Bottom Line: When the CFO of Pepsi said the company is not looking at the cannabis industry, the stock tanked by 1.8%. The same day the CFO went on CNBC to walk back his comments and said the company is looking at the cannabis industry critically.
Any consumer goods company that isn’t looking to enter the cannabis industry looks flat-footed to investors and is putting their stock price at risk. The revenue potential of cannabis is intoxicating to companies with stagnating sales. We expect many more corporate tie-ups and even a buy-out or two within the next 12 months in cannabis. Our favourite targets are Aphria and Canntrust.
Bottom Line: Every big cannabis producer is actively talking with potential partners in the beverage, cosmetics, and food industries. We think most LPs will sign some sort of deal in the months to come, but the structure of deals, whether equity investment or joint ventures, will depend on the attractiveness of the LP to an outside partner.
Bottom Line: All U.S. listed Canadian LPs trade at a premium to Canadian names, making a U.S. listing well worth the effort. Aurora should see a bounce in its stock as investors from America diversify their portfolios away from Tilray, Cronos and Canopy.
Bottom Line: Makers of edibles were blindsided by this regulation change. Licensed producers in Canada will have to be prepared to comply with any edibles restriction introduced by the government before they are legalized in October of 2019. Hopefully Canada can learn from Washington’s mistake and ensure a smoother rollout of infused products.
Bottom Line: According to a report on the FDA and DEA’s decision to maintain CBD as a schedule 1 controlled substance, it looks more likely only a full decriminalization of cannabis at the national level will make CBD from cannabis legal.
Due to America’s obligations under international drug treaties a full-scale rethinking of America’s drug laws will be needed for any part of the cannabis plant to make it off the controlled substances list. Grizzle thinks legalization could happen by 2020 in America.
Global marijuana stocks were down for a second week and it seems pre-legalization euphoria is dissipating. News this week that distribution hiccups may affect legal supply on October 17 did not help the cannabis stocks. The global group as a whole was down 3% this week with Canada names down 5%. The Canadian group as a whole is still up 63% since the Constellation investment in Canopy Growth was announced last month.
There is 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 retrace recent highs.
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. Falling cannabis prices will pressure producer stocks in the second half of 2019.
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