An Important Liquidity Dynamic and 11 stories from New Cannabis Ventures

This is a copy of the August 26th edition of our weekly Newsletter, which we have been publishing since October, 2015.


Trading volumes exploded this week for the Canadian LPs, as investors continued to dive into the market following last week’s announcement of the C$5 billion investment by Constellation Brands into Canopy Growth, as speculation heats up regarding other cross-industry and/or cross-border investments into the sector. Reports Friday that alcohol giant Diageo is on the prowl acted as gasoline on the proverbial fire.

The three largest names on the TSX saw dollar volumes in excess of C$250 million on Friday. Canopy Growth averaged almost C$650 million per day during the week, just on the TSX. What is even more remarkable, though, is the U.S. volume for the three LPs with listings on the NASDAQ or NYSE, Canopy Growth, Cronos Group and Tilray.

During the week, the U.S dollar volume exceeded the Canadian volume for Cronos and Canopy Growth. In fact, on Friday, the total trading value of the three names was just above US$1.8 billion, with Canopy Growth accounting for over US$1 billion. It is clear that U.S. traders are piling in to the names that have NYSE or NASDAQ listings.

Cannabis stocks on major U.S. exchanges remain in an exclusive club. In addition to the three LPs, Innovative Industrial Properties and GW Pharma trade on the NYSE and NASDAQ, respectively, as do some other companies that aren’t pure-play, including 22nd Century Group, Scotts Miracle-Gro and Alliance One International. We expect the club to get bigger, and this may negatively impact the three LPs, as their valuations seem to be boosted a bit by their listing status.

Two obvious choices for moving from the OTC to a higher exchange are Aphria and Aurora Cannabis. Other TSX-listed companies like CannTrust, Green Organic Dutchman and Hydropothecary are likely to do the same. Several companies have publicly disclosed that they are in the process, including CV Sciences, Namaste Technologies and Sunniva (the Canadian spin-out).

It remains to be seen if the exchanges will allow ancillary companies like GrowGeneration or Kush Bottles to list, though we note that a SPAC (Special Purpose Acquisition Company) that intends to operate in the ancillary cannabis space, MTech Acquisition Corp., conducted an IPO earlier this year and trades on the NASDAQ. We think it’s more likely that this sub-sector will have success in this regard than companies that operate directly in the industry.

To summarize, U.S. investors appear to be piling into a small group of cannabis companies that we expect to get larger in the near future. Investors might want to factor this in, as the diminished scarcity value could pressure some stocks, while the larger audience could benefit some others.

Canndescent cultivates ultra-premium cannabis flower, productizing and curating it for the California, adult-use market. To learn more, visit the company’s page on New Cannabis Ventures and click the green Get More Info button.

Canndescent has established itself as a category thought leader and as the leader in luxury cannabis marketing. Raising it’s $5.5M seed round in 2016, the company closed 2017 as the #1-selling brand of cannabis flower in California according to BDS Analytics. Canndescent operates two cultivation facilities in Desert Hot Springs, CA and has its third facility and an extraction lab under construction.

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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