Tuesday , January 26 2021

Failure to Cut, Fail and Competition in the US: Why 2019 Can Be A Complex Year Of Cannabis



Cannabis was one of the biggest investment stories for 2018, as the promise of legalizing weeds in Canada attracted billions of dollars on both sides of the border, valuing companies at levels that were unattainable just a year ago. But as we head towards 2019, the landscape for investors is changing rapidly. Although there are new opportunities – I think that Canada has dishes and creeping legalization in the US – there are even greater risks as companies have to deliver their high ratings for the sky. Against this background of uncertainty, financial mail requested four experts to share their prospects of investing in cannabis in 2019. The responses were edited for clarity and space.

Matthew Nordgren, Chief Executive Officer and Founder of the Arcade Fund

What do you think is the biggest investment theme for the cannabis sector in 2019?

I think 75% of the big stocks will perform poorly in 2019 because they are overestimated. I will just stick to the big three because the market will move with them. Retailers and institutional buyers, like small medium caps, and the market is booming, so I think the market is back to the place where there has always been a success – and that's where you need to focus.

What company is ready to become the next dollar dollar in the cannabis industry?

I think that iAnthus Capital Holdings Inc., which has a similar footprint in MedMen Enterprises and Green Thumb Industries in the world, has a significantly lower rating and this is one of the reasons why their shares have performed better than (almost) each other in 2018

What ancillary company do you think will benefit most from the expanded market in 2019?

KushCo Holdings Inc., I think, really exciting. I can see a list current (currently trading over the counter in the US) at a time. When this happens, the institutional boys will be more on board than they are already, and Kush has the opportunity to come out and consolidate in a basic way. "

There's a lot of jokes for the US position. Which company is best positioned to take advantage of the expansion of the legitimate market there?

I actually think that the Canadian retailers are probably hurting the producers of cultivation products and the reason is that their growth is in other markets. I think it helps the coppermen, the handsome holdings, the worlds of the world great here. These boys will continue to grow larger and open up new places in the US and buy existing ones.

What is the story of investors, which is not yet spoken that will be in 2019?

I think people do not talk enough about what institutional buyers are doing. If you are an institutional buyer, you might think that the cannabis industry will continue to grow in 2019, but how can you fill large dollars for work? Well, you can not do it illegally, so suddenly these auxiliary companies are turning into focus. I think big dollars are starting to look for the US and I think they ultimately invest in companies that have a lower risk.

You have 1 million dollars to invest in 2019. Get yourself a cannabis stock.

If I'm in Canada and have to buy in Canada, of course, I buy Canopy. This is the same reason to buy Amazon.com Inc. The whole market is moving in one way or another and Canopy will go up and down with it.

Charles Thacker, President of Faircourt Asset Management, Portfolio Manager of the Alternative Health Fund "Ninepoint"

What do you think is the biggest investment theme for the cannabis sector in 2019?

What we began to see in 2018 was that the tide of all boats was approaching, and the market was trading very much with locks. Every time there was a big message about a company, usually all names reacted to this news. Every message is now observed more individually, so you start to see companies traded in general, rather on the basis of their own results than the general market sentiment. Profit will be important to put it lightly.

What company is ready to become the next dollar dollar in the cannabis industry?

We like CannTrust Holdings. This is a larger company in Canada and will be registered in the United States. Currently, it is traded around 10 times by 2020 and has production capacity, the current production, which is in the Top 5 but still not in the Top 5 in terms of market cap. We look at inappropriate situations.

What ancillary company do you think will benefit most from the expanded market in 2019?

The company we invested in is Molecular Science. Third laboratories will increasingly be called to be an outsourced quality control group for smaller manufacturers. Molecular Science has a mobile lab and they are touring South Ontario where they visit various facilities available to test the process. If you wait until the end, it is when the plants are susceptible to pests and mold. The company is also expected to become public in early 2019.

There's a lot of jokes for the US position. Which company is best positioned to take advantage of the expansion of the legitimate market there?

When cultivation costs have to be reduced, Village Farms International Inc., with 30 years of fruit and vegetables within NAFTA, has learned to be a low-cost producer. They have greenhouses in Texas, and the legalization of hemp, which must come in 2019, can take their facilities – they have 5 million square meters – and turn one million square feet into hemp. They could immediately be a significant cultivator of US cultivation

What is the story of investors, which is not yet spoken that will be in 2019?

From the point of view of science, cultivation will be the only way to extract the active pharmaceutical ingredient from cannabis plants (CBD)? Companies are now starting to focus on biofermentation. For those companies that enter it, it will significantly reduce their transaction costs and then a pulsating effect will happen: All of these Canadian LPs need all of this cultivation? I think you will see, in the medium term, people are beginning to realize well, maybe we do not need 140 licensed manufacturers in this country.

