Marijuana stocks weekly investor roundup: Analysis of the week's most important events in the cannabis industry (June 15)

Jun 19, 2019

Finance and Investing

By Scott Willis

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.

Grizzle

Legal edibles unlikely at scale until 2020

Bottom Line: The rollout of edibles, vape pens, and topicals will likely be just as slow as the rollout of cannabis flower last October. The main difference is these are products that make up 50 percent of demand in other markets and will likely cause cannabis sales to double from $1 billion to $2 billion next year as long as early supply can keep up with demand.

CEO of Acreage gives NY Legalization 60 percent chance next week

Bottom Line: Recreational legalization in NY seems like a true long shot this late in the legislative session, but the Acreage CEO is very plugged into state politics. Hold your breath for next Wednesday.

HEXO joining race to supply Europe locally

Bottom Line: HEXO is competing with Tilray in Portugal, Aurora in Denmark and Canopy in Denmark and Spain to supply the European market from within. Germany is the largest cannabis consuming market in the bloc and is the true target for everyone. Watch to see if Germany allows imports from all these other countries, as that would significantly hurt the value of recently awarded German cultivation licenses.

The truth about the Australian medical cannabis market

Bottom Line: Strict regulations mean there are only 57 doctors licensed to prescribe cannabis in the country. Investors should temper their expectations about the growth potential in Australia. Outside of North America, Europe is where true growth lies.

Medical cannabis demand presents opportunity

Bottom Line: The medical cannabis market is being left behind by companies in favor of the more lucrative and larger recreational market. We think there is real money to be made providing true medical users with formats they want at prices they can afford. Medical consumption per person is much higher than in the rec market, so volumes would likely offset lower retail prices.

Weekly marijuana stock performance

Global pot stocks may have seen the beginning of a capitulation selloff this week with the index down 6 percent. From the peak in March, cannabis stocks are down 25 percent, but still 35 percent above the lows in December 2018. U.S. stocks again underperformed Canadian peers, falling 8 percent. Once stocks rebound, we expect U.S. stocks to outperform Canadian names the rest of the year with better regulatory catalysts and growth prospects. MSOs are up 8 percent year to date while Canadian growers are up 29 percent, but this trend should reverse as we move through the year.

The overall marijuana index underperformed the S&P and the TSX by 6.4 percent.

Grizzle

(Source: New Cannabis Venture)

Market Outlook

Stocks will remain seasonally weak as we go into the fall, but U.S. stocks have the benefit of some big regulatory catalysts potentially on the horizon this year.

Canadian LPs are still stuck in a stagnating legal market, making it hard to show the revenue growth investors are expecting. LP's are showing zero growth in 2019, and even with the 2020 rollout of edibles, vapes and topicals growth is unlikely to exceed 150 percent in 2020. US operators in comparison are growing revenue 150 percent-300 percent in 2019 and at similar rates or better in 2020.

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 or early 2020. After a shakeout, the remaining stocks will be better positioned as long-term buying opportunities.

Grizzle