Bottom Line: A US stock listing has proven to be a hugely positive catalyst for cannabis stocks. Based on historical precedent, our preferred basket of four cannabis stocks have 200%-400% upside if they end up listing in America.
Bottom Line: There is a huge valuation discount between Aphria and US-listed peers. With a US stock exchange listing imminent we recommend investors make Aphria a core part of their portfolio.
Bottom Line: Demand for flower in Colorado looks to have reached a peak with volumes flat so far in 2018 compared to 2017.
Marijuana sales in Colorado are only on pace to be up 2.6% this year as a whole even though edible and oil sales are up 14% and 95% respectively. This tells us prices are falling at about the same pace that volumes are growing.
Bottom Line: Companies are racing to learn how to grow THC and CBD, the two most popular active cannabis compounds, in a lab. Lab-grown THC and CBD are much less costly than growing plants from scratch and could eventually make the cultivation of the cannabis plant obsolete on a commercial level.
Global marijuana stocks sold off this week in a classic case of selling the news. Even though cannabis was legalized in Canada, most of that hype is already built into stocks and some investors decided to realize their gains. The global index declined 5% while Canadian stocks were down 9%. Large-cap, mid-cap and small-cap stocks all decreased about 7%.
There remains a significant M&A premium built into most of the large-cap stocks as investors expect large corporations to enter the market through licensed producer buyouts. If these deals don’t occur in the next few months, stocks could give back some of their recent gains.
The Canopy Constellation deal gave the market some new momentum starting in August which should carry stocks higher at least through the end of the year. Until we have 1 to 3 months of data from the legal market in Canada, investor enthusiasm should continue to push cannabis stocks higher.
Once the Canadian market opens 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.
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