Chalice Brands Ltd CHALF

Writing this from Humboldt County :)

[doobiebaby]

Currently in the Red Wood forest and wrote this to a friend this morning asking me my thoughts on the Canadian and US cannabis markets:

Politics is indeed getting in the way of good business.  And the countries that meddle with the markets and manipulate them will ultimately fail to be all that successful in this space.  So far I would say that Canada has lost its lead in terms of creating policies that will allow for economic advantages.  It has created policies that are highly restrictive in terms of branding and product innovation in an attempt to satisfy the more conservative demographics of society.  This is not necessarily a bad thing for the Canadian society as a whole, but I believe that these restrictive policies are going to hurt Canada’s business chances of incubating companies that can stand the test of time and effectively handle international competition.  I have seen how the States has gone about this with my own eyes.  They are letting businesses compete head to head and allowing the weakest to die and the strongest to get stronger.  I believe that these companies will be the one’s that are going to take on the world because they are being forged in the fire of free market competition.  I hardly have any money left in Canadian companies.  Here is how I think things may play out:

 

1.  Canada is going to have an over supply of cannabis in no time at all.  And the main reason it is going to have an over supply is because the regulations that have been established will allow the black market to stay strong in Canada for a very long time.  Based on the regulations I do not believe that the legal market will out sell the black market for at least the next 3 years and maybe 5-10 years if the regulations are not improved.

2.  Because Health Canada has issued so many licenses and such large licenses in terms of grow potential there is going to be a glut I believe within 1 year of legalization.  I believe the glut is now well understood by many following this industry and the press around this oncoming glut is going to tank the prices of many of these stocks.  And I believe that the biggest are potentially going to be the most effected because they are built for large scale and will have difficulty selling more than their fair share to provincial governments who will be spreading their buying around in an effort of not showing too much favouritism to one or two.  The big firms like ACB and WEED need international markets for their cannabis to get themselves out of this over supply mess.  And the problem with international opportunities is that they are not coming on stream soon enough.  Germany’s RFP process has stalled twice and is not expected to be finalized until mid 2019 now.  With Canadian LP international aspirations thwarted there are going to be two problems.  Problem #1 is obviously too much to sell and not enough buyers.  Problem #2 will be the international investments which have cost a fortune and which no revenues and certainly no profits will be seen for a very long time.  And what I have been observing is that as the competition has been heating up these execs have been making worse and worse decisions.  Desperate people do desperate things and I believe some truly horrible business decisions may be coming to the Canadian space.

 

And I believe the issues you raise with the US are valid.  The only difference is that the US by its very nature is more capitalistic in its nature which leads to more capitalistic policies.  And I believe that there are many folks on Wall Street that have watched Bay Street and think…let’s crush these Canadians.  I believe that they think its stupid that Americans are tapping Canadian public markets for capital and its time to put an end to it.  There have been a number of high profile IPOs in the past few months (MedMen and Green Thumb Industries) and there are more expected by the end of 2018 (Acreage and recently announced Harbourside).  Acreage will be another billion dollar IPO and Wall Street I think has had enough of this sh*t.  The other thing that is happening is that existing companies like GLH and some others that diluted themselves to buy licenses are finally showing an uptick in revenues and cash flows.  These companies are beginning to emerge from the primordial soup of competition among mom and pops and are well positioned to continue growth.  Bottom line…I believe America is where it is at because the market is so large and the regulations are already way better in the legal States than what Canada has coughed up.