Bottom Line: Extraction stocks have been the darlings of the cannabis sector in 2019. Grizzle has put together the most comprehensive guide available, laying out the opportunities and the risks facing the extraction business in 2019 and beyond.
Bottom Line: The most interesting piece of info in this article is that 191 applications are in the queue with Health Canada to grow outside. Outdoor cannabis is coming whether greenhouse owners like it or not.
Bottom Line: CEOs are betting they will be bought out before they have to figure out how to operate unwieldy multi-state enterprises, according to Forbes.
Bottom Line: The Dräger DrugTest 5000 is turning out to be an unreliable test for marijuana impairment. The most concerning part of this story is the machine’s inability to tell the difference between THC and CBD.
Bottom Line: A great report on some of the changes that could happen to Canadian cannabis regulations if the conservatives make it into power.
Bottom Line: Cannabis beverages are coming this fall and nanoemulsions will be a key technological component. The drinks need to taste good and work quickly or else sales will fall flat just like they have in legal states on the U.S. west coast.
Bottom Line: They claim the change is because 70% of applicants who were initially approved haven’t yet applied for final licensing, wasting government resources. Industry people claim Health Canada is to blame for the application delays. Regardless, this increases the barriers to entry and costs for anyone hoping to start a cannabis business.
Bottom Line: Any business China enters sees price deflation and we doubt CBD will be any different. Chinese firms are already purchasing U.S. and Canadian assets to help them import and sell Chinese-grown CBD.
Bottom Line: It will likely take longer for this bill legalizing cannabis banking to make it into law than activists currently expect. Even if the bill makes it through the House it still has to navigate a Republican-run Senate whose majority leader Mitch McConnell is firmly anti-cannabis. The bill could easily be pushed into 2020.
Weekly Marijuana Stock Performance
The euphoria from the Canopy/Acreage deal has been short-lived with cannabis stocks declining another 2.6% this week, giving up all the gains since the merger was announced. U.S. stocks declined 3.7%, underperforming the big 4 Canadian LPs by 2.8%. We still expect U.S. stocks to outperform this year with better regulatory catalysts and growth prospects. MSOs are up 36% year to date while Canadian growers are up 48%, but this trend should reverse as we move through the year.
The overall marijuana index was down 2.6% this week, underperforming the S&P and the TSX by almost 0.4% and 1.4% respectively.
Stocks were up big in the first quarter after a terrible end to 2018. Stocks will remain choppy 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.
We remain cautious on Canadian LPs due to distribution bottlenecks, slow legal demand growth, and a government monopoly that all do not bode well for licensed producers’ ability to meet or exceed lofty earnings and revenue estimates over the next 9 months. Revenue growth could disappoint expectations starting this quarter.
Longer term, with the Canadian market legalized, we expect retail and wholesale price compression from a legal oversupply by the second half of 2019. Falling cannabis prices will pressure producer stocks later in 2019. After a shakeout, the remaining stocks will be better positioned as long-term buying opportunities.