June 2019 – Cannabis Stocks still Under Pressure from the Bears

Monthly Update on the Cannabis Industry

June was another tough month for pot stocks. In general, most of the cannabis stocks were down, with the Canadian and American Indices down 8% for the month.

The Green Fund Australian Small-Cap Cannabis Index was down only 4% with the Australian market significantly outperforming its peers. Some of the Australian stocks have really started to move, in particular, Botanix Pharma and Althea, each performing strongly in the month.

Canopy delivered its earnings late in the month and the market had a very mixed reaction. Although most analysts pointed to the $100 million in net revenue for the quarter, once again their net loss was phenomenal, coming in at a staggering $330 million deficit on the bottom line.

They are growing – aggressively – on a global scale and so cash burn is to be expected. Still, the stock pulled back almost 7%, and, as the market leader, this falling tide pulled all ships down with it. However, it was the Canadian stocks – as a group – that got hit the hardest this month.

One of the reasons for the stocks in Canada performing so poorly, could due to very average earnings reports that have recently been delivered by some of the bigger names in the industry. Most of the LP's have delivered marginal quarter-on-quarter growth, probably as a direct result of the fact that the Canadian retail market has been such a disappointment. Especially if one considers the first quarter of the year, where supply and access to products were so low. April's boost is the direct results of Ontario finally allowing brick-and-mortar retail stores.

Canadian Recreational Cannabis Market Sales

We have always stated that legalisation in Canada was nursery school like in its execution. Almost no retail stores on opening day and supply being ravished in the first few days. Ontario – the province with the largest population – opened with no stores and currently only has 25 stores open. To put this in perspective, it is expected that Ontario could support around 1,000 stores – yeah you read that right.

In the US, most of the negativity was around the fact that the major consolidations of recent months are taking longer than expected to close. Most of the delay is due to the DOJ's anti-trust division looking carefully at the details. These include Harvest Health's purchase of Verano, Cresco Labs purchase of Origin House, and Curaleaf's acquisition of Cura Partners. Although presently there seems to be no reason why any of them would be rejected, and given they are all delayed together, we see this as simply a bump in the road.

The month saw two US states move in opposite directions. New York finally admitted defeat and declared that no legalisation policy was likely until late in the year or early 2020. While Illinois surprised one and all, with their legislative vote in favour of legalising for recreational use, and signed into law by the Governor this month. The 11th US State up and running. The wheels of legislation firmly in motion. It's only a matter of time.

 

Cannabis Stocks Top Performers June 2019The Top Performers 

Botanix Pharma jumped on news of positive results from its Psoriasis drug. Targeting the global dermatology market, we think this is just the beginning. IIPR continues its run – up over 600% in just over a year. We just don't understand the valuation on this one. Althea announced their 1000th patient on the one side and their 1st patient in the UK on the other. MedMen continues to slowly rise…we've been calling it for a while. And a nice little pop from BOD Australia on news of a PTSD study to determine the effects of medicinal cannabis on the disorder.

 

Worst performing Cannabis stocks June 2019The Poorest Performers

Far more down than up this month, unfortunately. Sunniva has been hammered lately as they continue to disappoint, but they have started to right the ship, ditching all assets outside of California. If they actually manage to pull their California operation off (and it's a long-shot) there is significant upside for this battered pot stock.

We're big fans of Plus Products and think there is a bright future ahead of them. However, a pretty average Californian market (for the moment), on par quarterly results, and the buyback of warrants and convertible notes have all combined to put significant pressure on the stock. Awesome buying opportunity for investors looking to take a position or dollar average down.

And finally, Elixinol was down, which was always going to be the case with their recent capital raise. This is an important point for pot stock investors. Look for capital raises where the share price is naturally pushed down (as most of these raises are at a slight discount to market price). You get to grab the same company (same fundamentals) on sale for no real reason other than the capital raise itself. That's smart investing.

 

The Stake Monthly Review

And finally, every month we ask our favourite online trading platform Stake, to send through the numbers that are moving the cannabis stocks listed on the NYSE and NASDAQ.

Top 3 most traded weed stocks on Stake*

  1. Aurora Cannabis (ACB) +9.22%
  2. Cronos Group (CRON) +17.67%
  3. Cannabis Growth Corporation (CGOC) +4.08%

*There's some life in the market!!

Data Deep Dive 

  • 3% of all trades on Stake are in cannabis stocks – however, less than 0.5% of stocks are cannabis related. 
  • While Aurora had the most trades, AbbVie (ABBV) had the best buy to sell ratio. There were almost 8 times more buys than sells. The standard is about a 2-1 buy to sell ratio. What does this mean? People are buying and holding the US$100billion biopharma giant.
  • The biggest individual buy was Canopy Growth (CGC), with a sum well into the 5 figures flowing into the stock. It was sold 7 minutes later for a quick gain. The same trader then poured 
  • Tilray (TLRY) was the only weed stock with more sells than buys in June. Traders took advantage of the 33% rally to offload some long term holdings.
  • Our top 5 biggest weed stock traders by volume are all female. 

The last point is really interesting as we just published an article on the rise of the female cannabis enthusiast – and no – this is not just the consumers…entrepreneurs too!

Until next month everyone.

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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