Bottom Line: Just like other cannabis legislation, states are taking matters into their own hands in the face of inaction by the federal government. This bill would be a big deal and could go a long way in increasing the California cannabis industry’s access to cash for growth.
Bottom Line: This pilot program is another domino to fall in the Federal government’s restriction on cannabis banking. We have no doubt Square will eventually open up CBD payment processing to all, leading to even faster growth in sales of CBD products.
Bottom Line: The reason China wins in most industries is because domestic companies are funded by almost unlimited and cheap government loans, allowing them to undercut competitors on prices for long periods of time. This article says the government is now investing in Hemp cultivation and CBD extraction, meaning cheap Chinese CBD could be destined for North American and European markets very soon.
Bottom Line: The CEO of Novartis said cannabis is not a “focus area” even though he has an ongoing partnership with Tilray to supply the generic drug business of Novartis. The lack of deal flow since Cronos accepted an investment from Altria may signal consumer packaged goods companies are watching and waiting to see how edibles regulations in Canada and federal regulation in the U.S. evolve before splashing out any more cash.
Bottom Line: Aphria and Aurora were the big winners in Germany, winning 5 lots each of 13 total. A Wayland group JV won the remaining 3. The volumes for each lot are small but these three companies now have a headstart on all other cannabis firms to build brand awareness among German consumers. Demand in Germany is only about 3,000 kg a year but is growing rapidly.
Bottom Line: The chairman of the Senate Banking Committee, Mike Crapo (R), said he would not consider cannabis banking laws, however, the measure is supported by all 50 state banking associations and the National Association of Attorney’s General. It’s still unclear which side will prevail in 2019, but it is likely some form of banking legislation passes before this session of Congress ends Jan. 3, 2021.
Bottom Line: According to the article, an acre of hemp yields about $90,000 of CBD. This is 10x-350x more money than any other crop. What this tells us is farmers are going to rush into the hemp business leading to a glut of CBD and rapidly falling wholesale CBD prices which currently sit at more than $6,000 per kg.
Bottom Line: Israel’s medical cannabis rules are now similar to those in Canada. Israel looks to be relaxing cannabis rules at the third fastest pace behind only Canada and the United States.
Trade war fears hit cannabis stocks this week, dragging the index down 2.6%. U.S. stocks declined only 0.2% while Canadian stocks were down 1.2%. We still expect U.S. stocks to outperform this year with better regulatory catalysts and growth prospects. MSOs are up 31% year to date while Canadian growers are up 47%, 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 1.5% each.
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.
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