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Cannabis news briefs: Marijuana stock investors spooked as industry plummets 25 percent

By Rick Schettino
Oct 29, 2018

After a six-month bull run, NASDAQ saw its worst October in ten years. Cannabis stocks fell by as much as 25 percent over the past week. Especially hit were cannabis growth leaders Canopy Growth Corporation (TSX:WEED) (NYSE:CGC) and Tilray (NASDAQ:TLRY), whose July IPO blew up to a $14 billion market cap overnight. All sectors in marijuana shares fell, as did the two largest ETFs. Analysts at Motley Fool suggested that marijuana stocks are tanking due to valuations being far ahead of any real sales. Canopy is estimated to be trading at 120 times projected earnings.

Although Canadian consumers faced flower shortages just days into legalization, another concern is that wholesale marijuana prices would continue to fall as marijuana becomes more of a commodity.  

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The Fool also expressed concern over dilutions with companies like Aurora Cannabis (TSX:ACB) issuing so many shares for acquisitions and "bought-deal financings" that the company has now issued more than one-billion shares.

Another concern is the delay in obtaining high-margin products on shelves with no concentrates, edibles for sale until 2019, as well as the realization that the black and gray markets continue to grow, despite legalization goals.  

Few new major equity deals have been announced in Canada since Constellation Brands and Molson Coors announcements this summer, and the market may be seeing fewer entrants until the current sell-off settles.

The largest U.S. cannabis-exchange-traded fund — the ETFMG Alternative Harvest ETF (NASDAQ: MJ) — fell more than 9 percent on higher-than-usual volume on Monday. The $750 million fund lost one-fifth of its value last week. The Toronto-listed Horizons Marijuana Life Sciences ETF, with CAD$977 million ($746 million) in assets, fell a record 12 percent to the lowest level since August.  

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Another New York analyst Nigam Ar, looking at the broad array of key marijuana stocks, broke down the money flows that appear to be impacting each stock:

  • Smart money flows are only mildly negative in Aurora Cannabis, -0.28 percent and Canopy Growth, -0.03 percent.

  • Smart money flows are extremely negative in Tilray, +1.56 percent and marijuana ETF MJ, +0.38 percent

  • Smart money flows are negative in Aphria (APHQF), -7.20 percent, Cronos (CRON), -0.39 percent, Neptune (NEPT), +1.64 percent and New Age Beverages (NBEV), +0.22 percent.

  • In marijuana-related stocks, smart money flows are negative for GW Pharmaceuticals (GWPH), -4.91 percent, Scotts Miracle-Gro (SMG), -1.46 percent and Constellation Brands (STZ), -0.01 percent.

  • Smart money flows are neutral in Green Organic Dutchman Holdings (TGODF), -7.77 percent.

Deadline nears for FDA comments concerning CBD

Incumbent CBD makers, although they are expecting demand to accelerate with the likely passage of the 2018 Farm Bill, are also facing the entry of major non-cannabis corporate giants over the next two or three years. Speaking at the 5th CBOutlook, October 16 at the University of Denver, three CEO's all agreed that the advent of increased government oversight would be a 2019 reality, even as the large numbers of "white label" providers continues to shrink.

Dr. Stuart Titus, CEO of MJNA/Hemp Meds; Tim Gordon, CEO of Functional Remedies; and Chase Terwilliger, CEO of CBDistillery expect tobacco, liquor and pharmaceutical giants to continue to plan their own entry into the CBD industry, either through acquisitions or new startups. The trio of company leaders remains confident that consumers will be favorably attracted to hemp-derived CBD, even as the options from GW Pharma's Epidiolex grow. With Farm Bill passage, oversight by the DEA will end and hemp will be taken up as a commodity by the Department of Agriculture.

[Marijuana stocks weekend investor roundup: Analysis of the week's most important events in the cannabis industry (October 26)]

"Americans are more informed about cannabis than ever before," noted MPP executive director Steve Hawkins, commenting on a new Gallup poll reporting another increase in general citizen support for legalization, now at 64 percent generally, and even up to 53 percent of Republicans.  Hawkins added consumers "can now see that regulation is a viable and effective alternative to prohibition."

