Bottom Line: Grizzle economist Chris Wood thinks there is a good chance markets rebound into year-end driven by post-mid-term election strength and positive momentum on trade negotiations between the US and China.
A rebound in the stock market will likely carry cannabis stocks up with it so investors should be ready to put money to work as soon as they see a few days in a row of sustained cannabis stock increases.
Bottom Line: Luckily for Canopy, this was largely a meaningless quarter, because if they put up results like this in 2019 we would be worried for Constellation Brands and for all stockholders. Investors should look through this earnings release and focus on the next six months which will determine if Canopy will remain a stock market darling or become an industry laggard.
Bottom Line: Tilray may have a well-respected management team, top-notch research pipeline and solid brands, but the stock price is too high for the company to ever grow into over the next 3-5 years. Why pay 340x sales when you can own companies with three times the funded capacity, thousands of medical clients, lower costs and faster growth for 1/10th the price.
Bottom Line: Aurora looks to be leading when it comes to meeting supply agreements and distributing products, though we will have to see what the other large producers say on their earnings calls to be sure. With so many large cannabis operators trading for much cheaper, including US names, we would recommend investors put their money into cheaper producers until Aurora can prove they are worth the premium price through class-leading profitability or flawless execution.
Bottom Line: A delay in greenhouse tenders in Germany is actually a good thing for Canadian producers. A world where Germany drags its feet on cultivation but allows imports to explode is the best case scenario for Canadian growers. Wholesale cannabis sells for $13/gram in Germany compared to only $4-$5 per gram in Canada.
Weekly Marijuana Stock Performance
Global marijuana stocks were down another 7% this week with large cap stocks underperforming small caps. U.S. operators were down 6% while Canadian operators were down 8%. Canadian LPs are now down 32% from the recent peak two days before full legalization in Canada.
The Canopy Constellation deal gave the market some new momentum, though this has largely dissipated in the last month. Stocks should languish through year-end unless another consumer goods company buys into the space. If this happens stocks may be off to the races again.
From a fundamental perspective, until we have 1 to 3 months of data from the legal market in Canada, stocks may struggle to find a direction and will continue to be volatile.
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.