She’s gone. The Lego-haired, science-eschewing head of Canada’s healthcare industry, Conservative Health Minister Rona Ambrose, is no longer sitting on the lid of the nation’s medical marijuana system, by virtue of an avalanche-like defeat of her party in last night’s federal election.
And that has brought a rise in the stock of some of Canada’s weedcos, though not an across the board rise, and not even a sustained one.
Big news of the day was Canadian Cannabis Corporation (OTO:CCAN, Forum) announcing it has bought out The Hydropothecary for CAN $28m. I’m certain this was done in expectation that there’d be a massive weed price rise wave the day after the election, but CCAN’s stock actually dropped 19.1% on the news, mostly because they overpaid for what is a 7k sq. ft operation with no market share, even if they do have potential on the oils front.
Oregon-based cannabis oil extractor Golden Leaf Holdings (C.GLH, Forum) opened on the CSE last Wednesday at around $0.50, and has risen quickly to a buck in the time since. This morning it jumped to $1.20 before profit-taking sucked it down another 14c or so.
Maple Leaf Green World (TSXV:MGW, Forum), which I talk about pretty much never because, meh, jumped 37.5% on no news, with large (1.5m) volume and a lot of Bullboard chatter about Trudeau’s win meaning big things for the company. Worth noting: That jump was 75% early in the day, before profit taking again set in.
That’s kind of going to be the theme for the day. Supreme Pharma’s (CSE:SL, Forum) chart looks like a ski jump right now, having been climbing steadily for the last few weeks on rumor that the firm has an inspection date in place and could be close to getting its license. CEO John Fowler is tight lipped, but uncharacteristically smiley at the moment, so something’s certainly up. But the early jump of that stock from $0.22 last night at the close to $0.25 at the next day's open was, like the others, marked with late profit-taking that, in this case, has seen SL actually fall on the day some 6.8%.
Long-suffering former top 5 placeholder Chlormet Technology (CSE:PUF, Forum), which was one of the front runners of the weed rush back in the day before the Venture Exchange trade-halted it to death while the regulators tried to figure out what medical marijuana was, got good news today in that it has moved past the MMPR security clearance stage.
Chlormet jumped 25% on strong volume early, but lost the same later as that profit taking kicked in.
Sensing a theme?
Look, it’s going to take a solid 6 months to see minimal movement on the weed front with a new government, and that movement, in the short term, is likely to be largely bureaucratic in nature. I’d expect the MMPR companies to see restrictions on marketing eased, and I’d expect Health Canada to be told to loosen up a little on the application process.
Beyond that, expect the MMPR growers to be given the chance to run dispensaries for their product, which would let them clean up the Vancouver dispensary scene by buying out the existing storefronts, rather than kicking in doors.
Full recreational use? That’ll take two years. Getting another 25 license-holders approved? That may take as long and, frankly, there’s questions as to exactly what the optimal level of license holders out there should be. If the clamps come off the MMPR business model, the existing license holders should be able to expand happily into a growing market with maybe 5-10 newbies tossed in to ensure completion. A free-for-all would only see trashbags of the stuff going to auction without a buyer, like we see in Washington State presently.
So, sure, there were plenty of folks who bought at the open today, expecting to see doubling of prices and handsome profits. But there were a lot more investors out there with existing (and underwater) holdings, looking for a chance to get their money back. That wash is now played out.
Which leaves us with ‘the future’. What will the next year hold in the weed scene?
My predictions:
- Canopy Growth Corporation (Tweed/Bedrocan) will expand their MedCanAccess storefront referral model hard. They were right on the edge of acceptability with the Rona Ambrose-steered Health Canada regime, but Tweed is a Liberal influence-heavy unit, always has been, and will be right in there helping write the new rules. Stands to reason the MedCannAccess model will be used as a guide for others.
- The ‘others’ mentioned above will not open similar centres, even if the rules become more liberal, because they’re largely out of cash and retail is a heavy cash business. Expect the cash-strapped competitors to do a lot of attempted finance-raising in the weeks ahead, only to be spurned by those on their lead list who have already done their dough. Aurora, Organigram, Peace Naturals.. Tilray? Watch them take what they can get from the only shop in town with the dollars to cover the vig.
- Pharmacan (TSXV:MJN, Forum), which is currently at war with both their financiers and their assets, will cash in. Everything must go. Worth noting, Pharmacan, which holds a 1.9% stake in Hydropothecary, is down 17.65% today, and their market cap is down to just $11.3m, almost at the level of tiny little Emerald Health Therapeutics (TSXV:EMH, Forum, formerly T-Bird), which is the runt of Canada’s weedco litter and about as likely to corner the MMJ market as my mother-in-law is. Vodis Pharmaceuticals (CSE:VP, Forum), which has no license in Canada but is a landlord for one in Washington State, has a $9.1m market cap. If you held Pharmacan back when they were at $0.60, today’s $0.17 and market comparables to a tiny unit like Vodis has got to be killing you.
- Oils will be the new battlefield. More licenses means weed gets even more commoditized than it is now. Prices will drop. Value-adds will become all the more important. Currently 'suspended in amber' Nutritional High (CSE:EAT, Forum) has been on the move lately and today showed big volume, even if the share price stayed put. Edibles, oils, extracts, this is where you should be watching closely.
- Any expansion of the weed market will come with added taxes that will be used to mollify the ‘drugs be evil’ crowd by paying for schools, drug programs, enforcement, etc.
- The diaspora of ‘unlikely to get licensed’ weed applicants to Washington State will continue, and they will make money, even if it can’t necessarily come back to Canada easily.
- Export, people. Export.
I’ve been sitting on a podcast with Canopy/Tweed boss Bruce Linton for a couple of weeks because it’s long and needs some editing and, frankly, I wanted to see what would happen in the election but expect that to land in the coming days. It’s a beauty.
The question with Canopy, above all others, for me has always been, is there value left in the stock at the current valuation? That question remains open and could be argued in either direction, but one thing I do know is that CGC will eat a lot of its competitors in the months ahead, and get good valuations in doing so.
Organigram (TSXV:OGI, Forum) has been lifting its skirt for suitors for some time, and has been rising recently on no news but lots of rumor, which you'll sometimes see ahead of a sale. Aurora (CSE:ACB, Forum) has a $4m loan and a shiny facility it needs to monetize, and former Tweed CEO and co-founder Chuck Rifici as a director. Emerald is so forgotten about that they could be selling cars right now for all anyone knows. With a $9m market cap and a square footage similar in size to Hydropothecary’s, would a $15m-20m license sale make more sense than plodding away trying to recruit three patients at a time?
The bigger question going forward will be whether the Trudeau win is a great thing for medical marijuana users (IE: the industry opens to everyone) or for CGC executives.
I’ve fielded a ton of questions all morning from other journalists who want to know what the Trudeau victory will mean for weed in this country, and that’s what it comes down to, to me. Anything that opens up the industry on the MMPR side benefits Tweed above all others.
And anything that opens it up outside the MMPR, embraces (at best) well-meaning home growers that are tough to police and (at worst) gang growers who are even tougher.
Chocolate factory or not, CGC is squeaky clean, politically connected, and has a war chest. Nobody else does.
I don't own any yet but, for the first time, CGC/Tweed smells like a buy to me.
--Chris Parry
https://www.twitter.com/chrisparry
FULL DISCLOSURE: Golden Leaf Holdings and Nutritional High are Stockhouse Publishing marketing clients. The author is a consultant to GLH and holds a stake in the company, which he is very happy about.
Please do your own due diligence.