Grizzle Explains the Vape Crisis – Winners, Losers and Whats Next

Bottom Line: A thorough report looking at the potential cause of vaping illnesses, how the news flow will impact sales and consumer behavior not to mention who we think are the stock market winners and losers.

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MedMen Terminates PharmaCann Deal

Bottom Line: The risk that recent all-stock deals don’t go through just rose with this announcement by MedMen. Harvest-Verano, Cresco-Origin House and Curaleaf-Select come to mind. Read more»

Number of Banks Accepting Cannabis Business at all Time High

Bottom Line: The number of U.S. banks willing to work with the cannabis industry is spiking in 2019 hitting 550 in June from 350 a year ago. Close to 10% of commercial banks now service cannabis businesses, however the industry needs much more than just a business banking account. Large scale bank lending will be extremely positive for the U.S. Cannabis industry in our view.

Source: FinCen

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The Hemp is Coming the Hemp is Coming!

Bottom Line: The U.S. hemp harvest will be 285,000 acres this year, up from 78,000 in 2018. Canadian farmers are already losing business to the U.S. with planted acres down 50%. Do you know why farmers love hemp? Because an acre of hemp is worth $45,000 at current prices compared to an acre of wheat that would fetch only $235. This much hemp will exceed 2019 demand by 20 to 90 times!

Source: Charlotte’s Web

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An Update on U.S. Consumption Trends

Bottom Line: If you are curious how popular edibles, vapes, drinks and topicals will be in Canada, the U.S. consumption trends are a great place to start. This article has lots of good charts and data.

Source Cannabis Intelligence Briefing

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First Cannabis Drinks More Sparkling Water than Beer

Bottom Line: Judging by the product formats the AB Inbev/Tilray JV is looking to roll out, consumers have indicated they prefer sparkling cannabis beverages over cannabis beer. THC nanoemulsions are turning out to be more complicated than CBD which could impact the timeline or initial product rollout for cannabis 2.0 beverages in Canada.

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Cannabis Sales in Germany Running at $135mm a Year

Bottom Line: Medical cannabis sales in Germany are growing at 70% a year and if this pace continues sales will be at least $135 million in 2019. This compares to $1.2 billion of annual sales in Canada based on the July run-rate and $12 billion of sales in the U.S expected in 2019. Canada has a 30% market share of sales in Germany so far in 2019.

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Surprisingly, Mexico May Legalize Recreational Marijuana This Month

Bottom Line: The law would legalize recreational use and the ability to grow cannabis in private, but the country will still be far away from creating a regulated system of growers and retailers. As we’ve seen in other countries, cannabis can be legal for years before consumers can actually buy it. Marijuana - Mexico

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Weekly Marijuana Stock Performance

The cannabis sector had its worst week in more than two years this week, falling 11.7%. The U.S. MSOs outperformed Canadian names slightly, down 10.3% compared to the LP’s down 13.9%.

The global cannabis index is now down 25% for the year, while the U.S. stocks are down 39%. U.S. stocks have outperformed Canadian stocks in three out of the last three weeks. We think U.S. stocks will outperform Canada going forward as there are better growth prospects down south and more catalysts to look forward to.

A catalyst to watch is a UN meeting in March 2020 to potentially deschedule cannabis as a schedule 1 drug. If this goes through with America’s blessing it could set the wheels in motion for federal legalization sooner than later. The recent vaping crisis will also turn out to be positive for the legal industry as it will scare consumers away from black market vaping products.

The overall marijuana index underperformed the S&P and TSX by 12.3% and 11.5% this week and has underperformed by 43% and 39% YTD.

Market Outlook

There are now question marks whether increased sales from cannabis 2.0 products will lift the stocks. Capital markets are largely shut to cannabis companies right now which is a problem when the business models are build on rapid expansion and big deficits.

We think a bounce-back could happen leading to December when new products arrive, but price compression will be a headwind pulling stocks lower without a brand new catalyst.

U.S. stocks will continue to outperform Canadian LP’s from here in our view with more catalysts potentially on the horizon.

Canadian LPs are still stuck in a legal market growing slower than investors expected, making it hard to show the revenue growth embedded in their trading multiples. LPs are showing slow 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.

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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.