Bottom Line: HEXO management decided the company’s cheapest option was to borrow from the management itself at a cost of 19%. If 19% is really the cheapest option, money had truly dried up in the cannabis industry. In this type of a market environment the only two metrics that matter are lots of cash and low growing costs.
Bottom Line: With Origin House trading more than 40% below the acquisition price, and the CEO rumored to have said at a recent conference he is very confident the deal will close, investors who can correctly handicap the chances of the deal closing can make good money. We’ve put together a guide with all the relevant facts and negotiating positions of both sides to help you decide what to do.
Bottom Line: Almost every single investor in Zenabis has been burned, but investors shouldn’t give up yet because this new rights offering is potentially the most interesting security we’ve seen in the cannabis industry. This article explains your options and how to calculate if the trade is profitable.
Bottom Line: The media is finally making consumers aware of the significant health risks of smoking black market cannabis. The industry should have been doing this work themselves as this information is key to converting consumers over to the legal market, but better late than never.
Bottom Line: Articles by the mainstream media showing how badly CBD products are mislabeled will not build any trust with consumers. It’s clear the legal fragmentation of the cannabis market is not doing consumers or industry sales any favors. Someone needs to take responsibility for making sure these products are safe for consumers.
Bottom Line: Early research on the medical uses for CBG looks very promising. This cannabinoid building block interacts with even more receptors than THC and CBD. The article is brief with no jargon.You will learn something new.
Bottom Line: The reason this matters is because USDA guidance is a critical first step before states can create their own hemp farming rules. The bigger hemp related bogey to look forward to is the FDA’s release of rules governing CBD consumption. Until FDA rules are released, CBD for oral consumption remains illegal, hampering sales growth.
Bottom Line: This smart marketing tactic by Medmen is yet another example of the company’s brand building acumen. They may not know how to make money for shareholders yet, but they certainly know how to put their brand in front of consumers even with significant national restrictions on the ability to market cannabis.
Bottom Line: Cannabis sales data was released by the government this week showing an increase in retail locations is directly correlated to cannabis sales. British Colombia sales doubled in July over June driven by an increase in dispensary permits and openings. Ontario has also benefited, showing the second fastest sales growth once retail stores started opening in March.
Bottom Line: Legalization just keeps on rolling through Europe, though much more slowly than investor’s expected back in 2018. This is a significant milestone for France as it signals the country is finally on the path to medical legalization of cannabis. France is a significant potential market with twice the population of Canada and 80% the population of Germany.
The cannabis sector bounced back for the second week, rising 1.2%. The U.S. MSOs outperformed Canadian names again, up 0.1% compared to the LPs down 1.4%.
We’ve been watching the performance of the U.S. and Canadian stocks closely and U.S. stocks are definitely beginning to outperform their Canadian peers. Since the end of September, U.S. stocks are down 1.6% while the Canadian LPs are down 12%. Investors should begin building a long term position in a basket of the top five U.S. operators.
An upcoming catalyst to watch is a UN meeting in March 2020 to potentially deschedule cannabis as a schedule 1 drug. If this goes through with America’s blessing it could set the wheels in motion for federal legalization sooner than later. The recent vaping crisis will also turn out to be positive for the legal industry as it will scare consumers away from black market vaping products.
The overall marijuana index outperformed the S&P and TSX by 0% and 1.1% this week yet has underperformed by 41% and 35% YTD.
There are now question marks whether increased sales from cannabis 2.0 products will lift the stocks. Capital markets are largely shut to cannabis companies right now which is a problem when the business models are build on rapid expansion and big deficits.
We think a bounce-back is currently ongoing, but price compression will be a headwind pulling stocks lower without a brand new catalyst.
U.S. stocks will continue to outperform Canadian LPs from here in our view with more catalysts potentially on the horizon.