You have 1 million dollars to invest in 2019. Get yourself a cannabis stock.

If I had a million dollars right now, I would probably put it in OrganiGram Holdings. They are the indoor maker, they have the lowest price per gram of their latest quarterly reports – they are at 80 cents per gram – and they are a producer below the price. They trade at a market capitalization of $ 1 billion, but are still in the top 5 in terms of current capacity.

Greg Taylor, Portfolio Manager with Target Investments and Active Manager of the "Purpose of Marijuana"

What do you think is the biggest investment theme for the cannabis sector in 2019?

I think the big thing in the Canadian sector is that we will finally separate the winners from the losers. We had a few years in which people were able to come up with business plans and get funding for hopes and dreams of what they were able to do. I think now, when it is legal, we will find out who the boys are actually capable of bringing.

What company is ready to become the next dollar dollar in the cannabis industry?

The one I want to watch the following year is probably Fire and Flowers. The fire and the color are private companies and they have not decided when they will be in the public domain. They are a retail outlet, going west and coming to Ontario, and I think if they can provide the locations they believe they can in the Ontario market then they could be quite a big player in the shopping area.

What ancillary company do you think will benefit most from the expanded market in 2019?

It seems that many people are trying to move their businesses to helping companies in the industry. So far I have not seen a really great leader. Of course, there are a number of extracting companies that are there, but at the end of the day, it's hard to figure out how much value they add.

There's a lot of jokes for the US position. Which company is best positioned to take advantage of the expansion of the legitimate market there?

I think Acreage Holdings is interesting because it has quite good support in the western states and I think it will move east. They also have the support of (former Republican Party spokesman in the House of Representatives) John Boynor. I think it is very helpful in overcoming the cause within the old republican institution and, if nothing else, will help to adopt the legislation and really legitimize the space.

What is the story of investors, which is not yet spoken that will be in 2019?

If you will be a company that is unable to fulfill what you said is not, and there is no delivery contract with one of the provinces, I think you will see bankruptcies in this space. This could catch a lot of people out of the guards – not everyone will win. If the United States surprises everyone and becomes legal much faster, you have to wonder how Canadian companies do this in this environment because if Americans open and dominate and can fund the industry, they tend to win.

You have 1 million dollars to invest in 2019. Get yourself a cannabis stock.

In Canada, I will probably go with OrganiGram because I feel they are most willing to deliver the supplies to what they said they could. With that, I think they will be in a situation where some of the big boys are stumbling and the organization's crowd has not increased much, then these companies will begin to make an acquisition approach to OrganiGram.

Bruce Campbell, founder of Stonecastle Investment Inc., Manager of the StoneCastle Cannabis Growth Fund

What do you think is the biggest investment theme for the cannabis sector in 2019?

I think a major issue will be the US and the potential for reshuffling or decriminalizing drugs from a national point of view, which will then lead to a new class of investors who have not invested in the sector by investing in the sector,

What company is ready to become the next dollar dollar in the cannabis industry?

Cannex Capital Group is one of the first two processors in Washington. They already have experience and are very effective. Their production per square meter is higher than everyone in Canada, and I think they can get in and buy existing facilities to get licenses in several countries and then apply some of their best practices to speed up things.

What ancillary company do you think will benefit most from the expanded market in 2019?

One who is in the process of public disclosure is a company called Innovate Phytotechnologies Inc. and that's one that I'm sure to look at. They are in the test area so that all these extracted products will be regulated in 2019, there will be a huge amount of testing and compliance that needs to be done. It is published in the first quarter of 2019.

There's a lot of jokes for the US position. Which company is best positioned to take advantage of the expansion of the legitimate market there?

Cresco Labs LLC is one of the US multi-state operators and these people have made a phenomenal job of building their company so far with limited capital. They are really being treated (themselves) as a consumer packaged good company and branded company against LP. They simply raise some capital and they will become public and it will give them access to some new markets.

What is the story of investors, which is not yet spoken that will be in 2019?

You will notice cost overruns and delays, ranging from the largest to the smallest companies, and you will probably see the gaps in the entire harvest. There will be more evidence of how difficult it is to improve quality and respect the healthcare scale.

You have 1 million dollars to invest in 2019. Get yourself a cannabis stock.

I think if I can only buy, it will be Originhouse (CannaRoyalty Corp). They have a distribution, and in California you either have to have a distribution license or use someone who does it. If you are a dispensary, you will not want to deal with 300 different providers. (Spreading) will be hard to get in because someone will have all the brands tied up and that's what Originhouse sends. They will probably be one of the few (cannabis companies), which has been a positive cash flow since the beginning of the second half of 2019.

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