Adapting to Changing Market Conditions and 16 Stories from New Cannabis Ventures

This is a copy of the November 4th edition of our weekly Newsletter, which we have been publishing since October 2015.


Despite the weakness in the sector over the past few weeks, Origin House, formerly CannaRoyalty, powered to an all-time high on Thursday and then extended it Friday, leaving the stock up 151% so far in 2018. We were impressed with the company’s decision to overhaul its business model in late 2017, moving from being primarily a passive investor to becoming  an operator and to focusing geographically on primarily California. The company acquired several brands and a leading distribution company, RVR, and the story has resonated with investors. Kudos to the management team for having the vision and courage to take their relatively new story in what it saw as a better direction just a year after the company began trading publicly.

Privately-held ebbu in Colorado made a strategic decision to double-down on its intellectual property development, giving up its Colorado licenses, a move that paid off handsomely with the acquisition announcement recently, with Canopy Growth to buy the company for C$25 million and 6.22 million shares, with the ability to earn up to an additional C$100 million on milestone achievements. This is a good example of how companies can benefit by reading the market and adapting their business models.

In Canada, we are seeing many examples of companies adapting to changing market conditions. Aphria, long a proponent of growing by greenhouses located only in Leamington, Ontario, pivoted somewhat earlier this year, buying an LP with strong appeal to enthusiasts, Broken Coast, and positioning itself for upcoming legalization with high quality cannabis produced indoors in British Columbia.

Another example of Canadian LPs adapting to changes are the moves by Cronos Group and Organigram to invest in technology to develop cannabinoids from yeast-based natural methods, a process called biosynthesis. The technology not only has the potential to dramatically lower the cost of production for the ingredients for extracted products and edible but  also could make the production of rare cannabinoids more feasible, opening the pharmaceutical market. Cronos Group agreed to fund research and to issue shares to a well-funded Boston-based biotech company with domain expertise, Gingko Bioworks, while Organigram invested in Hyasynth and obtained the right to purchase a portion of the company’s supply.

For smaller LPs that haven’t yet reached scale, many are realizing that their capital previously raised for production capacity expansion may no longer make sense. Emblem announced a wholesale supply deal with Aphria in September that begins in May and will enable it to purchase up to 175K Kg over five years. The move allowed the company to curtail  its own expansion and to focus on innovation and developing new products for the medical and consumer markets.We expect to see the Canadian LPs become less vertically integrated over time, and we are aware that several LPs are purposefully pursuing asset-lite strategies that include just minimal internal production of cannabis. We have also seen several LPs opt to outsource some or all of their processing to other LPs, like MediPharm Labs.

New Cannabis Ventures will be hosting a webinar with Emblem CEO Nick Dean on Wednesday, and this will be a great opportunity for our readers to learn more about the company’s strategic move to partner with Aphria, its recent partnership to enter the German market and several other developments that have taken place in his first year of leadership as he has adapted to the evolving markets in Canada and globally.

New Cannabis Ventures publishes curated articles as well as exclusive news. Here is some of the most interesting business content from this week:

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Alan & Joel

Exclusive article by Alan Brochstein, CFA
Alan Brochstein, CFA
Based in Houston, Alan leverages his experience as founder of online community 420 Investor, the first and still largest due diligence platform focused on the publicly-traded stocks in the cannabis industry. With his extensive network in the cannabis community, Alan continues to find new ways to connect the industry and facilitate its sustainable growth. At New Cannabis Ventures, he is responsible for content development and strategic alliances. Before shifting his focus to the cannabis industry in early 2013, Alan, who began his career on Wall Street in 1986, worked as an independent research analyst following over two decades in research and portfolio management. A prolific writer, with over 650 articles published since 2007 at Seeking Alpha, where he has 70,000 followers, Alan is a frequent speaker at industry conferences and a frequent source to the media, including the NY Times, the Wall Street Journal, Fox Business, and Bloomberg TV. Contact Alan: Twitter | Facebook | LinkedIn | Email

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