Pot Stocks – Bulls and Bears Week 10

This week saw MedMen release their Q2 FY2019 results, and once again, they continue to burn cash. They pre-announced their revenue numbers in January, and so the top line was no surprise, but most investors were looking at the bottom line to see just how much cash MedMen had burnt in the quarter.

Highlights included:

  • Revenue grew 39% quarter on quarter up to $29.9 million. This figure rises to $49.5 million including pro forma revenue (essentially their PharmaCann acquisition)
  • Decent Gross Margins at 53%
  • According to MedMen, their eight dispensaries in California generated 7% of statewide cannabis sales.
  • However, the company still continues to burn cash at an alarming rate. $75 million burnt in Q2 on the back of $50m in Q1 to fund operations. The increased spend continues to be a result of higher salary costs, large investments in marketing/brand activities, transaction costs on M&A, and funding the overall company growth
  • Inventory of $13.3 million, significantly up from $6.2 million at June 30th, 2018
  • However, there is only $78m in cash which will probably cover 1 more quarter, following which they will need to raise again
  • MedMen expects to open 12 new stores in Florida in the coming 12 months, with 4 coming in the next 90 days. This would bring the total number of stores open to 48 by the end of the next quarter

The big news is the new CFO (Michael Kramer) has put a "freeze" on its SG&A (selling, General and Administrative expenses). This is a key area where the numbers have blown out in the past couple of quarters and this was well received by the analysts.


"While we remain focused on the growth of the business, I have instituted a freeze on the budget for SG&A until we institute better processes and efficiencies across the firm."

– Michael Kramer, MedMen CFO


As a result, MedMen currently has the largest revenue run-rate in the industry to date at almost US$200M supported by its dominant position in the LA market and ~7% market share in California. We will be covering MedMen in more detail soon.


This week saw CannTrust finally list on the NYSE under the ticker CTST. A really big moment for one of the best possible ways to play the Canadian LP's in our opinion. It didn't really move the dial as the news was released last week, and the price was already baked in, but this really is great news for CannTrust as finally allows easy access for US retail investors.

"We are a fast-growing company that is continuously looking to increase our international presence," said Peter Aceto, Chief Executive Officer. "The NYSE listing is another significant milestone in the evolution of CannTrust and we are excited to share more about our planned growth initiatives in the near future."


Aurora Cannabis received licensing from Health Canada for their Aurora Sky and Medreleaf Bradford facilities.  Aurora Sky is their jewel in the crown of their production facility fleet. At over 800,000 square foot, this facility has the ability to produce over 100,000 kilograms of flower per annum and is meant to be one of the most technologically-advanced growing facilities in the world.


Aurora Sky source: Aurora


Their Bradford facility – courtesy of the Medreleaf purchase back in 2018 for $2.3 billion – is capable of producing over 28,000 kilograms per annum. Both are critical assets in fulfilling their potential annual capacity fo 500,000 kilograms per annum.

'The rapid scale-up of our production capacity – with our Sky and Bradford facilities specifically adding over 128,000 kg per year in capacity – is resulting in significant increases in product availability across our domestic medical and consumer, as well as our international market segments, over the coming months,' said Terry Booth, CEO of Aurora.

In addition, Aurora also announced this week that they were making an acquisition in Portugal, by acquiring a 51% ownership interest in Gaia Pharm, a license applicant in Portugal, to establish a local facility to produce medical cannabis and derivative products. The company will be renamed "Aurora Portugal".

No financial numbers accompanied the news release, meaning it couldn't have been material in size, and this is corroborated by the fact that after the completed development of Phase I of the plant in Q3 2020, it will only be able to produce 2,000 kilograms per annum. Not a needle mover.


AusCann Group (ASX:AC8) has appointed global pharmaceutical business executive Ido Kanyon, as its CEO commencing 22 May 2019. Kanyon brings more than 15 years' senior executive experience in the pharmaceutical industry most recently at multi-billion dollar Teva Pharmaceutical Industries Ltd (NYSE:TEVA).

Teva is the world's largest generic pharmaceutical company which also specialised in the development and commercialisation of active pharmaceutical ingredients and specialty proprietary medicines.

"We are confident that his experience, energy and drive will successfully lead AusCann into its next phase of growth as a pharmaceutical development, sales and marketing business," said Dr Mal Washer, the AusCann Chairman.



