Bottom Line: Grizzle thinks Aphria is worth $40/sh today based the current asset profile and product mix. Longer term there is upside to $200/sh if Aphria can take 1% market share of the seven markets we think are ripe for cannabis disruption. A catalyst to realize the $40 will be profitable earnings growth in 2019.
Bottom Line: According to last week’s deal-tracker from New York-based Viridian Capital Advisors, nearly US$5 billion of US$7.6 billion of the cannabis-related capital that has been raised this year has flowed towards cultivation and retail plays. However according to ratings agency DBRS capital raising may shift focus to the cannabis distribution chain,
Bottom Line: Occasional users prefer products low in THC, opening up a big profit opportunity for cannabis companies. Occasional consumers are less price sensitive than heavy users and will likely buy higher margin products as long as the marketing and branding are done correctly.
Bottom Line: The president of BlackRock, Robert Kapito, said that some US custodians won’t clear cannabis stock trades because of the drug’s questionable legal status on the federal level. Many other asset managers are probably out of the market for the same reason.
When medical or recreational marijuana is legalized at the federal level, we should see a flood of new money entering pot stocks. Buying the stocks now will allow you to get ahead of the institutional crowd.
Bottom Line: Britain may have legalized medical cannabis prescriptions this week but doctors are still very hesitant to prescribe, meaning growth will be slower than the headlines would make you think. This still is a dramatic change in policy in such a short period of time.
Global marijuana stocks were flat this week, stemming the 26% decline for the index that started on October 16th. US midterms are the next potential catalyst to look forward to next week. Other than midterms another catalyst could be positive news on how producers are alleviating the current cannabis supply shortage.
The Canopy Constellation deal gave the market some new momentum, though this has largely dissipated in the last three weeks. 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, investor enthusiasm could continue to push cannabis stocks higher.
With the Canadian market legalized we expect retail and wholesale price compression from a legal oversupply by the middle of 2019. Falling cannabis prices will pressure producer stocks in 2019.
The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Grizzle hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.