The FDA set October 31 as the deadline for collecting consumer opinions around CBD safety and potential global expansion. The request for comments is specific to whether changes ought to be recommended regarding the international classification of cannabis as a controlled substance.

Members of the public have until October 31 to submit their comments to the FDA for consideration. The FDA says that the comments “will be considered in preparing a response from the United States to the World Health Organization regarding the abuse liability and diversion” of marijuana and certain other substances.     

The World Health Organizations’ Expert Committee on Drug Dependence determined that CBD does have medicinal benefits. The agency also said that CBD should not be grouped into the same category as THC and other intoxicating substances that are subject to international drug control conventions.

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The United Nations said, “CBD has been found to be generally well tolerated with a good safety profile. There is no evidence that CBD as a substance is liable to similar abuse and similar ill-effects as substances… such as cannabis or THC, respectively. The Committee recommended that preparations considered to be pure CBD should not be scheduled.”  

Please submit your FDA comments here: https://www.regulations.gov/document?D=FDA_FRDOC_0001-8787

Cannabis news state-by-state

New Jersey, a state which currently has a working and growing medical marijuana program, has been inching toward recreational marijuana legalization and a regulated and taxed market for months. However, the goalposts keep moving as proponents wrangle with holdouts in the New Jersey House. A planned vote at the end of October now looks unlikely according to top Democrats who are now calling on Gov. Phil Murphy for reinforcement in gaining the votes needed to pass the measure. Read more here.

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The number of medical marijuana cardholders in Nevada has plummeted to an estimated 16,000 from a high of 28,000. At a recent town hall meeting, Senator Tick Segerblom and Nevada Dispensary Association director Riana Durrett expressed concerns about the decline and suggested removing all medical marijuana sales taxes. July sales in Nevada surpassed $41 million for recreational, with another $7.4 million for medical. Steve Sisolak, a hopeful to become the next governor of Nevada, hosted the wide-ranging town hall meeting on October 22 where he expressed his full support for the industry. Sisolak’s GOP opponent Adam Laxalt (currently Nevada’s Attorney General) is apparently not quite as enthusiastic.

[What should cannabis investors do when Tilray’s lock up expires in January?]

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San Diego City Council members are drafting new rules to further restrict the placement of marijuana ads on billboards and to also criminalize advertising for delivery services through sites like WEEDMAPS.

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Some have heralded a Utah compromise aimed at bringing medical marijuana to that state by year's end, however, Americans for Safe Access has given the agreement an "F." The group cited plans to create a central Utah agency for distribution of marijuana. "We are not comfortable with the compromise bill as written. The compromise legislation creates serious issues of accessibility and functionality for patients, particularly when considering the framework of a state central pharmacy,” said David Mangone, Esq., Director of Government Affairs for ASA.

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It's not easy being the most pro-cannabis lawmaker in a strong anti-marijuana state such as Indiana. But Republican State Representative Jim Lucas testified last week that "this conversation is going to continue moving forward... I'm going to make it my mission." Lucas said he ventured to Colorado, and there he consumed a large amount of cannabis, seeking to find out if there was a negative reaction. Instead, Lucas reported, "it was the best night sleep I've ever had."

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In Illinois, where recent changes in legislation allowed the use of medical cannabis as an alternative to opioid pain medication, the number of medical cannabis patients has doubled in just over a year. Applications for medical marijuana recently surpassed 44,000, with more than 2,000 applications being received since the bill was signed. Gov. Bruce Rauner signed Senate Bill 336 in August. S.B. 336 also removed the requirement for background checks and fingerprints.

[MedMen posts some gains, steep losses in fourth quarter, fiscal year-end results]

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Although medical marijuana is legal in the state of New York, most insurers won't cover the cost of the treatment. And many patients who might otherwise benefit from its use cannot afford it. But a bill has just been introduced in the State Assembly that would require state public health plans, like Medicaid and Child Health Plus, to cover the drug.

Comparing Candian industries by size

According to New Frontier Data, cannabis is now the second largest industry in all of Canada. Check it out in this week’s Cannabit.


Courtesy New Frontier Data

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