We are positive about this, as it has been some time since Elaine Derby stepped down. AusCann has definitely gone off the boil lately, and the company now needs significant news flow and execution to get the ship really moving again, and with it – hopefully – their share price, which is one of the poorest performers of all in 2019.


Aphria this week signed a license agreement with Manna Molecular Science to develop a  transdermal patch for medical patients, that could allow for more consistent dosing, even when a patient is asleep or at work. We think this could be a good fit for Aphria, as one of the biggest issues patients face is how to consume their medicinal cannabis.


Most people do not want to smoke, and even vaping creates a potential for inexact dosages. Whilst edibles are convenient and easy to consume, the onset of the actual compounds (and effects) can take a long time. A transdermal patch could potentially combine both those advantages with the ability to slowly dose over time, including when a user is asleep.



Organigram continues to shine. One of the best performing LP's of 2018, and certainly one of the top three in our opinion, Oranigram this week signed a Quebec Letter of Intent to supply the Province, and with it, can now lay claim to the fact that their potential market covers 100% of all Canadians.


"This agreement solidifies the Company's position as a true national player in Canada's legal adult use recreational cannabis marketplace. Organigram now has distribution in place for all ten Canadian provinces."

– Greg Engel, Organigram CEO


Based on currently available public information, this agreement makes Organigram one of only three licensed producers in Canada along with Canopy Growth Corporation and Aphria to have secured distribution agreements with every province.


This week also saw Elixinol release their results for the FY2018 period, ending 30 June 2018. A solid set of results with revenue for the year of $37.1 million, up 121% on the previous year. Underlying EBITDA of $0.7 million compared to breakeven in FY2017, and their hemp foods business generated revenues of $4.9 million, up 51% on the previous year.

However one of the key issues investors should be aware of is the fact that their margins seem to be decreasing. In the previous year, they reported gross margins of 67% with this number decreasing substantially to 57% for the current financial year. If one considers the sales of its individual business units, then the reasons for this decline start to become apparent. 


The bulk of their revenue comes from Elixinol USA, and of that, the fastest growing sales line is the Private Label, having grown 359% year on year. However, private label sales are associated with lower gross margins and this is something investors should be aware of. The key to profitability is going to be growing their Direct to Consumer channel.

We are still bullish on Elixinol, especially given their exposure to the booming hemp-derived CBD market in the US (fuelled by the recent legalisation of industrial hemp in the Farm Bill of 2018).  The full investor representation can be found here


Curaleaf announced this week announced this week that it had signed a definitive agreement to acquire Eureka Investment Partners, LLC. Based in Monterey County, California, Eureka operates a cultivation facility in the Salinas Valley and is developing three dispensaries across the state.



The addition of Eureka's cultivation platform will provide Curaleaf access to California's wholesale market through an existing 110,000 sq. ft. greenhouse facility, with the potential to expand up to 270,000 sq. ft. that could generate over 22,500 kilograms of dry flower per year at full scale.  

The planned launch of Eureka's three premium locations in Long Beach, Salinas and Monterey County, expected to begin operations in the second half of 2019, will launch Curaleaf's retail network into California. Curaleaf is paying $30.5 million for this deal, with $10 million in cash and the rest in stock. After this deal, Curaleaf has rights to open 74 dispensaries.


Martha Stewart joins Canopy Growth to advise on CBD Product development. Martha will work alongside the company to help develop and market a range of CBD-wellness products, starting initially with the pet care market. 

"Canopy Growth will be leaning on Martha's vast knowledge of consumer products while exploring the effectiveness of CBD and other cannabinoids as they relate to improving the lives of both humans and animals, " said Bruce Linton, Co-CEO of Canopy Growth.


We started with MedMen, and it's where we'll end. MedMen rewrote history this week with the debut of a disruptive new commercial that chronicles the American history of cannabis. Supported by the most expansive integrated marketing campaign the company has executed to date, The New Normal is directed by Academy Award-winning storyteller Spike Jonze and features actor Jesse Williams, best known for his longstanding activism and a starring role in Grey's Anatomy.

Personally – we think it's unbelievable.




The ad furthers MedMen's vision where legalized and regulated cannabis creates a safer, healthier and happier world. MedMen has earned street cred for its past adverts. The "relax – it's normal" campaign was a massive hit when it rolled out across California when they legalised for adult-use in January last year. Once again, we think they are setting the bar when it comes to creating a retail brand in the mind of the cannabis consumer. Watch this space.

Until next week friends.

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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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