This article originally appeared on Grizzle, of which PotNetwork is thrilled to be partnering with to bring you occasional features highlighting everything you need to know in the marijuana stock market. Scott Willis is the co-founder and head of research at Grizzle. Grizzle provides critical money analysis and insights for topics that matter to millennials. For more in-depth analysis of marijuana, crypto, and investing, check out grizzle.com.
GLOBAL MARIJUANA STOCKS UP 1% FOR THE WEEK, CANADA MARIJUANA STOCKS UP 7%
It was a good week to be a marijuana investor with the global index of 75 companies increasing 1% after almost a month of falling prices. Canadian producers outperformed as positive market sentiment in North America spilled over into cannabis stocks.
Looking at just the Canadian producers, the large caps were up 7%, mid-caps increased 7%, and the small caps were flat. The market continues to place a premium on size with the top 2 licensed producers in Canada outperforming during down and up weeks. Canadian producers as a whole are now down 38% since the peak of euphoria in January of 2018.
Grizzle thinks the industry will require legal supply bottlenecks and higher prices after legalization to push the stocks any higher at current valuations. The stock price gains would only be temporary, however, and if instead prices begin falling soon after legalization, the only direction stocks will go is down at current valuations.
WEEKLY PERFORMANCE OF THE TOP 75 GLOBAL MARIJUANA COMPANIES
LICENSED PRODUCERS ARE EXPLORING NOVEL WAYS TO GET AROUND LABELING RESTRICTIONS. WILL THE GOVERNMENT ALLOW IT?
An article from GlobalNews reported a pre-license marijuana producer is exploring ways to use augmented reality technology to bypass the government's restrictive packaging rules.
The company would provide consumers with an app that would use a smartphone camera. When a consumer looked through the lens of their smartphone the drab packaging would come alive, with interactive elements and the visual look producers always wanted.
The big question is whether the government will take a heavy hand to labeling workarounds such as this one. We see consumers utilizing this technology, especially if licensed producers offer discounts for downloading the app. The government will have to decide how severely they will police the marketing, labeling and advertising of marijuana to the public.
ORGANIGRAM TO IMPORT SYNTHETIC CBD FOR SALE IN CANADA
Organigram invested $3.8 million into Alpha-Cannabis Germany for a 25% stake in the company. Organigram will export raw flower and leaves to Alpha which will be made into extracts for the German market. Organigram has also agreed to buy synthetic CBD from Alpha which will be sold into the Canadian marijuana market.
We wonder why a company built on client safety is willing to dilute its brand by buying and selling synthetic products that lack significant clinical testing to accurately judge the long-term effects on its clients.
Synthetic CBD and THC, the active ingredients in the marijuana plant, are still largely untested and some studies have shown synthetic THC can be toxic for the liver and kidneys.
COMPANY TO WATCH
Colombia-based ICC Labs is one of only two marijuana growers licensed in Uruguay and just recently started construction on a 124,000 ft greenhouse in Colombia. They will produce high THC flower in Colombia for the medical market (including export) and CBD only flower in Uruguay. ICC labs trades in Canada on the TSX Venture Exchange.
Why this Matters for Canada
ICC Labs looks to be a first mover in establishing Colombia as a world-class marijuana exporter. Columbia has much lower growing costs than Canada ($0.25 vs $1.00) and will be able to beat Canadian marijuana on costs as long as companies there can secure the necessary funding and security is adequate for normal operations.
The Colombian government is excited to make their country the #1 exporter of marijuana and is facilitating the development of legal cultivation through relatively smooth permitting and legislation compared to Europe, Australia and other South American countries.
MARICANN COMPLETES EXPANSION INTO SWITZERLAND WITH PURCHASE OF HAXXON AG
Maricann completed its January purchase of Haxxon AG, a Swiss-licensed grower. Why this is interesting is Haxxon provided some detail about growing costs and selling prices for high CBD European marijuana. Haxxon grows high CBD, low THC hemp for $0.83 per gram and sells it for $3.90 per gram on average. Canadian licensed producers grow marijuana for $0.60-$1.50 and spend another $0.60 per gram to test, process and package.
What this means for Canada
Licensed producers in Canada currently sell marijuana for $8-$9 per gram, but as the market matures and becomes more industrial, raw flower selling prices are going to fall to at least $4.50 and likely lower as we are already seeing for wholesale deals done in Europe. Stock prices imply $5-$6 per gram, meaning stock prices could go lower as pricing falls, disappointing investor estimates.
READ THE MARIJUANA EXPORT MIRAGE FOR AN IN-DEPTH REPORT ON THE STATE OF DEMAND FOR MEDICAL MARIJUANA OUTSIDE OF CANADA