support the medical use of cannabis could speed up national legalization and the pace of patent approvals for cannabis-based medicine.

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47% of People in the UK Support Cannabis Legalization 

Bottom Line: This level of support for legalization is in line with where the U.S. was in 2009. 66% of Americans in contrast now support nationwide legalization showing us the UK still has a ways to go before we see rapid change in cannabis laws. In the past year, UK support for cannabis increased from 43% to 47% while those against decreased from 41% to 30%, showing progress.

Source: London Evening Standard

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Weekly Marijuana Stock Performance

Global pot stocks broke a two-week streak of positive performance this week, falling 2%. The departure of Canopy Growth CEO Bruce Linton had a negative effect on sentiment in the space.

From the peak in March, cannabis stocks are down 22%, but still 25% above the lows in December 2018. U.S. stocks fell in line with Canadian peers, falling 2%. We expect U.S. stocks to outperform Canadian names the rest of the year with better regulatory catalysts and growth prospects. MSOs are up 11% year to date while Canadian growers are up 25%, but this trend should reverse as we move through the year.

The overall marijuana index underperformed the S&P and TSX by 3.7% and 3.0% 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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