Marijuana stocks weekend investor roundup: Analysis of the week's most important events in the cannabis industry (January 19)
By Scott Willis
Jan 20, 2019
PotNetwork is pleased to bring you our Marijuana Stock Weekend from our partner publication Grizzle. Grizzle journalist and Head of Research Scott Willis covers the marijuana stock market in-depth, with over 12 years of institutional investment management experience in analyzing both debt and equity securities. He has held senior investment research roles at Credit Suisse and TD Asset Management. He’s also a Chartered Financial Analyst and has been featured on BNN Bloomberg and CBC. For more of Scott’s writing check out Grizzle - the language of new money.
Bottom Line: The scorecard is the most comprehensive resource on the internet for investors thinking of investing in U.S. marijuana growers. The scorecard is full of useful information like which stocks trade at a premium or a discount, who has the largest state footprint, do common shareholders have a say in how the business is run, and much more.
Bottom Line: "The first states to legalize marijuana, including Colorado, Washington, and California, did it through ballot initiatives. Now, governors and legislatures are making the decision. The politics of marijuana have changed, and lawmakers are increasingly framing legalization as a progressive, good-government policy."
Bottom Line: This attorney general actually seems like an unlikely ally for the marijuana market. He explicitly stated he would not go after states who legalize the drug and supports a well thought out federal legalization strategy.
Bottom Line: Whistler currently is the most expensive brand on offer in BC's online store ($18/gram), which may explain why Aurora was willing to pay such a high premium. Aurora needs to sell Whistler's 5,000 kg of capacity for $17/gram for the next 10 years to generate a decent 10 percent return.
Bottom Line: A new CBD brand, Fleur Marche, started by former GOOP employees is charging $800-$1,500 per gram for CBD-infused beauty patches and creams. CBD oils from hemp cost only $0.08 to produce, giving you a feel for how profitably the CBD market is today.
Bottom Line: An ad for CBD oil played in Time's Square on New Year's Eve. The Farm Bill legalizing hemp has basically opened up the U.S. market to any type of CBD marketing. Expect to see products at your local gas station and ads for CBD products on buses, subways, and billboards very soon.
Bottom Line: Recent studies have shown older Americans use fewer prescription drugs in states that have legalized marijuana. The pharmaceutical industry is no doubt aware they are likely losing business to marijuana, which explains why they are circling growers looking for a way into the market.
Bottom Line: EastWest Biosciences is just one of many companies looking to get into the CBD space, however, this is a well done deep dive to help you understand how the CBD market may develop and the different verticals a company like EastWest is targeting.
Marijuana stocks took a breather this week with the global index essentially flat. Large-Cap Canadian names outperformed U.S. operators by 6 percent, up 4 percent for the week. Mid-cap and small-cap Canadian stocks were up 1 percent and down 1 percent respectively. Stocks are still well off their October highs but have rebounded 35 percent off the lows reached in December.
Stocks are seeing a bounce back in the first quarter after selling off so heavily in November and December. Sentiment is getting more positive with the overall market so it is hard to see stocks going through another 20 percent-plus selloff in the first quarter without additional negative earnings news or a global recession. A full buyout of a cannabis company by a consumer packaged goods company would be a strong positive catalyst for the entire industry.
From a fundamental perspective, be careful owning cannabis stocks into the next two quarters of earnings. A supply shortage and a government monopoly do not bode well for licensed producers' ability to meet or exceed earnings estimates.
Longer term, with the Canadian market legalized we expect retail and wholesale price compression from a legal oversupply by the second half of 2019. Falling cannabis prices will pressure producer stocks later in 2019. After a shakeout, the remaining stocks will be better positioned as long-term buying opportunities.