Buzz on the Bullboards: Cannabis takes a hit

Cannabis stocks have been on a tear in recent months. After several months of share price consolidation, many/most companies took off as Halloween approached. Even some of the larger cap cannabis companies rose by multiples of their previous share price.

Then, on January 4, 2018, U.S. Attorney General Jeff Sessions introduced a significant speed-bump for the sector. The U.S. federal government has, he announced, rescinded what is known as “the Cole memo”. This was a quasi-official directive from the Obama administration that stated that U.S. states would be given latitude to regulate cannabis use as they saw fit.



Abolishing these guidelines, along with the harsh rhetoric from Sessions, has created almost complete uncertainty regarding cannabis legalization/regulation – South of the Border. Here in Canada, this announcement has no impact on Canadian regulation of the sector.

What will be of interest to cannabis investors, and market observers in general, is that all cannabis stocks have taken a significant hit since the Sessions broadside, including companies with no exposure at all to the U.S. cannabis sector.

Why?

One explanation is that predatory short-sellers saw the Sessions announcement as an ideal catalyst to attack cannabis stocks, sector-wide. The alternative explanation is “profit-taking”. Given the magnitude of the retreat for these stocks, and the coordinated manner in which they all plunged, that explanation might appear thin to some investors. On the other hand, as tax season approaches, some investors may have felt compelled to increase their liquidity.

Has anything really changed in the sector? In Canada, no, nothing at all has changed. However, even in the U.S., pundits who cover this sector are virtually unanimous that this will not halt the evolution of cannabis laws in the U.S., only delay this movement through the introduction of considerable legal uncertainty.

Naturally, this sudden cannabis pullback has been the prime topic of discussion on the Stockhouse Bullboards over the past week. A look at today’s Top-10 leaders bears this out.



In top position, as it has been for much of the past couple of months is recent high-flyer, Aurora Cannabis Inc. (TSX: ACB, OTCQB: ACBFF, Forum). After soaring from roughly $3 per share to close to $15, on Friday ACB hit an intraday low of $9.61 – a full 1/3rd pullback from its recent all-time high.


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Right behind Aurora is a group of other cannabis listings, starting with Canopy Growth Corp (TSX: WEED, OTCQB: TMWJF, Forum). Another industry leader, WEED’s share price ran from under $13 per share to its new all-time high of $44.00. Friday, it hit an intraday low of $30.40.

The story is similar for the next several names on the Top-10. Aphria Inc. (TSX: APH, OTCQB: APHQF, Forum), Namaste Technologies Inc. (CSE: N, OTCQB: NXTTF, Forum), and Cannabis Wheaton Income Corp. (TSX: V.CBW, OTCQB: CBWTF, Forum) have all seen significant retracements after sharp run-ups.

However, Stockhouse remains a site with plenty of devoted resource investors as well. In the #6 position is a newcomer to the Top-10: Sonoro Energy Ltd. (TSX: V.SNV, OTCQB: SNVFF, Forum). SNV spiked this week from $0.10 on January 10, 2018 to its new 52-week high of $0.45, before trading down back below $0.40. Encouraging news on drilling and licensing is the catalyst here.

Behind Sonora is another cannabis company: Friday Night Inc. (CSE: TGIF, OTCQB: SNVFF, Forum). TGIF is based in Las Vegas, so this is a cannabis company that is directly affected by the Sessions announcement. As a number of U.S.-based companies have done, Friday Night has issued its own press release to comment on this new development. Included in the language is the following excerpt.

While the recent memorandum adds uncertainty in removing the Cole memo guidelines, Friday Night believes that given the lack of direction in the memorandum and the support of the Trump administration of states’ rights, the authorities will defend the states' rights to regulate, not criminalize cannabis. Friday Night considers it unlikely that local federal prosecutors will take action in those states where the legalization of cannabis has been implemented as a result of a majority vote of the state's electorate or by an act of the respective state's legislature. There may be action taken against those who are acting outside state regulations, and this type of enforcement is only beneficial to those businesses operating within local regulations.

While we can expect cannabis companies to seek to produce a favorable spin on the obstructionist position of the U.S.’s federal government, the language here is similar to what has been produced from many independent pundits commenting on this news.

Rounding out Friday’s Top-10 are (surprise! Surprise!) three more cannabis companies: Newstrike Resources Ltd. (TSX: V.HIP, OTCQB: NWKRF, Forum), Isodiol International Inc. (CSE: ISOL, OTCQB: ISOLF, Forum), and Matica Enterprises Inc. (CSE: MMJ, OTCQB: MQPXF, Forum).

The Sessions controversy is also a popular topic with these cannabis companies. However, ISOL has made frequent appearances in the Top-10 as investors digest a flurry of acquisitions. Meanwhile, HIP has been in the news as a result of the pending acquisition by CanniMed Therapeutics Inc. (TSX: CMED, OTCQB: CMMDF, Forum).

The “genie” cannot be put back in the bottle concerning cannabis Prohibition. It is now becoming widely known that cannabinoids (the active ingredients in the cannabis plant) are good for us. They are even produced naturally within the human body (known as endocannabinoids). “War on Drugs” anti-cannabis propaganda has now been discredited amongst a majority of both the Canadian and U.S. populations.

On both sides of the border, solid majorities back the regulated use of cannabis. Canada is committed to full legalization. In the U.S., nearly every state provides some sort of legal access to medical marijuana. Eight states have authorized full recreational use, and these states are already on the record in stating that they will defend their constitutional authority to enact such legislation.

Cannabis stocks had a huge run-up over a two-month span, accelerating right into the New Year. For many analysts, the sudden consolidation in these stocks is a welcome pullback. Just like over the summer, it is such retracements that build the base for the next leg higher.


FULL DISCLOSURE: Friday Night Inc., Isodiol International Inc., Matica Enterprises Inc., and CanniMed Therapeutics Inc. are paid clients of Stockhouse Publishing.