Interesting read from The Equedia Letter In today's uncertain market, marijuana may just be the sector that bucks the trend.
Legalization has finally passed in Canada and with it came a flurry of buying before the selloff once again.
Does that mean the gains for marijuana stocks are over?
I don't think so.
Once we see legalization hit the streets on October 17, I am confident there will be another flurry of buying as news outlets once again become the biggest promoters for marijuana stocks.
Furthermore, I can almost guarantee that other big players, such as Big Alcohol, Big Beverage, and Big Institutions will begin to make their mark on the marijuana sector - leading to more ammo for the marijuana stock market.
However, that doesn't mean every marijuana stock will rise - and if the global financial market crashes, you can bet that marijuana stocks will drop too.
So in the near term, it's important to focus on the companies that are ripe for mergers and acquisitions.
The big Licensed Producers (LP's) have fueled their efforts in the past on big production to meet the demand that will come with legalization.
But they haven't been able to guarantee their position in the distribution chain via retail outlets since many of the provinces have only recently begun implementing that channel.
That means the big LP's will be looking for a stronger retail strategy and they'll likely get a head start by investing in or acquiring retail and brand-focused companies.
For example, we already witnessed a flurry of big investments into retail and brand-focused marijuana stocks by the big LP's, such as Aphria's massive C$230 million acquisition of Broken Coast Cannabis in January.
And just last week, we saw Canopy Growth, the largest marijuana company in the world, buy Hiku Brands for over C$269 million to strengthen its retail and brand portfolio.
We also witnessed one of our portfolio companies, Abcann Global Inc. (TSX-V: ABCN) (OTCQB: ABCCF) make an investment into Choom Holdings Inc. (CSE: CHOO) (OTCQB: CHOOF) to help jump start Choom's retail strategy.
Shortly after Abcann made their investment into Choom, Aurora Cannabis Inc., one of the largest LP's on the planet, invested C$7 million into Choom.
"Our investment in a consumer-focused brand with a strong retail strategy offers Aurora additional growth opportunities through supply, retail and distribution to the adult consumer use market...
...Choom has established a well-developed brand, supported by deep roots within the British Columbia cannabis community and a passion for high-grade, handcrafted product. We're excited to strengthen our relationship with the team at Choom and help amplify their market reach as they continue to execute on their differentiated craft growing philosophy and their unique retail strategy." - Terry Booth, CEO of Aurora.
In other words, the smaller retail and brand-focused companies, companies such as Choom, are likely to be the targets of acquisition by the bigger players in the space.
And it's not just the big LP's making big moves.
As I mentioned in my last Letter, we'll begin to see the big institutions come to play once Legalization passes in Canada.
Via "Insider Guide to Marijuana Legalization":
"I predict that we will soon see deals - be it debt, stock, or other agreements - between marijuana companies and the big institutions following legalization."
And boy did that prediction prove true quickly.
Less than a week after Legalization passed, one of the biggest banks in Canada, the Bank of Montreal, gave Aurora a massive C$200 million debt facility, with a potential upsize to $250 million.
With that type of credit, you can bet more M&A is on the way for Aurora - especially since it just raised a whopping C$230 million a few months ago.
As you can see, the marijuana sector isn't going anywhere and still has plenty of upside.
Many of the institutions have yet to participate and I bet more will come.
The key in the near-term is to focus on the companies likely to be the target of M&A, or the LP's with strong underlying fundamentals who are playing catch up in terms of valuation.
In today's uncertain market, marijuana may just be the sector that bucks the trend.
Legalization has finally passed in Canada and with it came a flurry of buying before the selloff once again.
Does that mean the gains for marijuana stocks are over?
I don't think so.
Once we see legalization hit the streets on October 17, I am confident there will be another flurry of buying as news outlets once again become the biggest promoters for marijuana stocks.
Furthermore, I can almost guarantee that other big players, such as Big Alcohol, Big Beverage, and Big Institutions will begin to make their mark on the marijuana sector - leading to more ammo for the marijuana stock market.
However, that doesn't mean every marijuana stock will rise - and if the global financial market crashes, you can bet that marijuana stocks will drop too.
So in the near term, it's important to focus on the companies that are ripe for mergers and acquisitions.
The big Licensed Producers (LP's) have fueled their efforts in the past on big production to meet the demand that will come with legalization.
But they haven't been able to guarantee their position in the distribution chain via retail outlets since many of the provinces have only recently begun implementing that channel.
That means the big LP's will be looking for a stronger retail strategy and they'll likely get a head start by investing in or acquiring retail and brand-focused companies.
For example, we already witnessed a flurry of big investments into retail and brand-focused marijuana stocks by the big LP's, such as Aphria's massive C$230 million acquisition of Broken Coast Cannabis in January.
And just last week, we saw Canopy Growth, the largest marijuana company in the world, buy Hiku Brands for over C$269 million to strengthen its retail and brand portfolio.
We also witnessed one of our portfolio companies, Abcann Global Inc. (TSX-V: ABCN) (OTCQB: ABCCF) make an investment into Choom Holdings Inc. (CSE: CHOO) (OTCQB: CHOOF) to help jump start Choom's retail strategy.
Shortly after Abcann made their investment into Choom, Aurora Cannabis Inc., one of the largest LP's on the planet, invested C$7 million into Choom.
"Our investment in a consumer-focused brand with a strong retail strategy offers Aurora additional growth opportunities through supply, retail and distribution to the adult consumer use market...
...Choom has established a well-developed brand, supported by deep roots within the British Columbia cannabis community and a passion for high-grade, handcrafted product. We're excited to strengthen our relationship with the team at Choom and help amplify their market reach as they continue to execute on their differentiated craft growing philosophy and their unique retail strategy." - Terry Booth, CEO of Aurora.
In other words, the smaller retail and brand-focused companies, companies such as Choom, are likely to be the targets of acquisition by the bigger players in the space.
And it's not just the big LP's making big moves.
As I mentioned in my last Letter, we'll begin to see the big institutions come to play once Legalization passes in Canada.
Via "Insider Guide to Marijuana Legalization":
"I predict that we will soon see deals - be it debt, stock, or other agreements - between marijuana companies and the big institutions following legalization."
And boy did that prediction prove true quickly.
Less than a week after Legalization passed, one of the biggest banks in Canada, the Bank of Montreal, gave Aurora a massive C$200 million debt facility, with a potential upsize to $250 million.
With that type of credit, you can bet more M&A is on the way for Aurora - especially since it just raised a whopping C$230 million a few months ago.
As you can see, the marijuana sector isn't going anywhere and still has plenty of upside.
Many of the institutions have yet to participate and I bet more will come.
The key in the near-term is to focus on the companies likely to be the target of M&A, or the LP's with strong underlying fundamentals who are playing catch up in terms of valuation.
Conclusion
As investors, our job is not to be political.
Our job is to anticipate the outcome of political events and to adjust our investments accordingly.
We have outlined how the markets could be affected as a result of the Trump tariffs.
However, that doesn't mean all of the tariffs will come into effect.
Remember, Trump - hate him or love him - is an incredible negotiator.
He starts at the extremes and negotiates his way down to make agreements.
Just look at what he's done thus far with North Korea.
Remember back in January when he said the following to North Korean leader Kim Jong Un:
"Will someone from his depleted and food starved regime please inform him that I too have a Nuclear Button, but it is a much bigger & more powerful one than his, and my Button works!"