Cannabis Stocks – The Bulls and Bears Week 4

Cannabis stocks were all up this week, with trading on Friday really giving stocks a good kick for the week. The big gainers this week were The Green Organic Dutchman up 30% after they announced that they would be entering the US market with a TGOD spin-off.

We are not fans of TGOD as we feel the stock is seriously overvalued, and they have yet to put any revenue runs on the board, however, a US-focussed organic cannabis play sure has merit.

Elixinol were up 17% on the news they had made their first export to the New Zealand market (more on that below), and Emblem was up 22% on the back of good news from Alefia, who are planning on merging with Emblem.

 

 

In terms of losers, the only one to really stand out was HEXO, down 26% for the week. This was on the back of their announcement of a $50m public offering. As usual, these capital raises weigh heavily on the stock, and Hexo was no exception. We expect the stock to rebound nicely and are still very bullish on their prospects.

Stocks have been on a tear this year and many are starting to get back to mid-2018 levels. Emblem has been one of the most impressive performers year to date. Up over 50% since the turn of the year, we like their strategy to focus on the medicinal IP that can be created through new drugs and patient channels.

Cronos has really got 2019 off to a great start. With their Altria cash in hand and a very smart management team in place, they recently surpassed Tilray as the most expensive cannabis stock on the planet. Many thought that no stock could be as overvalued as Tilray, well, Cronos now owns that mantle.

They are really going to have to step up in 2019 and generate significant revenue. One of the key areas for growth could be their Canadian retail JV with MedMen in 2019. "Real legalisation" is coming to Canada in October, and if this JV works, it is going to be very lucrative for Cronos. That's a big "if" though.

 

 

Speaking of MedMen, they have really lagged their peers year to date, and their soon to be released quarterly results are going to be critical in our opinion. They have already released guidance of revenue that exceeds analyst's expectations, and that's great, but it's their cash burn we really want to see.

MedMen have burnt $76 million and $62 million in the previous two quarters respectively, and management really has to show an ability to better manage their growth.

 

Newsworthy Announcements

Europe

Canopy Growth announced this week their entry into both the United Kingdom and Poland. Via their medicinal cannabis brand – Spectrum Cannabis – they opened up Spectrum BioMedical UK, with Beckley Canopy Therapeutics given the exclusive distribution rights to Canopy's range of medicinal products to the UK.

In Poland, through their Polish entity Cannabis Polska, Canopy completed the first ever import of high-THC cannabis flower to the Polish market. Although neither of these is needle-movers for the stock, we continue to be impressed with Canopy's aggressive global expansion execution.

Prohibition Partners also released the 4th Edition of their European Cannabis Report. We will bring you a summary of this soon.

 

Latin America

Khiron Life Sciences, a vertically-integrated cannabis company with core operations based out of Columbia, this week announced a deal with DayaCann to develop cultivation, manufacturing and production capability for Khiron in Chile. DayaCann, a joint venture between Australia's AusCann and Chile's Fundacion Daya is the first company in Chile to receive a medical marijuana license allowing cultivation and production.

 

 

In this photo, workers assemble pre-rolled cigarettes of hemp flower containing cannabidiol, or CBD, at Unique Food Works (AP Photos/Gillian Flaccus)

 

This week Organigram announced a supply agreement with 1812 Hemp, a hemp research and IP company, in order to drive the opportunity to develop high-CBD yielding hemp. Another example of a large Canadian LP getting into the hemp business. We see this as being the fastest path for the Candian LP's to gain access to the US, just as Canopy Growth did last week.

 

Canadian LP's

The big news this week, was CannTrust's announcement that effective immediately, their Phase III expansion of the Niagara Falls facility would commence. The expansion of their facility, based in the town of Pelham, had been stalled by a construction moratorium placed on all Licensed Producers in the region, as the town was concerned about pollution and climate damage.

CannTrust were given the green light to proceed with their planned expansion but were required to upgrade some of their cultivation equipment, as well as add significant climate controls to the planned facility. CannTrust has indicated that the facility would be completed by Q3 2020, and would bring their production capacity to 100,000kg per annum.

 

Fire & Flower Retail Concept – © All Rights Reserved. Fire & Flower Inc. 2018

 

Fire and Flower, the Canadian recreational cannabis retail chain, this week announced they had surpassed the $10 million in sales milestone. Originally launching with 5 stores in October 2018, they have now expanded the number of stores to 9 and are showing significant revenue per store.

Tilray announced this week that they were acquiring Natura Naturals for $15 million in cash and $20 million in stock. This is a great deal for Tilray, particularly given their current stock price. Natura operates off a 622,000 square foot facility in sunny Leamington (right down the road from Aphria's Diamond One Facility).

Last year Emblem backed out of their deal to purchase Natura, and was subsequently purchased by Aleafia.

Elixinol this week announced their first shipment of medicinal CBD oil to New Zealand, in the form of branded capsules, topicals and tinctures. New Zealand changed their medicinal cannabis laws in December of 2018, and Elixinol has wasted no time in putting their flag in the ground.

 

 

And finally, in what might be one of the best PR stunts of the year, Acreage Holdings claim that their ad for the Superbowl was rejected. Their CEO then went on to declare at Davos that the US would legalise in 2019. Not one to ever want to stop the party, but think that may be a little far fetched. The video seems very investor-centric to us, but we'll leave you to make up your own mind on this one

 

Mark Bernberg
Mark Bernberg

Mark Bernberg is a long-time cannabis investing enthusiast and founder of The Green Fund, Asia Pacific's preeminent media house, positioned at the forefront of the global cannabis industry.

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