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Marijuana stocks weekly investor roundup: Analysis of the week's most important events in the cannabis industry (June 1)

Jun 3, 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

The Aphria extraction hack explained

Bottom Line: The rich valuations of the cannabis extraction stocks present an opportunity for Aphria management to realize 20 percent upside by simply taking the extraction assets public. A full step-by-step guide to profit off of this arbitrage is inside.

Grizzle

Israel's largest cannabis company to trade in Canada

Bottom Line: Breath of Life Pharma will trade on the TSX exchange and may signal Israeli firms are ready to ramp up efforts to compete with Canadian growers on the world stage. As a Canadian cannabis investor, you are effectively funding the competition if you buy shares of an Israeli grower.

Grizzle

Synthetic CBD may be just as effective as natural CBD

Bottom Line: A new study proved synthetic CBD is just as effective treating seizures as naturally grown CBD, not to mention is much cheaper to produce. Synthetic CBD also can't turn into THC as some natural CBD does in a person's stomach. Synthetic CBD could become the preferred raw material for future pharmaceuticals leading to lower demand for hemp derived CBD.

Grizzle

Google bans cannabis delivery apps

Bottom Line: As any cannabis marketer knows, it is still exceedingly difficult to advertise cannabis services using the internet. Now delivery apps have been caught up in the ban as well. Advertising restrictions speak to the value of retail locations as the main way to build a cannabis brand in the U.S.

Grizzle

(Source: Bram.Koster/Flicker)

Grizzle

Alberta lifts retail cannabis licensing ban

Bottom Line: This signals the early supply shortages in the legal cannabis market are largely behind us. If anyone tells you there are cannabis shortages, they likely work at a licensed producer and want to sell you some stock.

Grizzle

The true regulatory state of Colombia

Bottom Line: An excellent article laying out the regulatory hurdles to actually selling cannabis in Colombia. The government hasn't yet granted a quota for anyone to sell THC rich cannabis to the public. Colombia will not be a thriving cannabis market without an overhaul of the regulatory system.

Grizzle

Illinois becomes the 11th state to legalize cannabis

Bottom Line: The state said retail sales will begin on January 1st, 2020. Illinois has a population of 12.7 million and should add around $3.5 billion to the potential revenue for U.S. operators. For comparison, the value of the entire cannabis market in Canada is estimated at $7-8 billion.

Grizzle

Charlotte's Web moving to TSX, don't expect anyone to follow

Bottom Line: The passage of the Farm Bill effectively legalized CBD, allowing CWEB to meet the Toronto Stock Exchange rules on doing business in only federally legal industries. None of the multi-state operators trading on the CSE exchange will be able to follow CWEB's lead until cannabis is federally legal in the U.S.

Grizzle

The crackdown on cannabis in Italy continues

Bottom Line: This is the equivalent of the U.S. government cracking down on CBD which is currently in a sort of grey market while the FDA decides how to regulate it. Italy demonstrates the risks of operating on the edge of the law in an attempt to be first to market.

Grizzle

iAnthus Q1 2019 earnings review

Bottom Line: iAnthus is seeing a perfect storm of negative events this spring, creating what could be an attractive buying opportunity in hindsight. More details are in the note.

Grizzle

(Source: SEDAR, Capital10x Estimate)

Grizzle

Vireo Health Q1 2019 earnings review

Bottom Line: Expectations for the stock are low, liquidity is good, and growth should be robust, especially in 2020, giving the company the runway and the opportunity to exceed revenue estimates over the coming quarters.

Grizzle

(Source: SEDAR, Capital10X Estimates)

Grizzle

Weekly marijuana stock performance

Trade war fears hit really hit cannabis stocks this week, dragging the index down 6 percent. U.S. stocks declined 5.8 percent outperforming the Canadian names which were down 7.3 percent. We expect U.S. stocks to outperform this year with better regulatory catalysts and growth prospects. MSOs are up 23 percent year to date while Canadian growers are up 36 percent, but this trend should reverse as we move through the year.

The overall marijuana index underperformed the S&P and the TSX by 3.3 percent and 4.8 percent, respectively.

Grizzle

(Source: New Cannabis Ventures)

Market Outlook

Stocks were up big in the first quarter after a terrible end to 2018. Stocks will remain choppy 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.

We remain cautious on Canadian LPs due to distribution bottlenecks, slow legal demand growth, and a government monopoly that all do not bode well for licensed producers' ability to meet or exceed lofty earnings and revenue estimates over the next nine months. Revenue growth could disappoint expectations starting this quarter.

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.

Grizzle